The Commerce Department’s Bureau of Industry and Security (BIS) has decided to extend the temporary general license for two Entity List parties, ZTE Corporation and ZTE Kangxun, until March 29, 2017. This means that companies may continue exporting and reexporting to these firms without first having to secure a license from the BIS under the Export Administration Regulations (EAR). Last Spring, ZTE Corporation, the second largest telecommunications company in China, was added to the BIS’ Entity List, along with three of its affiliated companies:
- ZTE Kangxun Telecommunications, Ltd.
- ZTE Parsian
- Beijing 8-Star International Company
The Entity List identifies individuals and companies that, among other reasons, pose risks of diverting products and technology subject to U.S. export laws and regulations to unauthorized end-users and destinations. U.S. companies are prohibited from shipping products or transferring technology to parties designated on the Entity List without a license from the BIS.
The ZTE companies were added to the Entity List for reportedly shipping export-controlled items through various shell companies to Iran, North Korea, Cuba, Sudan and Syria in violation of U.S. law, and disseminated a written internal procedure describing their methodology for circumventing U.S. law. The inclusion of these companies on the Entity List was a significant event given that ZTE Corporation reportedly sources 40% of its raw materials, parts and components from U.S. suppliers. Despite the broad prohibitions, U.S. and foreign companies may continue to receive payments and license fees from the listed ZTE companies because the Entity List only restricts exports and reexports to designated parties.
However, the BIS decided to implement a Temporary General License for ZTE Corporation and ZTE Kangxun, thereby reinstating the U.S. export licensing policy that was in effect for these two companies prior to their designation on the Entity List in 2016. The BIS has since extended the Temporary General Licenses for these companies several times since its initial implementation. As noted above, the most recent extension of this treatment goes into effect on February 24th and will extend until March 29, 2017. The Temporary General License was implemented as a result of the companies’ cooperation with the ongoing investigations and commitments to resolve the issue. Given the BIS’ previous extensions, it is likely that the Temporary General License will be extended again.
It is important to note that the two companies covered by the Temporary General License have not been formally removed from the Entity List; however, the BIS has stated that it will consider further lifting of sanctions on the companies provided that ZTE Corporation work to resolve the situation to its satisfaction. As this situation continues to unfold, companies dealing with the ZTE companies are advised to stay informed.
If you have any questions pertaining to the Temporary General License, the Entity List or other international trade issues, please feel free to contact a member of Polsinelli’s International Team, including Melissa Proctor at firstname.lastname@example.org.