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(Reuters) – The United States signed an agreement with ZTE Corp (000063.SZ) that paves the way for the Chinese tech company to resume operations after a nearly three-month old ban on doing business with American suppliers, the U.S. Commerce Department said on Wednesday.
The ban on China’s No. 2 telecommunications equipment maker will be removed once the company deposits $ 400 million in an escrow account, the Commerce Department said, which it can do now that Commerce officials signed an escrow agreement.
“Once ZTE has completed the $ 400 million escrow deposit,” the Commerce Department said in a statement, it will “issue a notice lifting the denial order.” ZTE did not immediately respond to a request for comment.
The escrow agreement is part of a $ 1.4 billion settlement ZTE reached with the U.S. Commerce Department last month to regain access to U.S. suppliers, whose components it relies on for its smart phones and networking gear.
The escrow account gives the United States an additional $ 400 million if ZTE violates the settlement. ZTE paid the $ 1 billion fine to the U.S. Treasury last month.
Once lifted, ZTE, which employs around 80,000 people, is expected to restart major operations, which would remove a sticking point within the broader U.S.-China trade war. The reprieve for ZTE coincides with a new Trump administration threat of 10 percent tariffs on $ 200 billion of Chinese goods.
In its statement, the Commerce Department said the ZTE action is a law enforcement matter unrelated to broader discussions of trade policy.
Reporting by Karen Freifeld; Editing by Cynthia Osterman
NEW YORK/HONG KONG (Reuters) – China’s embattled ZTE Corp (0763.HK) has received a temporary reprieve from the U.S. government to conduct business needed to maintain existing networks and equipment as it works toward the lifting of a U.S. supplier ban.
ZTE (000063.SZ), which makes smartphones and networking gear, was forced to cease major operations in April after the United States slapped it with a supplier ban, saying it broke an agreement to discipline executives who conspired to evade U.S. sanctions on Iran and North Korea.
The authorization seen by Reuters from the U.S. Commerce Department’s Bureau of Industry and Services runs from July 2 until Aug. 1.
It allows China’s No.2 telecommunications equipment maker to continue operating existing networks and equipment and provide handset customer support for contracts signed before April 15. It also permits limited transfer of funds to or from ZTE.
On Tuesday, ZTE also announced the departure of 1 senior executive in a stock exchange filing, while a source who saw an internal memo told Reuters seven others were removed. As part of its settlement agreement reached in June with U.S. authorities, ZTE had promised to radically overhaul its management.
The company also agreed to pay a $ 1 billion penalty and put $ 400 million in an escrow account as part of the deal to resume business with U.S. suppliers – which provide almost a third of the components used in ZTE’s equipment.
ZTE said in exchange filings late on Tuesday that Xu Weiyan, a shareholders’ representative supervisor in the company’s supervisory committee, has resigned due to personal commitments with immediate effect and no longer holds any position in the company.
An insider source told Reuters a memo was sent out on Tuesday announcing the removal of seven other executives, without providing a reason. They included vice presidents Wang Keyou, Xie Jiepeng and Ma Jie, who were in charge of the legal, finance and supply chain departments, respectively.
Reuters could not immediately contact them for comment. The source declined to be identified due to the sensitivity of the matter.
As part of the deal to lift the supplier ban, ZTE had agreed to remove all members of its leadership at or above the senior vice president level, along with any executives associated with the wrongdoing within 30 days.
It is not immediately clear whether the eight departures on Tuesday were related to ZTE’s compliance violation.
ZTE announced a new board last week in a radical management shakeup. Li Zixue was appointed the new chairman while the previous board led by Chairman Yin Yimin resigned with immediate effect.
Despite the agreement reached almost a month ago, the ban is yet to be lifted amid strong opposition among some U.S. politicians. ZTE has made the $ 1 billion payment but has yet to deposit the $ 400 million in escrow, according to sources.
The uncertainty over the ban amid intensifying U.S.-China trade tensions has hammered ZTE shares, which have cratered around 60 percent since trading resumed last month following a two-month hiatus, wiping out more than $ 11 billion of the company’s market valuation.
