By George W. Thompson
I told you there was drama. After placing Zhongxing Telecommunications Equipment Corporation (ZTE) and three affiliated companies on the Entity List earlier this month (discussed here), the Bureau of Industry and Security (BIS) has issued a limited-time General License authorizing resumption of transactions with both ZTE and ZTE Kangxun Telecommunications Ltd. (Kangxun).
To recap: the Entity List identifies foreign companies, organizations and individuals that an interagency U.S. government panel has found to be acting inconsistently with the foreign policy or national security interests of the United States. Placement on the list means that exports, reexports and transfers of all items “subject to the Export Administration Regulations” (EAR) are prohibited without a BIS license. The intent is to cut the listed entities from access to U.S.-origin goods, software and technology.
Preemptive Move to Compel Compliance?
The various ZTE companies were suspected of knowingly selling U.S.-origin articles to Iran in violation of the EAR and creating a scheme to hide their tracks. If true, such actions would likely be treated with severity by BIS. Placement on the Entity List appears to have been a preemptive move to forestall ZTE’s ability to pursue the alleged scheme and agree to comply with U.S. legal requirements.
News reports at the time (such as here and here) indicated that negotiations to resolve ZTE’s issues were underway, even before the Entity List designation. These appear to have been successful, at least on an interim basis. Indeed, the Federal Register notice alludes to ZTE and Kangxun having made “undertakings to the U.S. Government and otherwise cooperating with the U.S. Government in resolving the matter”, so it’s pretty clear some kind of deal was struck.
General License Temporarily Restores Trade Privileges
The BIS General License provides a temporary restoration of the pre-designation status quo for ZTE and Kangxun. Both companies remain on the Entity List, but for the period March 24-June 30, 2016, exports, reexports and transfers to them may take place under the same authorizations that were in place before they were designated. This means restoration of No License Required or License Exception treatment for items that were previously eligible. The General License may be extended after June 30, contingent on ZTE and Kangxun fulfilling their “undertakings” and “cooperating”.
Also, the BIS notice provides the important caveat that any person intending to sell to the companies should take into account other provisions that may restrict a transaction. For example, the prohibition on exporting or reexporting with knowledge that the end-user or end-use is prohibited by the EAR is specifically called out. Keep in mind, as well, that the other two ZTE affiliates placed on the Entity List, Beijing 8 Star International Co. and ZTE Parsian, remain there and are outside the General License’s coverage.
This is a truly remarkable development. I certainly don’t recall another situation like it, and I’m looking forward to the next stage of the saga. Pass the popcorn.
Notice of the General License is published here
