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ZTE gets a deal with the US that brings it back from the brink

Commerce Secretary Wilbur Ross says this phase of the confrontation is done.

ZTE sign on building facade

Chinese telecom giant ZTE said its major operations had ceased following last month's US ban on American sales of critical technology to the company.

Johannes Eisele / AFP/Getty Images

The US has struck a deal with ZTE, resolving a controversy that had put the Chinese telecom giant in peril.

The deal includes a $1 billion penalty against ZTE and a compliance team, chosen by the US, will be embedded at the company, Commerce Secretary Wilbur Ross told CNBC Thursday morning. It also requires ZTE to change its board of directors and executive team in 30 days.

"At about 6 a.m. this morning, we executed a definitive agreement with ZTE. And that brings to a conclusion this phase of the development with them," Ross said.

The compliance team will be in place for 10 years and monitor "on a real-time basis" ZTE's compliance with US export control laws, the Commerce Department said in a release announcing the settlement.

ZTE declined to comment. The White House didn't respond to a request for comment. 

On Tuesday, it was reported that ZTE, the fourth-largest smartphone maker in the US by market share, had agreed in principle to a settlement that would lift the seven-year Commerce Department ban preventing US companies from doing business with it.

That report said ZTE would have to pay a total of $1.7 billion in penalties, with a preliminary deal including a $1 billion fine and $400 million in escrow in case of future violations. These penalties come on top of the millions ZTE has already paid to the US under its 2017 settlement.

"We will closely monitor ZTE's behavior," said Ross in the release. "If they commit any further violations, we would again be able to deny them access to US technology as well as collect the additional $400 million in escrow. The first settlement with ZTE set a record for civil and criminal penalties in an export control case.  This new settlement agreement sets another record, and brings the total penalties assessed on ZTE to $2.29 billion."

The May ban came after the government determined that ZTE violated terms of its 2017 settlement by failing to fire or punish employees involved with illegally shipping US equipment to Iran and North Korea.

It crippled the company, which shut down major operations and left it unlikely to survive -- until President Donald Trump got involved. He tweeted that he wanted the Commerce Department to work with ZTE on getting the ban lifted.

This move was slammed by members of Congress from both parties, who said the President's tweet was irresponsible. He countered by highlighting that ZTE "buys a big percentage of individual parts from US companies" and saying the telecom giant's fate reflects the US relationship with China.

The Commerce Department denial order prevented ZTE from utilizing key technology from US suppliers like Qualcomm and and Broadcom, making it difficult to produce smartphones or telecommunications equipment. It also prevented the company from accessing core parts of Google's Android software, including the Google Play store. 

ZTE has become a critical part of the broader discussions between China and the US, the two largest economies in the world, over trade tensions and whether the two countries can prevent a trade war that could involve billions of dollars' worth of tariffs.

CNET's Roger Cheng contributed to this report.

First published June 7, 5:31 a.m. PT
Updates, 5:54 a.m.: Adds background; 8:26 a.m.: Includes comment from Commerce Department release; 11:09 a.m: Adds ZTE declining to comment.

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