For the last month, Chinese smartphone giant ZTE has been largely shut down after the Trump administration banned US firms from selling it technology. But now, Reuters is reporting that ZTE has signed a preliminary deal that could allow ZTE to resume operations.
Reviving ZTE has been a personal focus for President Trump, whose government is in the middle of broader trade negotiations with the Chinese government.
According to Reuters, “the preliminary deal includes a $1 billion fine against ZTE, plus $400 million in escrow to cover any future violations.”
Reuters reports that “ZTE promised to replace its board and executive team in 30 days. It would also allow unfettered site visits to verify that US components are being used as claimed by the company.”
The Commerce Department, which oversees sanctions enforcement, told Reuters on Tuesday that “no definitive agreement has been signed by both parties.”
The terms outlined by Reuters are similar to the those Trump outlined in a May 25 tweet, saying that ZTE might reopen “with high level security guarantees, change of management and board, [and it] must purchase U.S. parts and pay a $1.3 Billion fine.”
ZTE’s dispute with the US government stems from allegations that the Chinese company sold technology to North Korea and Iran in defiance of US sanctions. Last year, ZTE settled the case with the US government, promising to pay $890 million in fines and punish dozens of ZTE executives who orchestrated the illicit technology sales.
But early this year, the US government discovered that ZTE had not followed through on its promise. According to Trump administration officials, ZTE gave many of the wayward executives their full 2016 bonuses and then lied about it to the US government. So the US went nuclear on ZTE, imposing a seven-year ban on US companies selling technology to the Chinese firm.
That was a serious problem for ZTE because the company is heavily dependent on US components for its smartphone business. ZTE phones include chips from Qualcomm and the Android software stack from Google. While the core Android operating system is open source, Google has retained control over the Android app store. And without access to Google’s app store and other-Google made apps, an Android phone isn’t very useful.
So for the last month, ZTE has been desperately looking for a way to get back into business. It has enjoyed the backing of Chinese President Xi Jinping, who has been negotiating with Trump over a broader trade agreement.