ZTE’s Hong Kong shares were down 0.5 percent on Wednesday, while its Shenzhen shares were up more than 4 percent.
Jefferies on Monday upgraded ZTE to a “buy” rating from “underperform”. Its analyst, Edison Lee, said in a note on Tuesday that the temporary reprieve was “a very positive indication that ZTE is on track to a full lifting of the export ban”.
A representative for ZTE declined to comment. The U.S. Department of Commerce did not respond to requests for comment.
Reporting by Karen Freifeld, Anirban Paul and Sijia Jiang; Writing by Tim Ahmann; Editing by Leslie Adler and Marguerita Choy
WASHINGTON (Reuters) – U.S. President Donald Trump said on Wednesday he will use a strengthened national security review process to thwart Chinese acquisitions of sensitive American technologies, a softer approach than imposing China-specific investment restrictions.
The Treasury Department has recommended that Trump use the Committee on Foreign Investment in the United States (CFIUS), whose authority would be enhanced by new legislation in Congress, to control investment deals. The legislation expands the scope of transactions reviewed by the interagency panel to address security concerns, Trump said.
The decision marks a victory for Treasury Secretary Steven Mnuchin in a fierce White House debate over the scope of such curbs.
Mnuchin had favored a more measured and global approach to protecting U.S. technology, using authority approved by Congress, while White House trade adviser Peter Navarro, the administration’s harshest China critic, had argued for China-specific restrictions.
“We are not, on a wholesale basis, discriminating against China as part of a negotiation,” Mnuchin said on CNBC on Wednesday.
The investment restrictions are part of the administration’s efforts to pressure Beijing into making major changes to its trade, technology transfer and industrial subsidy policies after U.S. complaints that China has unfairly acquired American intellectual property through joint venture requirements, unfair licensing and strategic acquisitions of U.S. tech firms.
“I have concluded that such (CFIUS) legislation will provide additional tools to combat the predatory investment practices that threaten our critical technology leadership, national security, and future economic prosperity,” Trump said in a statement that did not specifically name China.
U.S. stocks rose after Trump announced the new approach to U.S. investment restrictions but reversed gains in afternoon trading.
Senior administration officials told reporters on a conference call that sticking with CFIUS, a process companies are familiar with, would ensure strong inward investment into the United States while protecting the “crown jewels” of U.S. intellectual property.
Trump said in his statement that upon final passage of the legislation, known as the Foreign Investment Risk Review Modernization Act, he will direct his administration “to implement it promptly and enforce it rigorously, with a view toward addressing the concerns regarding state-directed investment in critical technologies.”
If Congress fails to pass the legislation quickly, Trump said, he would direct the administration to implement new restrictions under executive authority that could be applied globally.
The decision to stick with CFIUS was a pragmatic move because the new CFIUS legislation “will put a crimp in China’s efforts to move up the value chain in high tech,” said Scott Kennedy, head of China studies at the Center for Strategic and International Studies in Washington.
But it will likely do little to stop the activation of U.S. tariffs on $ 34 billion worth of Chinese goods, scheduled for July 6, or jump-start trade negotiations between the two economic superpowers, Kennedy said.
And the mixed messages from the administration do not help Trump’s negotiating position, he said.
“It shows the Chinese that the Trump administration is still undependable and can be moved back from the most hardline positions,” Kennedy added.
Mnuchin on CNBC downplayed the dissent within the administration, saying that Trump wants to hear differing views on important issues, but the administration’s economic team typically comes together on major recommendations such as the investment restrictions.
Mnuchin said the new CFIUS legislation, passed 400-2 in the House of Representatives on Tuesday, would broaden the types of transactions that could be reviewed by the panel on national security grounds, including minority stakes, joint ventures and property purchases near U.S. military bases.
“This isn’t a question about being weak or strong, this is about protecting technology. We have the right tools under this legislation to protect technology,” Mnuchin said.
COMMERCE EXPORT CURBS
Trump also said that he has directed Commerce Secretary Wilbur Ross to examine U.S. export controls and recommend modifications that may be needed “to defend our national security and technological leadership.”
A Commerce Department spokesman could not be immediately reached for comment on the study.
