Supply Chain

China’s ZTE Banned From Using U.S. Parts

The Commerce Department punishes the telecom firm with a seven-year denial of export privileges for violating a 2017 settlement agreement.
Matthew HellerApril 17, 2018

The U.S. has sanctioned China’s second-largest maker of telecom equipment for breaching a settlement of allegations that it illegally shipped goods to Iran.

Secretary of Commerce Wilbur L. Ross on Monday ordered American companies not to supply components to ZTE Corp. for seven years, saying it failed to discipline or reduce bonuses to senior employees as required by the 2017 settlement.

Under the settlement, Shenzhen-based ZTE could be punished with a seven-year denial of export privileges if any provision of the agreement was not met. Its products, including smartphones, use such American parts as microprocessors from Qualcomm, glass made by Corning, and sound technology from Dolby.

“ZTE misled the Department of Commerce,” Ross said in a statement. “Instead of reprimanding ZTE staff and senior management, ZTE rewarded them. This egregious behavior cannot be ignored.”

According to Reuters, the ban “could be devastating to ZTE since American companies are estimated to provide 25 percent to 30 percent of the components used in ZTE’s equipment.”

It also comes amid heightened tensions between the U.S. and China, which are currently engaged in a tit-for-tat exchange of possible tariffs. “The new punishment for [ZTE] could be viewed as an escalation,” The New York Times said.

ZTE’s settlement with the U.S. followed a multiyear investigation into claims that it violated U.S. sanctions against Iran and North Korea by selling electronics to those countries. The Chinese firm also agreed to pay $890 million in fines and penalties, with an additional penalty of $300 million that could be imposed.

In March, ZTE admitted that while it had fired four senior employees, it had not disciplined or reduced bonuses to 35 others.

“This will be devastating to the company, given their reliance on U.S. products and software,” Douglas Jacobson, an exports control lawyer who represents suppliers to ZTE, said of the ban on supplying the company. “It’s certainly going to make it very difficult for them to produce and will have a potentially significant short- and long-term negative impact on the company.”