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Commerce Department Authorizes Limited Transactions with ZTE

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On July 2, 2018 the US Department of Commerce’s Bureau of Industry and Security (“BIS”) issued a temporary authorization permitting certain limited transactions with Zhongxing Telecommunications Equipment Corporation (“ZTE Corporation”) and ZTE Kangxun Telecommunications Ltd. (“ZTE Kangxun” and, collectively with ZTE Corporation, “ZTE”) that would otherwise be prohibited under the denial order BIS activated against ZTE on April 15, 2018. The license grants authorization to all persons, aside from those located in Cuba, Iran, North Korea, Sudan and Syria, to resume certain technical support activities with ZTE from July 2 to August 1, 2018.

BIS issued the denial order, which essentially cut ZTE off from sourcing the US parts and components necessary to manufacture its products, after determining that ZTE had made false statements before, during, and after settlement agreement negotiations following BIS’s addition of ZTE to the Entity List in March 2016 for violating US sanctions targeting Iran and North Korea and US export control laws. More information on the settlement agreement reached in March 2017 is available here, and more details on the subsequent activation of the denial order in April 2018 are available here. Media reports indicate that the US Government anticipates ZTE will be in compliance with US conditions under the settlement agreement by August 1, 2018, and that a permanent order lifting the denial order will follow.

The new authorization permits the following, subject to conditions that include compliance with other provisions of the Export Administration Regulations (“EAR”), such as any applicable licensing requirements for exports to China:

  • Maintenance and Support of Networks and Equipment: parties are permitted to engage in any transactions necessary to maintain and support any networks or equipment, including software updates and patches, that are subject to contracts and agreements between ZTE and third parties executed before April 15, 2018.
  • Support to ZTE Phones: parties are permitted to engage in transactions necessary to provide service and support, including software updates or patches, to models of ZTE phones that were available to the public on or before April 15, 2018.
  • Cybersecurity Vulnerability Disclosure: parties are permitted to disclose to ZTE information regarding security vulnerabilities in items owned, possessed, or controlled by ZTE when related to the process of providing ongoing security research critical to maintaining the integrity and reliability of communications networks and equipment.
  • Related Transfers of Funds: parties are permitted to make and receive payment to or from ZTE in connection with the activities listed above.

Notwithstanding this temporary authorization, the April 15 denial order remains in effect. All other exports, reexports, in-country transfers, activities and transactions prohibited under the denial order remain prohibited.

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Callie C. Lefevre is an associate in the Washington, DC office where she is a member of the International Practice Group. Her practice is focused on all aspects of International Trade law, particularly compliance with US export controls, trade and economic sanctions, and US foreign investment restrictions. *Admitted in New York only. Practice limited to matters and proceedings before US courts and federal agencies.

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Inessa Owens is an associate in the Washington, D.C. office and member of the Firm’s International Trade practice group. She focuses on outbound trade compliance issues, including compliance with the Export Administration Regulations, anti-boycott rules, and economic sanctions administered by the US Treasury Department’s Office of Foreign Assets Control, including those targeting Cuba, Iran, North Korea, Syria, and Russia. She has worked with clients in diverse industries that include finance, pharmaceuticals, and energy.

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Paul Amberg is a partner in Baker McKenzie’s Madrid office, where he handles international trade and compliance issues. He advises multinational companies on export controls, trade sanctions, antiboycott rules, customs laws, anticorruption laws, and commercial law matters. Paul helps clients assess and address compliance risks presented by export controls, trade sanctions, antiboycott rules, customs laws, and anticorruption laws. His practice especially focuses on internal reviews, voluntary disclosure filings, and enforcement actions brought by, the US Government in relation to the Export Administration Regulations (EAR), International Traffic in Arms Regulations (ITAR), trade and economic sanctions programs, and US customs laws.

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