U.S. Lifts Ban on Suppliers Selling to ZTE

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ZTE relies on U.S. suppliers to make its smartphones and to build telecommunications networks.

ZTE relies on U.S. suppliers to make its smartphones and to build telecommunications networks.


Photo:

wang zhao/Agence France-Presse/Getty Images

WASHINGTON—

ZTE
Corp.


ZTCOY -1.33%

can resume business with its U.S. suppliers, the Commerce Department said Friday, after the Chinese telecommunications giant met the conditions of a deal President

Donald Trump

made to save the company.

The saga over the fate of the Chinese firm began in April when Commerce banned U.S. companies from selling to ZTE as punishment for its failure to honor an earlier U.S. agreement to resolve its sanctions-busting sales to North Korea and Iran. Because ZTE relies on U.S. suppliers to make its smartphones and to build telecommunications networks, the penalty was effectively a death knell.

But in a surprise tweet on May 13, Mr. Trump said that he and Chinese President

Xi Jinping

were “working together” to find a way to help the company get back into business.

The Commerce Department struck a new deal with ZTE on June 7 that required the Chinese firm to put $400 million into an escrow account, pay a $1 billion fine, replace its board of directors and senior leadership, and fund a team of U.S. compliance officers to monitor the company for 10 years.

ZTE’s Hong Kong-listed stock soared nearly 24% Thursday, after the Commerce Department said Wednesday that the company had cleared the last major hurdle to lifting the sales ban. Its Shenzhen-traded shares rose 10%, the maximum they are allowed to move in a single day.

A large bipartisan group in Congress, however, has initiated a plan to preserve Commerce’s earlier, harsher penalty on national-security grounds. ZTE has repeatedly violated U.S. sanctions, and U.S. intelligence officials also have long warned that its equipment could be used to spy on Americans. The company has denied the accusation and didn’t immediately respond to a request for comment on Friday’s news.

A measure to reinstate the prohibition on allowing ZTE to buy from U.S. suppliers, pushed by Sens.

Tom Cotton

(R., Ark.),

Marco Rubio

(R., Fla.), Chuck Schumer (D., N.Y.) and

Chris Van Hollen

(D., Md.), was wrapped into a larger, must-pass defense bill that cleared the Senate in June on an 85-10 vote.

It is unclear if they will be successful. The House had already passed its own version of the legislation without the sales ban, and the two chambers would have to reconcile their differences and avoid a veto by the president in order for the measure to become law.

The Commerce Department defended the ZTE deal in its Friday statement, saying the settlement provided for the “strictest compliance measures ever imposed in such a case.” It added: “The unprecedented access afforded the compliance team by this agreement vastly improves the speed with which the Department of Commerce can detect and deal with any violations.”

President Trump’s mixed messages about a plan to help controversial Chinese telecom giant ZTE has baffled Washington. WSJ’s Shelby Holliday breaks down three reasons why lawmakers see the company as a threat. Illustration: Adam Falk

Write to Kate O’Keeffe at kathryn.okeeffe@wsj.com

Appeared in the July 14, 2018, print edition as ‘ZTE Gets Reprieve From U.S..’