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Tech stocks gain as USA confirms ZTE deal

08 June 2018

Secretary of Commerce Wilbur Ross said in a press release, "We will closely monitor ZTE's behavior".

Ross, speaking on CNBC on Thursday, said that ZTE also must put $400 million in escrow, which will be forfeited if there are any violations of the agreement.

According to the Commerce Department, ZTE will be required to pay a $1 billion fine, is replacing its management, and will submit to oversight from the U.S. Commerce Department in order to be relieved of the crippling punishments that had been slapped on the company for its previous evasion of sanctions placed on North Korea and Iran.

Under this new agreement, ZTE will retain compliance contractor in addition to the three-year court-appointed monitor imposed by the plea agreement. Instead, ZTE seems to have given bonuses to those same executives.Because of this, the Department of Commerce ordered the denial of export privileges against ZTE, which also meant that American companies would no longer be able to sell equipment to ZTE.

On top of the fine, ZTE will place $400m in an escrow account for future violations, while the US Commerce Department will embed a compliance team within the company. "The first settlement with ZTE set a record for civil and criminal penalties in an export control case", Ross said in a statement. Separately, Qualcomm is trying to get Chinese approval for its pending $44 billion acquisition of NXP Semiconductors NV. ZTE suppliers including MOBI Development Co. and Zhong Fu Tong Co. climbed in Asian trading. The leading theory is that allowing the company to continue operating was a precondition for China's participation is discussions for a larger trade deal.

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"Companies shouldn't be like "giant babies" and should not use commercial interests to force the government to become involved" in any problems, the article from China National Radio said. Smaller makers of optical components, including Oclaro and Acacia, rely more heavily on ZTE's business.

Trump has threatened to slap tariffs on at least $50 billion in Chinese imports shortly after publishing a final list of targets on June 15.

Carlos Gutierrez, who was Commerce Secretary under President George W. Bush, said the change in the USA penalty likely averted a worsening in relations with China.

"The Chinese are well aware there's a new marshal in town", Ross said.

Regardless of those talks, the Trump administration is facing a deeply hostile reaction from Congress, where there is bipartisan opposition to the deal.

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"I assure you with 100% confidence that #ZTE is a much greater national security threat than steel from Argentina or Europe. That's good", U.S. Senator Marco Rubio tweeted. "He's not going to be happy watching the Senate try to undermine him", a former administration official said. "It's that ZTE is a state-controlled telecommunications company that poses significant espionage risks, which this agreement appears to do little to address".

On Thursday, Cornyn reiterated that to him, "This is not a trade issue". "So shutting down ZTE doesn't solve the problem".

American authorities later learned that ZTE had lied before, during, and after the March 2017 deal.

A US investigation into ZTE was launched after Reuters reported in 2012 the company had signed contracts to ship hardware and software worth millions of dollars to Iran from some of the best-known usa technology companies.

United States officials say China last weekend offered to buy an additional $70 billion in U.S. goods to cut the trade deficit - on condition that Trump call off the planned tech-sector tariffs.

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In return, the U.S. will be suspending - but not removing - the USA technology export ban that has caused the company to grind to a halt to begin with.

Tech stocks gain as USA confirms ZTE deal