Just two short weeks after having imposed significant export restrictions on ZTE Corporation, the U.S. Department of Commerce’s Bureau of Industry and Security (BIS) is providing a temporary reprieve to the Chinese telecom titan, much to the relief of ZTE and its suppliers and customers.

On March 8, BIS imposed broad export restrictions on ZTE Corporation, ZTE Kangxun Telecommunications Ltd. (China), Beijing 8-Star International Co. (China), and ZTE Parsian (Iran). The sanctions stem from an alleged scheme by ZTE to violate U.S. export controls by establishing and using “detached” shell or front companies to reexport items subject to the U.S. Export Administration Regulations (EAR) to countries sanctioned by the United States. These new restrictions sent shockwaves throughout the United States and China, as they prohibit the provision of even common, off-the-shelf EAR99 and other low-technology electronic components, commercial software, and technology to ZTE without a license.

Yesterday afternoon, BIS released a new rule that will significantly ease the sanctions on ZTE. The rule, which is scheduled to be published and effective this Thursday, creates a temporary general license that suspends the Entity List export restrictions on ZTE Corporation and ZTE Kangxun. In other words, companies generally can engage in business as usual with these two entities, just as they would have prior to the March 8 Entity List designations.

Although this rule should provide relief to ZTE and its customers and suppliers, there are a couple of key points for exporters to keep in mind:

  1. The relief is temporary and is only valid until June 30. After that time, the temporary general license can be renewed but only if ZTE Corporation and ZTE Kangxun are performing their compliance-related commitments and otherwise cooperating with the U.S. government. If the temporary general license is not renewed, the export restrictions on ZTE Corporation and ZTE Kangxun likely will snap-back into place.
  2. The relief does not cover Beijing 8-Star International Co. or ZTE Parsian, the other two companies that were added to BIS’s Entity List; thus, the export prohibitions imposed on March 8 continue to apply to these companies.

Going forward, we recommend that companies conduct heightened due diligence and be alert to “red flags” to ensure that any items exported to ZTE are not diverted to the restricted affiliates or other sanctioned entities/countries.

Stay tuned for more developments in the ZTE saga.