The CFIUS legislation is headed for negotiations between U.S. House and Senate lawmakers in the coming weeks to craft a final version, with guidance from the Treasury.
A sticking point that could emerge is language in the Senate version that would reinstate the ban on Chinese telecom equipment maker ZTE Corp (000063.SZ) from purchasing U.S. components for a year. The Commerce Department ban had effectively shut the Shenzhen-based company down, angering Beijing.
The House version has less stringent language prohibiting the U.S. Department of Defense from purchasing any ZTE communications gear.
Reporting by David Lawder; Editing by Jeffrey Benkoe and Steve Orlofsky
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WASHINGTON (Reuters) – The head of the U.S. Justice Department’s antitrust division, Makan Delrahim, declined on Friday to support the Obama administration’s firm backing of the need for four U.S. wireless carriers.
Asked about T-Mobile’s plan to buy Sprint for $ 26 billion, Delrahim declined to reiterate the view of President Barack Obama’s enforcers, who had said that four wireless carriers were needed.
Instead, Delrahim told reporters, “I don’t think there’s any magical number that I’m smart enough to glean.”
He also said the department would look at the companies’ arguments that the proposed merger was needed for them to build the next generation of wireless, referred to as 5G, but that they had to prove their case.
Bill Baer, a former head of the antitrust division, had told the New York Times in 2014: “It’s going to be hard for someone to make a persuasive case that reducing four firms to three is actually going to improve competition for the benefit of American consumers.”
Reporting by Diane Bartz; Editing by Dan Grebler
BEIJING (Reuters) – Washington and Beijing are nearing a deal that would remove an existing U.S. order banning American firms from supplying Chinese telecommunications firm ZTE Corp, two people briefed on the talks told Reuters.
The people, who declined to be identified because the negotiations were confidential, also said the deal could include China removing tariffs on imported U.S. agricultural products, as well as buying more American farm goods.
ZTE, hit by a seven-year ban in April which effectively crippled its operations, would gain a major reprieve after the world’s two largest economies stepped back from the brink of a fully blown trade war following talks last week.
The company did not immediately reply to requests for comment.
White House advisors have said publicly that the ban against ZTE is being reexamined, but that the firm would still face “harsh” punishment, including enforced changes of management and at board level.
One person told Reuters there was a “handshake deal” on ZTE between U.S. Treasury Secretary Steven Mnuchin and Chinese Vice Premier Liu He during talks in Washington last week that would remove the U.S. Commerce Department’s ban on American companies selling to ZTE in exchange for the purchase of more U.S. agricultural products.
The second person said China may also eliminate tariffs on U.S. agriculture products it assessed in response to U.S. steel duties as a part of the deal, and that ZTE could still be forced to replace its corporate leadership, among other penalties.
Both sources said the deal, while not yet cemented, was likely to be finalised before or during a planned trip by U.S. Commerce Secretary Wilbur Ross to Beijing next week to help finalize a broader trade agreement to avert a trade war.
The company, publicly traded but whose largest shareholder is a Chinese state-owned enterprise, had been hit with penalties for breaking a 2017 agreement after it was caught illegally shipping U.S. goods to Iran and North Korea, in an investigation dating to the Obama administration.
Reporting by Michael Martina; Additional reporting by Se Young Lee and Adam Jourdan; Editing by Muralikumar Anantharaman
(Reuters) – A U.S. appeals court on Friday revived a business group’s challenge to a Seattle law, the first of its kind, that would allow drivers for ride-hailing services such as Uber Technologies Inc UBER.UL and Lyft to unionise.
The San Francisco-based 9th U.S. Circuit Court of Appeals said the city did not have the power to regulate payment arrangements between companies like Uber and Lyft and their drivers.
The litigation is unfolding amid a national debate over whether workers in the “gig economy” are independent contractors, who typically cannot form unions, or employees.
The U.S. Chamber of Commerce, which sued over the law last year and counts Uber and Lyft among its members, did not respond to a request for comment. Neither did a spokesman for the Seattle city attorney’s office.
