The battle between ZTE Corp and the U.S. Department of Commerce is coming to an end. They have signed an agreement that once ZTE deposits $400 million into an escrow account, the ban of U.S. will be officially lifted and the production will be fully restored. After the ban is lifted, ZTE, which has about 80,000 employees, is expected to restart its main business.
— U.S. Commerce Dept. (@CommerceGov) July 11, 2018
The U.S. ban was implemented in April this year, causing ZTE to stop its main business. Washington attorney Douglas Jacobson said, who represents ZTE suppliers,“Today’s announcement marks the beginning of the end of this long-running saga.”
The agreement is part of a $1.4 billion settlement between ZTE and the U.S. Department of Commerce last month to regain the right to do business with US suppliers, whose components are the necessary parts of ZTE’s smartphones and network devices. If ZTE violates the latest agreement again, the United States could seize the $400 million in the escrow account.
Earlier, ZTE illegally delivered U.S. products and technology to Iran, in violations of US sanctions. Although it later reached a settlement with the U.S. Department of Commerce, ZTE violated the agreement again and caused the U.S. supply ban. The terminal products such as smartphones require a large number of chips, including processors, graphics cores, network chips, and most of the chips are supplied from the United States. The ban on the supply of U.S. products to ZTE means that it will not be able to produce a variety of products including smartphones. U.S. suppliers are also very concerned about the production recovery of ZTE. Last year, ZTE spent $2.3 billion on components procurement from more than 200 U.S. companies, including Qualcomm Inc, Intel Corp, Broadcom Inc and Texas Instruments Inc.
The U.S. Department of Commerce stated that the ZTE ban is a law enforcement action and unrelated to broader trade policies (trade war). “The ZTE settlement represents the toughest penalty and strictest compliance regime the department has ever imposed in such a case,” the Department of Commerce said. But it’s generally thought that this ban has been one of the root causes of trade friction between the United States and China.
Affected by the incident, ZTE’s stocks shrank by around 70% compared to the peak at the end of last year. ZTE has also expressed its determination to resume production after replacing the top management, but the future prospects are still inconclusive. After all, this punishment has caused ZTE to be very passive in the area of smartphones. The ZTE incident does not represent the overall appearance of Chinese companies, but it is a mirror for them. Chinese companies must further alert to the necessity and urgency of innovation and firmly grasp the core technology in their own hands.