American firm loses government contract over ties to China's ZTE

Government agency says device marketed as American-made is produced by Shenzhen's ZTE, which officials have linked to spying

PUBLISHED : Saturday, 21 September, 2013, 12:00am
UPDATED : Saturday, 21 September, 2013, 4:44am

The United States government stripped a videoconferencing system contract from a domestic company after a federal agency said the device marketed as American-made is really Chinese, a product of a company that US lawmakers have linked to spying.

The technology is produced by Shenzhen-based ZTE, China's No 2 phone-equipment maker. It worked with CyberPoint International, a small business based in Baltimore, in the state of Maryland, to make its videoconferencing device available to US agencies via contract. CyberPoint's Prescient unit built and installed firewalls in the system, which it said "substantially transformed" the product.

US Customs and Border Protection disagreed, saying the government should treat the products as Chinese, according to a ruling published on Thursday in the Federal Register. The decision is the latest impediment to US growth for ZTE, which was effectively blacklisted last year by a congressional committee that said its products may aid Chinese spying.

"It's somewhat devastating for them," said Ray Mota, founder of US-based ACG Research, a networking- equipment-industry consulting company. "They'll have to restrategide on how to approach this market and come up with alternatives."

After the ruling, the videoconferencing equipment was "promptly removed" from offerings on a supply schedule contract, Mafara Hobson, a spokeswoman for the General Services Administration, said in an e-mail.

ZTE's system, using security made by CyberPoint's Prescient unit, had been available for sale to US agencies through the GSA contract since last year. No agencies had ordered the product, Hobson said.

ZTE doesn't plan to give up on its efforts to boost its US sales.

"Over the years, ZTE has invested hundreds of millions of dollars into the US," David Dai Shu, director of global branding and communications for the company, said in an e-mail. "We are committed to serving the US market and will continue to grow the business."

The customs agency's findings may make it more difficult for ZTE to expand its US sales, ACG's Mota said in a phone interview.

A product on a federal contract would have given ZTE "an extra level of credibility" when selling to US businesses, Mota said.

CyberPoint had asked the customs agency, part of the Department of Homeland Security, to rule on the origin of the videoconferencing system several times since May last year, according to the ruling. Customs officials decided the government should treat the device as Chinese because vital videoconferencing parts, such as the video board and the filter board, came from China.

"Since the hardware components that impart the essential character to the finished product are of Chinese origin, we find that the country of origin of the server for government procurement purposes is China," according to the decision.

Prescient disagreed with the ruling and hadn't decided whether it will appeal against the findings, Jerry Caponera, CyberPoint's general manager for global partnerships, said in an e-mail. "Given the widespread concerns over the security of foreign-made products, we were prepared for this eventuality, but are committed to finding ways to make foreign-made products more secure for the US marketplace," he said.