ZTE Signs Preliminary Agreement With Commerce Department To Lift US Ban

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After much negotiation with the Trump Administration, Secretary of Commerce Wilbur Ross confirmed this morning that ZTE, the Chinese telecommunications giant, has agreed to a $1 billion fine.

The immediate ramifications of this deal are that although ZTE is becoming cash-poorer, this will allow them to resume day-to-day business operations and get the business moving again. Reuters reports U.S Commerce Department ban on ZTE is likely to be lifted although " no definitive agreement has been signed by both parties" just yet.

"Now, if they do violate it again, in addition to the billion dollars they're paying us right up front, we have them put $400 million in escrow so the total deal is a billion 400 million", Ross said.

In addition to the fine, a compliance team chosen by the United States will be embedded at ZTE and the Chinese company must change its board and executive team.

Following the ban on selling USA -made hardware (and potentially software) to ZTE earlier this year, it appears that the company may have reached a compromise with the US government, according to Reuters.

Under the deal, ZTE must retain a compliance team selected by the Commerce Department for 10 years.

ZTE's survival has been a topic of discussion in high-level US-China trade talks. ZTE also exported similar material to North Korea.

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But the deal came under fire from Senator Chuck Schumer, who accused President Trump of shooting "blanks" at China while aiming his trade fire at allies such as Europe and Canada.

And last week, the Daily Beast reported that a day after the president said he wanted to help ZTE, the tech company hired the Mercury Public Affairs firm to lobby on its behalf in Washington.

The terms of the deal include a $1 billion penalty against ZTE and dictate that the company install a USA chosen compliance team.

Ross said in an interview with CNBC that the agreement includes a $1 billion fine against ZTE, which he called the "strictest and largest settlement fine that has ever been brought by the Commerce Department against any violator of export controls".

Over recent weeks, the Trump administration has held talks with officials in Beijing to save the telecom company. ZTE has been one of the most affected companies but is close to signing an agreement to continue its collaborations with US-based technology companies, such as Qualcomm. The Pentagon earlier this month ordered retail outlets on USA military bases to remove from the shelves smartphones made by the two companies.

Shares of Acacia and Oclaro extended their gains on Tuesday in heavy trading after news of the preliminary deal, ending up 1.7 percent and 1.8 percent, respectively.

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