Epic Export Denial for ZTE Affects American Supply Chains

ZTE is China's No. 2 telecom equipment and 5G mobile phone maker, headquartered in Shenzhen, China. The company was sanctioned previously for selling American-made products to Iran and paid $890 million in fines and penalties after it pleaded guilty last year to conspiring to violate U.S. Iran sanctions.

But ZTE failed to execute all of the terms of the sanction and as a result, the US has banned all U.S. trade with ZTE effective April 15. This is likely to be catastrophic for ZTE and devastating to some American companies that supply 25-30% of ZTE's component parts.

Although an export ban sounds straightforward, it is anything but simple. The new seven-year ban prohibits American companies from doing any business that benefits ZTE. Trade Compliance managers in high tech, especially in Silicon Valley, are scrambling to stop all trade with ZTE. This means that no products (hardware or software) are permitted to be shipped starting April 15, 2018, as this is now against U.S. Federal Export Regulations.

But wait, there's more…

Payments and Advertising

American businesses are not allowed to receive any further payments from ZTE. In fact, U.S. banks are likely to refuse all transactions between ZTE and any American entity. If your company is a supplier to ZTE, its subsidiaries, its distributors, or its customers, you are probably not going to collect on money that is owed to you. American companies such as Qualcomm (chipsets), and optical components from such companies as Maynard, Acacia, Oclaro, Lumentum, and Finisar are now banned from shipping to ZTE. Google mobile services including the Google Play App Store are covered by the ban even though the Android operating system is free. This technology is no longer allowed to be used by ZTE. Even Google AdWords are banned because they benefit ZTE.

But wait, there's more…

Warranties and Call Centers

If you have a service or maintenance contract for hardware or software sold to ZTE, you are banned from executing it. You must terminate the contract. Call centers are banned from having any technical discussions or help services with ZTE employees or any of its affiliates.

Silicon Valley companies are putting phone restrictions on their call centers to avoid violating the ban. If ZTE calls in for help, a red flag pops up on the computer screen, instructing the operator that no technical discussions are permitted, even on equipment under warranty.

But wait, there's more…

Conferences

Americans and American companies are now restricted from participating in technical discussions with ZTE including email, fax, phone, and in-person. This means you may not participate in conferences, consortiums, trade shows, user groups or any other assembly where there may be a chance of having a technical discussion with ZTE employees.

But wait, there's more…

Contract Manufacturing in a Foreign Location

If your company uses contract manufacturers in a foreign country, and/or you source foreign component parts that ultimately end up in a product sold to ZTE, you must stop. You are restricted from providing any technology or engineering services to your EMS or CM, even if they are manufacturing inside of China. As long as the end customer is ZTE, its affiliates, distributors, resellers, or customers, American companies are banned from selling and shipping through these channels. Any product, service, or technology that benefits ZTE in any way is prohibited.

These restrictions seem draconian because they are meant to severely punish ZTE for selling American products and technologies to Iran. To comply with U.S. Export Regulations and this ban in particular, you need a strategy and trade compliance professionals to assist your company in stopping all shipments, contracts, and communications with ZTE. Everyone in your company needs to be warned.

Sales, Finance, Legal, Engineering, Customer Service, Procurement and Logistics need to be alerted. Executives need to be informed. A sanction and ban of this magnitude is rare and difficult to comply with. Trade compliance and supply chains must work together to keep your company out of trouble.

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