ZTE gets fifth consecutive reprieve from US export curbs

Shortest granted yet by the Bureau of Industry and Security of the US Department of Commerce, extending company’s temporary general license to March 29

PUBLISHED : Friday, 24 February, 2017, 1:33pm
UPDATED : Friday, 24 February, 2017, 10:59pm

ZTE Corp has been granted a reprieve for the fifth time from United States export restrictions over the violation of long-standing trade sanctions on Iran.

Shenzhen-based ZTE, China’s largest listed telecommunications equipment supplier, said in a regulatory filing on Friday that the Bureau of Industry and Security of the US Department of Commerce has extended the company’s temporary general license to March 29.

That represents the shortest reprieve granted by Washington to ZTE.

The company had previously received four consecutive extensions, each of which were valid up to three months, since March 24.

Its share price opened at HK$12.82 on Friday, up from Thursday’s close of HK$12.76, but slipped 1.41 per cent to reach HK$12.58 at the end of trading.

The latest filing followed ZTE’s announcement last week that a settlement of the case was “expected to result in penalties – including but not limited to a fine and other relevant liabilities under US laws – imposed on the company by relevant US government departments”.

“The outcome of the settlement issues still remains uncertain, but will likely have a material impact on the financial conditions and operating results of the company,” ZTE chairman Zhao Xianming said in that regulatory filing on February 14.

Zhao reiterated that ZTE “has been actively cooperating and communicating with relevant US government departments in order to reach a conclusion to the investigation”, as disclosed in previous announcements dating back to March last year.

The Bureau of Industry and Security slapped ZTE with export restrictions on March 7 last year, which barred 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.

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.

Further extensions were granted by the bureau on June 28, August 19 and on November 18. That last extension was until February 27.

“Until settlement discussions come to an end, it’s impossible to predict what further hoops ZTE will have to jump through,” Paul Haswell, a partner at international law firm Pinsent Masons, told the South China Morning Post.

ZTE has said it was negotiating with three US agencies, the Commerce Department, the Department of Justice and the Department of Treasury.

Until settlement discussions come to an end, it’s impossible to predict what further hoops ZTE will have to jump through
Paul Haswell, partner at international law firm Pinsent Masons

The US action in March stemmed from the Commerce Department’s investigation of a 98.8 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 and Cisco Systems, 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 last year.

ZTE, which is the world’s fourth biggest telecommunications equipment supplier, has managed to sharpen its focus on further expanding its business, despite its case with the US.

In December, ZTE agreed to take over Turkish company Netas Telekomünikasyon for up to US$101.28 million in a deal that would expand its operations across key markets covered by Beijing’s “One Belt, One Road” initiative.