Trump to reverse ZTE ban ahead of trade talks

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Trump to reverse ZTE ban ahead of trade talks

US President Donald Trump said in a tweet on Sunday that he has asked the Commerce Department to help Chinese technology company ZTE "get back into business, fast," a concession to Beijing ahead of high-stakes trade talks that will take place this week.

ZTE, one of the world’s largest telecom equipment makers, suspended its main operations after the US Commerce Department banned American supplies to its business for seven years.

Trump's offer to help comes as Chinese and US officials prepare for talks in Washington with China's top trade official Liu He to resolve an escalating trade dispute between the world's two largest economies.

In trade talks in Beijing earlier this month, China asked the United States to ease crushing sanctions on ZTE, according to people with knowledge of the matter.

Trump's reversal could have a significant impact on shares of American optical components makers such as Acacia Communications and Oclaro which saw their stock prices fall when U.S. companies were banned from exporting goods to ZTE.

ZTE paid over US$2.3 billion to 211 US exporters in 2017, a senior ZTE official said on Friday.

"Too many jobs in China lost. Commerce Department has been instructed to get it done!" Trump wrote on Twitter, saying he is working with Chinese President Xi Jinping on a solution.

The US government launched an investigation into ZTE after Reuters reported in 2012 the company had signed contracts to ship millions of dollars’ worth of hardware and software from some of the best known US technology companies to Iran.

ZTE pleaded guilty last year to conspiring to violate US sanctions by illegally shipping US goods and technology to Iran and entered into an agreement with the US government. The ban is the result of ZTE's failure to comply with that agreement, the Commerce Department said.

The ban came two months after two Republican senators introduced legislation to block the US government from buying or leasing telecommunications equipment from ZTE or Huawei , citing concern the companies would use their access to spy on U.S. officials.

ZTE relies on US companies such as Qualcomm and Intel and American companies are estimated to provide 25 percent to 30 percent of the components used in ZTE’s equipment, which includes smartphones and gear to build telecommunications networks.

The Commerce Department did not immediately respond to a request for comment on Sunday.

Republican Representative Robert Pittenger, a sponsor of legislation that would strengthen the US national security review process for foreign investment, said after the Commerce ban was announced that the United States "must be vigilant against Chinese threats to both our economic security and national security.”

Experts said Trump's policy reversal was unprecedented.

“This is a fascinating development in a highly unusual case that has gone from a sanctions and export control case to a geopolitical one," said Washington lawyer Douglas Jacobson, who represents some of ZTE’s suppliers.

"There’s no legal mechanism for this. How this will play out remains to be seen. They are not simply going to be able to resume business as usual," he said.

ZTE suppliers including Acacia, Oclaro, Lumentum Holdings, Finisar, Inphi and Fabrinet, all fell sharply after the ban was announced. Shares of Acacia, which got 30 percent of its total revenue in 2017 from ZTE, hit a record low after the ban was announced. Oclaro, which earned 18 percent of its fiscal 2017 revenue from ZTE, fell 17 percent.

(Reporting by Valerie Volcovici, Karen Freifield and Chris Sanders; Editing by Lisa Shumaker)

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