The US Commerce Department signed an agreement with ZTE Corp. that will help ease the restrictions on the Chinese firm that prevented it from doing business with American companies. Under the contract, ZTE will have to transfer $400 million as reserves into an escrow account.
This move was made in exchange for freeing the company from hefty penalties and following this, ZTE will not face restrictions in doing business with US companies. The agreement comes with a couple of other conditions which include the payment of a $1 billion-fine, the replacement of its board of directors and management, and the monitoring of the business by US compliance officers.
In addition to these, ZTE will face a suspended ban for another 10 years. The $1 billion fine is in addition to a penalty in a similar amount paid by the company last year. ZTE was handed out the export ban for violations of trade sanctions and for misleading investigators about its business practices.
The Trump administration stepped in to help ZTE after the export ban nearly crippled its operations. The US and China have been facing trade tensions for a while now. It was previously believed that the effort to help out ZTE might play a small part in smoothening things out with China but at present, the trade tensions appear to be getting worse in light of the tariff situation.
The Commerce Department, however, has said that the ZTE matter has nothing to do with the government’s trade policies. President Trump said it was better to allow ZTE to resume its operations as it would help protect American jobs. This decision has not gone down well with several lawmakers who believe ZTE is still likely to be a threat to the US in terms of intelligence and intellectual property.
The Commerce Department believes ZTE is facing some of the toughest punishments that can be given out in situations like this and these measures would prove daunting enough towards anybody who tried to cause harm to the US.
Even after the ban is lifted, ZTE has a lot of work to do to get its operations up and running, and its upcoming financial results are likely to see the impacts from these penalties for one or two quarters. ZTE’s shares were suspended on the Hong Kong exchange following the export ban in April and even though trading recommenced in June, the stock has lost a lot of its value. However, on Thursday, following the news of the potential lift of the export ban, ZTE shares rallied 25%.
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