ZTE can continue operating as normal, as Washington agency extends temporary license until Feb 27, filing says

PUBLISHED : Friday, 18 November, 2016, 2:28pm
UPDATED : Friday, 18 November, 2016, 10:44pm

ZTE Corp, China’s largest listed telecommunications equipment manufacturer, has been granted a reprieve for the fourth time from United States export restrictions over the violation of long-standing trade sanctions on Iran.

In a filing to the Hong Kong stock exchange on Friday, ZTE said it was notified that the Bureau of Industry and Security of the US Department of Commerce has ruled to extend the company’s temporary general licence until February 27 next year.

“The extension provides more time for both sides to try and resolve the issue,” ZTE spokesman David Dai Shu told the South China Morning Post.

The bureau’s ruling was announced by Shenzhen-based ZTE three days after its appointment of former EY and KPMG consultant Matthew Bell to the company’s newly-created position of chief export compliance officer.

Bell, who recently worked in a compliance position at New York-listed engineering and construction firm KBR, will also serve as the chief compliance officer and legal counsel at ZTE’s US subsidiary in Texas.

Paul Haswell, a partner at international law firm Pinsent Masons, said on Tuesday that the appointment showed to “Washington and the rest of the world that ZTE is serious about complying with export rules”.

The Bureau of Industry and Security had slapped ZTE with export restrictions on March 8, which would bar suppliers from shipping any US-made equipment and parts to the Chinese company.

Suppliers of goods subject to the US export curbs are required to apply for a license to ship those items to ZTE.

A “license review policy of presumption of denial shall apply” in this situation, ZTE said.

The US restrictions also cover subsidiaries Shenzhen ZTE Kangxun Telecommunications, ZTE Parsian and Beijing 8-Star International Co.

A report by Nomura Research in March estimated that US-made components accounted for up to 15 per cent of ZTE’s total bill of materials last year. Major suppliers include Qualcomm, for smartphone chips, as well as Xilinx and Altera, for base station chips.

On March 24, the bureau amended its initial ruling by creating a temporary general license so that the export restrictions on ZTE and subsidiary ZTE Kangxun Telecommunications would not apply until June 30. This three-month reprieve was extended by the bureau on June 28 and on August 19.

Following the latest extension of that license on Friday, ZTE said it “will continue to be cooperative with the relevant US governmental departments, actively communicate with the US governmental departments to reach a final solution on the matter, and strictly comply with relevant US laws and regulations on export restrictions”.

ZTE conducted a sweeping senior management revamp in April, a move that analysts said could help repair the company’s damaged reputation with Washington.

The management reshuffle saw veteran executive Zhao Xianming named as ZTE’s new chairman and president. Shi Lirong, who had been ZTE’s president since March 2010, took a non-executive director role in the company, while founder Hou Weigui retired from the chairman’s post that he had held since February 2004.

Haswell said ZTE has made moves in the right direction, but cautioned that “there are so many variables now in place, particularly given the changes in the political climate in the US”.

The US action in March stemmed from the Commerce Department’s probe of a 98.8 million (HK$821 million) contract between ZTE and the state-controlled Telecommunications Company of Iran for the supply of a powerful surveillance system.

That system, which was delivered to Iran in 2011, included hardware and software components from US technology firms such as Microsoft, Oracle, Cisco Systems, Dell and Symantec, according to a 2012 report on the product’s packing list.

The US imposed restrictions on trade with Iran from 1979, following the seizure of the American embassy in Tehran. Those are separate from international sanctions on Iran over its nuclear programme, which were lifted in January.