Seattle’s law, passed in 2015, requires the city to select a union as the exclusive bargaining representative of the estimated 9,000 drivers in Seattle who work for Uber, Lyft and other services. The law was put on hold pending the outcome of the Chamber’s lawsuit.
The Chamber argued that by allowing drivers to bargain over their pay, which is based on fares received from passengers, the city would permit them to essentially fix prices in violation of federal antitrust law.
A federal judge in Seattle last year disagreed, saying the state of Washington had specifically authorized its cities to regulate the for-hire transportation industry.
But the 9th Circuit on Friday said state law allows the city to regulate rates that companies charge to passengers, but not the fees that drivers pay to companies like Uber or Lyft in exchange for ride referrals.
The court sent the case back to the judge in Seattle to reconsider the Chamber’s antitrust claim.
The city and supporters of the law, including labor unions, have said that allowing drivers to unionize would improve their working conditions, making ride-sharing services safer for passengers.
Lawyers for the city had told the 9th Circuit that in some cases, drivers were engaging in unsafe behavior such as driving on little or no sleep because they are not paid adequately.
Uber is appealing a state’s judge dismissal of a separate lawsuit the company filed challenging Seattle’s law. A third lawsuit by Uber drivers was dismissed last year.
The case is U.S. Chamber of Commerce v. City of Seattle, 9th U.S. Circuit Court of Appeals, No. 17-35640.
Reporting by Daniel Wiessner in Albany, New York; Editing by Alexia Garamfalvi and Phil Berlowitz
WASHINGTON (Reuters) – The Federal Communications Commission said in a notice on Thursday that landmark 2015 U.S. open-internet rules will cease on June 11, and new rules handing providers power over what content consumers can access will take effect.
The FCC in December repealed the Obama-era “net neutrality” rules, allowing internet providers to block or slow websites as long as they disclose the practice. The FCC said the new rules will take effect on June 11.
A group of states and others have sued to try to block the new rules from taking effect. The revised rules were a win for internet service providers like AT&T Inc (T.N) and Comcast Corp (CMCSA.O) but are opposed by internet firms like Facebook Inc (FB.O) and Alphabet Inc (GOOGL.O).
“The agency failed to listen to the American public and gave short shrift to their deeply held belief that internet openness should remain the law of the land,” FCC Commissioner Jessica Rosenworcel, a Democrat, said Thursday. “The FCC is on the wrong side of history, the wrong side of the law, and the wrong side of the American people.”
The U.S. Senate is set to vote as early as next week on whether to reject the FCC repeal of the net neutrality rules – but that effort faces an uphill battle.
Proponents currently have the backing of 47 Democrats and two independents who caucus with Democrats, as well as Republican Senator Susan Collins. With the prolonged absence of Republican Senator John McCain due to illness, proponents believe they will win on a 50-49 vote.
Senator Ed Markey said it was “likely” the vote will take place in the middle of next week. On Wednesday, senators officially filed a petition to force a net neutrality vote and 10 hours of floor debate under the Congressional Review Act.
Following the FCC announcement, Markey wrote on Twitter, “the Senate must act NOW and pass my resolution to save the internet as we know it.”
The FCC voted 3-2 to reverse Obama-era rules barring service providers from blocking, slowing access to or charging more for certain online content.
Once they take effect, the new FCC rules would give internet service providers sweeping powers to change how consumers access the internet but include new transparency requirements that require them to disclose any changes to consumers.
If the Senate approves the measure, it would not likely pass the Republican-controlled House of Representatives. If the legislation were to pass the House, President Donald Trump would be expected to veto it.
In February, a coalition of 22 state attorneys general refiled legal challenges intended to block the Trump administration’s repeal of net neutrality.
FCC Chairman Ajit Pai has often said he is confident the agency’s order will be upheld.
Democrats have said they believe the issue would be key in November’s midterm congressional elections, especially among younger internet-savvy voters.
Republicans have said the FCC repeal would eliminate heavy-handed government regulations, encourage investment and return the internet to pre-2015 rules.
Reporting by David Shepardson; editing by Jonathan Oatis
WASHINGTON (Reuters) – The U.S. Transportation Department has sent two proposed rules to the White House to regulate the increased use of unmanned aerial vehicles, the agency said on Tuesday as it prepared to unveil the winners of new drone pilot projects.
