ZTE back in business as Commerce technology ban suspended

The U.S. Department of Commerce today announced it has suspended the ban it imposed on ZTE that denied the Chinese company access to U.S. technology. ZTE deposited $400 million in escrow in a U.S. bank, fulfilling the last of its financial obligations under the agreement reached June 7 through which ZTE would regain access to the technology essential to the construction and maintenance of many of its products. The company effectively shut down shortly after the ban was imposed April 16.

The U.S. Department of Commerce today announced it has suspended the ban it imposed on ZTE that denied the Chinese company access to U.S. technology. ZTE deposited $400 million in escrow in a U.S. bank, fulfilling the last of its financial obligations under the agreement reached June 7 through which ZTE would regain access to the technology essential to the construction and maintenance of many of its products. The company effectively shut down shortly after the ban was imposed April 16.

The company will restart business with a new leadership team, as replacement of the company’s board of directors and dismissal of everyone with a title of senior vice president or above was another obligation under the new agreement. ZTE management now faces the challenge of restarting operations and digging out of the financial hole the ban and subsequent shutdown created. ZTE revealed today that it expects to report a loss of RMB 7 billion to RMB 9 billion ($1.05 billion to $1.34 billion) for the first six months of this year. The company earned a profit of approximately RMB 2.29 billion ($340 million) during the same period last year.

The Commerce Department and its Bureau of Industry and Security imposed the ban after it was determined that ZTE hadn’t complied with a disciplinary agreement reached last year, then lying about it (see "U.S. Commerce Dept. finds ZTE violated export disciplinary agreement, bans U.S. component supply"). The first disciplinary agreement was reached in March 2017 when the Chinese company admitted it had exported telecom gear containing U.S. technology to Iran and North Korea, two companies to which export of such U.S. technology was forbidden (see "ZTE admits guilt, settles export squabble").

That first agreement included provisions for a seven-year ban on access to U.S. technology, which the Commerce Department triggered this past April. The new agreement includes a 10-year ban, which now stands suspended. Between the $892 million penalty paid as part of last year’s disciplinary action and the $1.4 billion it just paid (including the escrowed money, which will return to ZTE at the end of the current agreement’s 10-year duration if the company complies with all terms), ZTE’s export trouble has cost it nearly $2.3 billion in fines.

“While we lifted the ban on ZTE, the Department will remain vigilant as we closely monitor ZTE’s actions to ensure compliance with all U.S. laws and regulations,” said Commerce Secretary Wilbur Ross. “Three interlocking elements – a suspended denial order, the $400 million in escrow, and a compliance team selected by and answerable to the Department – will allow the Department to protect U.S. national security.”

Meanwhile, a cloud remains on ZTE’s horizon. Senators opposed to the ZTE deal succeeded in attaching language to a defense authorization bill that would re-impose the technology access ban. The language must survive reconciliation between the Senate and the House of their different versions of the bill (the House version does not address the ban) before President Donald Trump would have to decide whether to veto the bill or escalate tensions with China by signing it and putting the ban back in place.

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