BEIJING: Washington neared a deal to lift its ban on US firms supplying Chinese telecoms gear maker ZTE Corp, sources said on Tuesday, and Beijing announced tariff cuts on car imports, further easing trade tensions between the world’s two largest economies.

The reprieve for ZTE , hit by a seven-year ban in April that had crippled its operations, could include China removing tariffs on imported US agricultural products, as well as buying more American farm goods, two people briefed on the matter told Reuters.

The sources declined to be identified because the negotiations are confidential.

Representatives for the US Treasury and Commerce departments did not immediately reply to a request for comment. White House representatives also did not immediately reply.

ZTE, based in the southern Chinese city of Shenzhen, did not immediately reply to requests for comment.

Washington and Beijing stepped back from the brink of full-blown trade war after talks last week, with the United States appearing to set aside for now its demands that China revamp key planks of its industrial policy in exchange for buying more farm products.

China, US near deal on ZTE reprieve

US President Donald Trump has adopted a more conciliatory stance in the trade dispute with China as North Korea, whose chief ally is Beijing, has called into question a summit planned for next month in Singapore with Trump.

Many in the US government and in industry are dismayed that Trump appears to be backing off his tough stance on forcing China to open its markets more and tackle what they see as China’s unfair trade and market access practices.

Some in the US government and business community have said they opposed what they saw as a clear-cut legal case against ZTE being used as a bargaining chip in the broader trade conflict.

Republican Senator Marco Rubio, who has been critical of Trump’s moves toward ZTE, blasted his administration over the reported agreement for having “surrendered” to Beijing and pledged that Congress, led by Trump’s fellow Republicans, would seek to block any deal with the company.

“Making changes to their board and a fine won’t stop them from spying and stealing from us. But this is too important to be over. We will begin working on veto-proof congressional action,” Rubio said in a pair of tweets on Tuesday.

The steep cut in import tariffs for autos and car parts follows China’s pledge last month to open its car market, the world’s largest, that included a timeline to remove long-standing caps on foreign ownership of automotive ventures.

Import tariffs will be cut to 15 per cent for most vehicles from 25pc from July 1, the Ministry of Finance said, a move likely to boost carmakers that ship high-end cars to China, such as Tesla Inc and German giants BMW and Daimler AG’s Mercedes-Benz. Tariffs for auto parts would be cut to 6pc from mostly about 10pc.

‘HANDSHAKE DEAL’

White House advisers have previously said the ban against ZTE was being reexamined, and the firm would still face “harsh” punishment, including enforced changes of management and at board level.

One source told Reuters there was a “handshake deal” on ZTE between US Treasury Secretary Steven Mnuchin and Chinese Vice Premier Liu He during talks in Washington last week that would drop the ban in exchange for purchase of more US farm products.

The second person said China might also eliminate tariffs on US agriculture products it assessed in response to US steel duties, and that ZTE could still be forced to replace its leadership, among other penalties.

The ZTE deal, while not yet cemented, was likely to be finalised before or during a planned trip by US Commerce Secretary Wilbur Ross to Beijing next week to help reach a broader pact to avert a trade war, both sources said.

ZTE, which is 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 US goods to Iran and North Korea, in an investigation dating to the Obama administration.

Published in Dawn, May 23rd, 2018