One of the new rules would allow drones to fly over people while the other would allow for remote identification and tracking of unmanned aircraft in flight. After both are formally proposed, it would take months or even more than a year before they are finalized.
Current rules prohibit nighttime drone flights or operations over people without a waiver from the Federal Aviation Administration. The FAA has no requirements or voluntary standards for electrically broadcasting information to identify an unmanned aircraft.
The FAA has said regulations are necessary to protect the public and the National Airspace System from bad actors or errant hobbyists. Several incidents around major airports have involved drones getting close to aircraft.
The National Transportation Safety Board said in December a September collision between a small civilian drone and a U.S. Army helicopter was caused by the drone operator’s failure to see the helicopter because he was intentionally flying the drone out of visual range.
The helicopter landed safely but a 1-1/2 inch (3.8 cm) dent was found on the leading edge of one of its four main rotor blades and parts of the drone were found lodged in its engine oil cooler fan.
Later on Tuesday, U.S. Transportation Secretary Elaine Chao will unveil the winners for 10 drone projects involving cities, universities, an Indian tribe, counties and states. Reuters reported Tuesday that major technology and aerospace companies including Amazon.com Inc, Apple Inc, Intel Corp, Qualcomm Inc and Airbus SE are vying to take part in the new slate of drone tests.
The wide interest in the U.S. initiative, launched by President Donald Trump last year, underscores the desire of a broad range of companies to have a say in how the fledgling industry is regulated and ultimately win authority to operate drones for purposes ranging from package delivery to crop inspection.
Reporting by David Shepardson; Editing by Richard Chang
(Reuters) – Major technology and aerospace companies including Amazon.com Inc (AMZN.O), Intel Corp (INTC.O), Qualcomm Inc (QCOM.O), Raytheon Co (RTN.N) and Airbus SE (AIR.PA) are vying to take part in a new slate of drone tests the United States is set to announce on Wednesday, people familiar with the matter told Reuters.
The wide interest in the U.S. initiative, launched by President Donald Trump last year, underscores the desire of a broad range of companies to have a say in how the fledgling industry is regulated and ultimately win authority to operate drones for everything from package delivery to crop inspection.
The pilot program will allow a much larger range of tests than are generally permitted by federal aviation regulators, including flying drones at night, over people and beyond an operator’s line of sight.
The U.S. Transportation Department is set to announce 10 winning state, local or tribal governments to host the experiments out of 149 applicants. Secretary Elaine Chao will make the winners public on Wednesday. The governments in turn have partnered with companies who will play a role in the tests.
At least 200 companies applied as partners in the program, a U.S. official said.
Companies including Apple Inc (AAPL.O), Boeing Co (BA.N) and Ford Motor Co (F.N) have also expressed interest in the program, the sources said, though it was unclear whether they all had joined applications and what they would be testing.
Qualcomm confirmed it is on at least three applications, and Intel said it hopes to participate in the program. The other companies did not immediately answer requests for comment.
Changes to U.S. policy that result from the tests are not expected for some time. Package delivery, which can be particularly complex, might not take place until later on during the program.
Earl Lawrence, who directs the U.S. Federal Aviation Administration’s unmanned aircraft systems integration office, told a Senate panel on Tuesday that many of the other projects “could go forward under the FAA’s existing rules, including with waivers where appropriate.”
He said after “the 10 selections for the pilot program are announced, the FAA will be reaching out to other applicants, as well as interested state and local authorities, to provide additional information on how to operationalize their proposed projects.”
The FAA is also working on proposed regulations to ensure the safety of drones and their integration into U.S. airspace.
The initiative is significant for the United States, which has lagged other countries in drone operations for fear of air crashes. That had pushed companies like Amazon to experiment overseas.
In the United Kingdom, the world’s largest online retailer already sends some packages by drone. It completed its first such mission in late 2016, taking 13 minutes from click to delivery.
Reporting by Jeffrey Dastin in San Francisco and David Shepardson in Washington; Additional reporting by Stephen Nellis and Paul Lienert; editing by Chris Sanders and David Gregorio