U.S. curbs China's ZTE exports over Iran business allegations

Mon Mar 7, 2016 9:59pm EST
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By Joel Schectman and Susan Heavey

WASHINGTON (Reuters) - A new U.S. export restriction against China's ZTE Corp (000063.SZ: Quote) for alleged Iran sanctions violations is likely to disrupt the telecom manufacturer's sprawling global supply chain and could create substantial parts shortages, according to sanctions experts.

Under the measure announced by the Commerce Department on Monday, U.S. manufacturers will be banned from selling components to ZTE, which is a major global supplier of telecom-networking equipment. In addition, foreign manufacturers will be prohibited from selling products containing a significant amount of U.S.-made parts to the Chinese company.

The Commerce Department, confirming the decision that was first reported by Reuters on Saturday, said ZTE planned to use a series of shell companies “to illicitly reexport controlled items to Iran in violation of U.S. export control laws." It said ZTE acted "contrary to the national security or foreign policy interests of the United States."

While ZTE suppliers can apply for an export license to ship any American-made equipment or parts, the Commerce Department said such license applications generally will be denied.

The export restriction, which does not stop ZTE from selling handsets in the United States, is expected to have a global impact.

“It is going to have a large ripple effect. It’s very significant to many companies both in the U.S. and (outside the) U.S.,” said Doug Jacobson, an export attorney at law firm Jacobson Burton Kelley PLLC, who said he has been fielding calls from clients who supply ZTE since Reuters broke news of the impending export restrictions.

For example, a Taiwanese chipmaker that uses American-made components to make processors for ZTE handsets would likely have to cut off those sales. If the Taiwanese supplier only procures components from outside the United States it can continue to sell to ZTE, experts said.

“I am telling all my clients today that anything (for ZTE)not already on board an airplane going to China, you cannot ship it starting tonight. They have to scrub and screen their customers lists – pending orders and future orders – to make sure that any transactions with ZTE are flagged and stopped.”   Continued...

Visitors check out products at the ZTE stand at the Mobile World Congress in Barcelona, February 24, 2014.  REUTERS/Albert Gea