China’s ZTE Pays $1 Billion in Penalty Deal to the U.S. to Stay in Business

China’s telecommunications giant ZTE will remain in business thanks to a recent deal between the U.S. and China. 

After the telecom company was caught violating U.S. sanctions by working with Iran and North Korea, the U.S. Department of Commerce signed an order in April barring U.S. companies from selling software to ZTE for seven years. 

For the last two months, ZTE was basically shut down and was forced to halt the production of its smartphone products. 

In mid-May, President Donald Trump said that the Commerce Department was working on an agreement to get ZTE back in business.

“President Xi of China, and I, are working together to give massive Chinese phone company, ZTE, a way to get back into business, fast. Too many jobs in China lost. Commerce Department has been instructed to get it done!” tweeted Trump. 

Then last week, the U.S. and China stroke a deal to bring ZTE back from the dead, at least for now. 

“The agreement requires ZTE to pay a $1 billion fine and allow U.S. enforcement officers inside the Chinese company to monitor its actions, Commerce Secretary Wilbur Ross said Thursday. In return, ZTE can resume buying components from U.S. suppliers that it needs to make smartphones and build telecoms networks,” writes The Wall Street Journal. 

As part of the agreement, ZTE will be changing its management and its board and the company will lose $400 million that is in escrow if the agreement is violated. 

“We still retain the power to shut them down again,” said Ross.

“One surprise in the long-mooted deal is the requirement that a U.S. compliance team be embedded in ZTE. Mr. Ross said it would be staffed by Chinese-speaking U.S. agents and report to ZTE’s new management as well as the Commerce Department. The compliance team will stay with ZTE for 10 years. An outside compliance team is already in place at ZTE under the terms of its settlement last year,” writes the WSJ. 

“We will closely monitor ZTE’s behavior,” said Ross in a statement. “If they commit any further violations, we would again be able to deny them access to U.S. technology as well as collect the additional $400 million in escrow.”

But several lawmakers are questioning why the Trump administration offered the company the deal after they violated U.S. sanctions. 

“The Trump administration is giving ZTE and China the green light to spy on Americans and sell our technology to North Korea and Iran, as long as it pays a fine that amounts to a tiny fraction of its revenue,” said Sen. Ron Wyden (D-Ore.)

But this latest move by Trump appears to be part of a larger plan to strike better trade deals with China, that Ross has been involved in.

“U.S. President Donald Trump met with his trade advisers on Tuesday to discuss China’s offer to import an extra $70 billion of American goods over a year in hopes of defusing a potential trade war between the world’s two largest economies,” writes Reuters. “Ross said on Sunday he had been having frank, useful talks in China about exports, as Washington presses its message to Beijing about structural economic changes amid the festering trade dispute.”

Author’s note: It’s important to mention that this is the same company that has also been accused of rigging their phones so the Chinese could spy on the U.S. But the ZTE’s shutdown proves how dependent the Chinese are on the U.S. market for their wealth. Having the new U.S. compliance team on site will help to ensure they stay under control and will also set a precedent for similar actions with other countries.