Back in April, as punishment for continued violations of a previous export ban settlement with the US, the US Department of Commerce’s Bureau of Industry and Security enacted a denial order against ZTE. The order effectively cut off the company off from receiving most US technology, and as a result of this ban, ZTE’s operations, which heavily relied on importing both hardware and software from the US, ground to a halt, putting the future of the company in doubt. However ZTE’s immediate woes now appear to be coming to an end; the Bureau of Industry and Security and ZTE have come to an agreement that will see the US tech ban suspended in return for a massive settlement, leadership changes, and allowing significant & ongoing US oversight of the company’s compliance.

Under the terms of the settlement, ZTE is paying an immediate $1B fine, on top of the existing $892M in fines they’ve already paid related to their misconduct in this case. Furthermore the company will have to completely clean house on its executive team and board of directors, replacing all of the members in both of those groups. Meanwhile to ensure ongoing compliance, ZTE is being required to put a further $400M in escrow, which would be forfeit if they violated US export regulations again. And the company will be required to host and pay for a US-selected compliance team that will oversee the company’s compliance over the term of the agreement.

In return, the US will be suspending – but not removing – the US technology export ban that has caused the company to grind to a halt to begin with. This would allow the US to quickly re-instate the ban if ZTE violates the terms of the 10 year agreement. Overall this an unprecedented agreement with the BIS in both the size of the fines and the overall scope of the compliance monitoring.

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. This includes once again being able to receive Qualcomm SoCs and the Android OS for their smartphones, along with the numerous components used in their networking gear.

There are also some political ramifications to this deal – which are outside the scope of AnandTech’s purview – but as the New York Times notes, many see this as part of a larger peace offering in ensuring a new trade deal between the US and China.

Source: US Department of Commerce

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  • 1prophet - Sunday, June 10, 2018 - link

    That is a false equivalence, because The British rarely accorded outsiders the privilege of touring their cotton plants,

    as opposed to the US corporations who actively built manufacturing plants and transferred much of the necessary infrastructure and manufacturing know how to China in order to save on labor, environmental regulations and other associated costs that would have been incurred by keeping production stateside,
    in effect greatly contributing to to the transfer of technology in no small part due to their own greed, if they actually followed the British example of keeping their manufacturing technology secret and domestic you would have far less problems with IP theft but also less profits for the 1%.

    One example of many were US firms thought they can exploit the cheaper Chinese manufacturing costs for the actual product while keeping the designs and IP stateside indifferent or to ignorant from greed to realize that keeping actual production stateside is a much greater deterrent than some Chinese law that they hoped will protect them if their Chinese partner decide to dump them and sell the actual product direct.

    "Their strategy was to kill us" explained CEO Daniel McGahn in an interview with CNN.

    In 2007, American Superconductor started doing business in China. The company partnered with Sinovel, which manufactured the wind turbines. American Superconductor made the technology that powered the turbines.

    The venture turned AMSC into a billion-dollar business. It built a factory in China, set up a design center in Europe and added hundreds of jobs in China and in the United States.

    In March of 2011 it all began to unravel.

    McGahn says Sinovel owed American Superconductor about $70 million for a shipment it had already received. Sinovel refused to pay, and it also refused another shipment that was ready to go.

    American Superconductor's stock price halved almost overnight, losing nearly a billion dollars in shareholder equity. It was forced to cut 700 jobs over time. "
  • Reflex - Friday, June 8, 2018 - link

    I and a lot of others believe that the Chinese government investment in Trump interests is related because of both the timing and the pattern of foreign policy routinely changing when The Trump Organization has its interests on the line. There are also the threats TTO has made in Panama for an unfavorable decision.

    It is very rational at this point to assume that policy decisions, both foreign and domestic, have at least some relation to his business interests more often than not.
  • Manch - Friday, June 8, 2018 - link

    Zero Tolerance is what got them cut off to begin with. With this deal, he now has his thumb on power switch for the second largest Chinese telecom for the next 10 years. That's a lot of leverage for the US.
  • close - Friday, June 8, 2018 - link

    Eh... So and so. The US still relies heavily on cheap manufacturing in China or in other Asian countries under Chinese political influence. What the US did is a negotiating tactic but in no way a silver bullet.

    Between Chinese hacking and manufacturing there's plenty of leverage on that side also.
  • Manch - Monday, June 11, 2018 - link

    Yes, lots of cheap stuff from China, but nothing the US can't survive without or source elsewhere. Not saying doesn't have any leverage. Far from it. But, most highend tech isn't fabbed there for a reason. Don't take my comment in a bubble. It was a reply to another comment.
  • Hereiam2005 - Thursday, June 7, 2018 - link

    So the whole thing was an extortion racket?
  • fteoath64 - Friday, June 8, 2018 - link

    Technically yes. Politically, just a normal day's job. Ethically, Trumpian what else ?.
  • Yojimbo - Friday, June 8, 2018 - link

    Trump isn't a genius that invented the idea of sanctions, fines, and political wrangling, neither from a practical nor an ethical point of view. I do wonder what your ethical views are, though, on destroying the jobs of 70,000 people because of the actions of a few of their bosses when there is another way.
  • 29a - Friday, June 8, 2018 - link

    The too big to fail argument.
  • ToTTenTranz - Friday, June 8, 2018 - link

    ZTE's 2017 profits were around $720 million.

    A $1.4B fine means 2 years of all profits going down the drain, plus the amount they lost by closing down for almost a month, plus paying for the US-assigned team of auditors that will be breathing down their necks for 10 years (which some have been claiming will amount to another ~$200M.)

    If this isn't a harsh punishment then I don't know what would have been.

    And then on the news and social media all we see is either "Trump is selling out to China" or "Trump is extorting these poor chinese".
    Which one is it, people?

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