On the 16th of April 2018, the U.S Department of Commerce announced that it was banning U.S companies from selling components to Chinese conglomerate ZTE for seven years after it illegally shipped telecommunications equipment to Iran and North Korea.
According to the Department of Commerce, the Denial Order also prevents ZTE from “participating in any way in any transaction subject to the Export Administration Regulations (EAR).”
In the statement, the Department of Commerce also said the company made false statements and obstructed justice, including through “preventing disclosure to and affirmatively misleading the U.S. Government.”
The Department of Commerce said that back in March 2017, ZTE agreed to a combined civil and criminal penalty and forfeiture of US$1.19 billion and to a seven-year suspended denial of export privileges, “which could be activated if any aspect of the agreement was not met and/or if the company committed additional violations of the EAR.”
Secretary of Commerce Wilbur L. Ross commented at the time of the ban, stating: “ZTE made false statements to the U.S. Government when they were originally caught and put on the Entity List, made false statements during the reprieve it was given, and made false statements again during its probation.”
“ZTE misled the Department of Commerce. Instead of reprimanding ZTE staff and senior management, ZTE rewarded them. This egregious behavior cannot be ignored,” Ross added.
ZTE responded to the ban, stating: “It is unacceptable that BIS (Bureau of Industry and Security) insists on unfairly imposing the most severe penalty on ZTE even before the completion of investigation of facts, ignoring the continuous diligent work of ZTE and the progress we have made on export compliance.”
ZTE says it “has taken measures against the employees who might have been responsible for this incident” and that “corrective measures has been taken immediately.”
“The Denial Order will not only severely impact the survival and development of ZTE, but will also cause damages to all partners of ZTE including a large number of U.S. companies.”
Reuters reported that the company shut down its main operations as a result of the ban.
However, the ban may be short-lived following a flurry of tweets from U.S President Donald Trump on Monday.
President Xi of China, and I, are working together to give massive Chinese phone company, ZTE, a way to get back into business, fast. Too many jobs in China lost. Commerce Department has been instructed to get it done!— Donald J. Trump (@realDonaldTrump) 13 May 2018
China and the United States are working well together on trade, but past negotiations have been so one sided in favor of China, for so many years, that it is hard for them to make a deal that benefits both countries. But be cool, it will all work out!— Donald J. Trump (@realDonaldTrump) 13 May 2018
ZTE, the large Chinese phone company, buys a big percentage of individual parts from U.S. companies. This is also reflective of the larger trade deal we are negotiating with China and my personal relationship with President Xi.— Donald J. Trump (@realDonaldTrump) 14 May 2018
Reuters reports that ZTE employees in China cheered the tweet that suggested a resolution could be in sight for the ban, and found that the tweet was reposted widely by ZTE employees on social media.
Reuters also reports that ZTE paid more than US$2.3 billion to 211 U.S exporters in 2017, with U.S companies estimated to provide 25% - 30% of the components used in ZTE’s smartphones, network gear and other products.
In a Regular Press Conference held by China’s foreign ministry spokesperson Lu Kang on May 14, Kang said China highly appreciates Trump’s remarks on the ZTE issue.
Kang added, “We are currently in close communication with them on how exactly to implement it.”
“As for the specific issues over which the US side has voiced its concerns, our two sides also maintain close communication.”
“Like I said just now, at the invitation of the US government, Vice Premier Liu He will travel to the US from May 15 to 19 for more consultations with the US economic team on bilateral economic and trade issues.”
“China is willing to work with the US to ensure positive and constructive outcomes from this upcoming round of trade talks.”