In response to this situation, the U.S. government chose to prohibit the companies of that country for seven years to purchase components of the Chinese corporation, a measure that forced ZTE to temporarily cease its activities in the cell phone sales market.
As it stands, one of China’s leading telecommunication’s companies is banned from using suppliers in the United States for seven years, forcing the group to close down operations at its Shenzhen factory following the US Commerce Department ruling.
The decision amounted to a death sentence to ZTE, which relies on USA parts and which announced that it was halting operations.
The company will also need to put $400 million into escrow, money that will be reserved in case ZTE violates the new agreement.
Moreover, the U.S. Commerce Department is expected to count the $361 million ZTE paid previous year as part of a settlement agreement, which will allow the government to claim no less than $1.7 billion in penalties.
Over the weekend, ZTE signed the agreement drawn up by the U.S., the sources said, but the amended settlement has not been signed.
ZTE’s return to the USA market is good news for several American companies.
It had been speculated that any deal could be scuppered by resistance from both Democrats and Republicans in US Congress, who believe Trump is bowing to pressure and that ZTE could be a possible threat to national security.
“We do not believe ZTE will need to immediately raise any debt or equity financing to fund the cash penalty”, said Jefferies. The two countries have threatened to impose tariffs on up to $200 billion worth of each other’s products in a dispute over China’s tactics to supplant US technological supremacy, including demands that USA companies hand over trade secrets in exchange for access to the Chinese market. Earlier this month, Trump announced he wanted to help ZTE, as part of negotiating a trade deal with China.
“Today, [U.S. Commerce Department’s Bureau of Industry and Security] is imposing the largest penalty it has ever levied and requiring that ZTE adopt unprecedented compliance measures”, said Secretary Ross. It’s not clear that Congress can do anything to stop the deal, though a bipartisan group of senators has signed on to legislation that would make it more hard for ZTE to operate in the U.S. Meanwhile, on the business side, some U.S. companies got a boost from the announcement.
ZTE and Huawei have been linked by US intelligence agencies to electronic spying by Beijing, the Free Beacon reports. This means that they could be fined up to $1.7 billion in total.
ZTE will also be required by the new agreement to retain a team of special compliance coordinators selected by and answerable to BIS for a period of 10 years.
The suppliers include Qualcomm, Broadcom and Intel, as well as smaller optical component makers Acacia Communications and Oclaro.