Commerce Secretary Ross confirms ZTE deal

U.S. Commerce Department Secretary Wilbur Ross revealed on CNBC’s “Squawk Box” program that his team and ZTE had concluded a deal that would lift the ban on ZTE’s access to U.S. technology. The deal requires ZTE to pay $1 billion in fines, put another $400 million in escrow against future potential violations, replace its current senior leadership team and board of directors, and accept and pay for the placement within the company of a team chosen by the U.S. that would monitor and report on ZTE’s compliance going forward. The team would report jointly to the Commerce Department’s Bureau of Industry and Security (BIS) as well as ZTE’s new chairman.

The new agreement, which the Commerce Department subsequently announced will run for 10 years, gives the department the right to re-impose the technology ban if ZTE fails to comply with the deal’s terms. The Commerce Department announcement did not include a time frame in which ZTE must set the building blocks of the agreement in place but did say that ZTE must perform the financial transactions before the technology access ban will be lifted. CNBC reports that ZTE has 30 days to replace its management and board. The deal’s parameters are in line with those discussed in earlier reports of the negotiations (see, for example, “Deal reached to rescind ZTE Denial Order”).

“We think this settlement…should serve as a very strong deterrent not only for them but for other potential bad actors. So that’s why I’m very, very happy with this arrangement,” Secretary Ross said on the program.

ZTE ceased major operations shortly after the Commerce Department issued the Denial Order April 16 (see “U.S. Commerce Dept. finds ZTE violated export disciplinary agreement, bans U.S. component supply” and “ZTE: ‘Major operating activities of the Company have ceased’ due to BIS component ban”). It had not issued a statement in the wake of the agreement’s announcement as of early afternoon Eastern Time. The Commerce Department began looking into alternatives to the technology ban at the request of President Donald Trump, who responded to Chinese government entreaties in the run up to trade negotiations between the two countries (see "Trump tweets support of lifting ZTE ban").

Members of Congress criticized the announcement. “The President just caved on a deal with ZTE, a Chinese company that our intelligence professionals say poses a national security threat. Is the President so desperate for a deal — any deal — that he is willing to put Chinese jobs ahead of our national security?” tweeted Representative Adam Schiff (D-CA), Ranking Member of the House Intelligence Committee, in one example.

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