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China's ZTE reaches preliminary agreement with US to lift ban

Telecom equipment maker would have to pay $1.4bn in penalties and replace its board

China's No. 2 telecommunications equipment maker ZTE has signed a preliminary agreement with the U.S. to lift a ban on buying goods from U.S. suppliers, Reuters reported.

The agreement allows the Chinese company to resume its business and production. ZTE halted a large part of its operations because of the seven-year ban imposed by the U.S. after it was caught illegally shipping products to Iran and North Korea.

U.S. companies provide 25-50% of the components in ZTE products, which include smartphones and telecom network equipment.

The deal in principle imposes a $1 billion fine on ZTE plus a $400 million deposit in case there are any violations in the future, according to sources, who requested anonymity because they were not authorized to publicly discuss the matter.

A U.S. Commerce Department spokesman said on Tuesday that "no definitive agreement has been signed by both parties." ZTE did not respond immediately to requests for comment.

The sources said ZTE also agreed to replace its board and executive members within 30 days. In addition, it is ready to allow unfettered site visits to verify that U.S. components are being used as claimed by the company, and to post the evidence on a public website, they added.

The handling of ZTE's violations has been a central topic in heated U.S.-China trade talks. Although U.S. President Donald Trump is likely to claim the agreement as a win, it is unlikely to cool down the trade dispute, as the U.S. Congress will take it as a concession and China will see it as abuse.

Masayuki Yuda

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