Reprieve for ZTE exporters

Commerce Department extends export exemption to major Chinese telecom for a month as investigation continues    U.S. companies received some much needed breathing room from the U.S. Commerce Department through a 30-day exemption that allows them to continue to export to a major Chinese telecommunications company.
   ZTE Corp., which is equivalent to a Verizon or AT&T, relies on U.S.-made semiconductors and other electronics to develop its mobile phones and other telecommunications equipment, which it in turn ships all over the world.
   If the extension to the U.S. government’s investigation had not been reached by Feb. 27, the result would have been the immediate halt of hundreds of millions of dollars in U.S. semiconductor component shipments to ZTE.
   Citing violations of federal export control regulations, the U.S. Commerce Department’s Bureau of Industry and Security in early March 2016 added ZTE and three of its affiliates to a list of entities prohibited from receiving U.S.-made exports.
   BIS said in a final rule published in the Federal Register at the time that ZTE Corp. “planned and organized a scheme to establish, control, and use a series of ‘detached’ (i.e. shell) companies to illicitly re-export [U.S. exports] to Iran in violation of U.S. export control laws.”
   The agency added that this activity by the Shenzhen-based company was “contrary to the national security and foreign policy interests of the United States.”
In addition to ZTE Corp., the other related companies added to the agency’s so-called “Entity List” include ZTE Kangxun Telecommunications Ltd. and Beijing 8-Star in China, and ZTE Parsian in Iran.
   Based on its investigation and allegations, BIS said “no license exceptions are available for exports, reexports, or transfers (in-country) of items subject to the EAR (Export Administration Regulations), including EAR 99, to the entities being added to the Entity List.”
   However, the Commerce Department created a temporary general license in late March 2016 applicable to exports to ZTE, which remained in effect to June 30, 2016. Then Commerce followed with an extension valid through August 30, 2016, then another to November 30, 2016, and finally another to Feb. 27, 2017. BIS stated in the Federal Register notices that the reasons for the extension was that ZTE continued to cooperate with the U.S. government with respect to the matter.
   Because of the nature of the ZTE violations, the investigation is being led by the Counterintelligence and Export Control Section (CES) of the Justice Department’s National Security Division. In addition, BIS and the Treasury Department’s Office of Foreign Assets Control (OFAC) have remained actively involved in the investigation.
   Observers of the ZTE investigation believed it was most likely for the Justice, Commerce and Treasury departments to extend the exemption this week—in advance of Feb. 27—to reach a settlement with ZTE. Also, a Justice Department deputy attorney general or other senior appointees need to be in place to review the case. The latest exemption extension is valid through March 29.
   Many U.S. companies are eager for the U.S. government to reach an export compliance settlement with ZTE.
   As electronics manufacturer Oclaro already warned in its filing to the U.S. Securities and Exchange Commission for the quarter ending Dec. 31, 2016, “Any action that precludes us from shipping product to ZTE, including the non-renewal of the temporary license, or to other customers in China, may have a material adverse impact on our revenues and results of operations.