This week, the U.S. Department of Commerce, Bureau of Industry
and Security ("BIS") issued a temporary general license
that restores certain export, reexport, and transfer privileges to
Zhongxing Telecommunications Equipment Corporation ("ZTE
Corp.") and ZTE Kangxun Telecommunications Ltd. ("ZTE
Kangxun") until June 30, 2016. As explained in our earlier
March 2016
Alert, ZTE Corp. and ZTE Kangxun—along with Beijing
8-Star International Co. and ZTE Parsian—were added to the
Entity List on March 8, 2016, effectively banning all exports,
reexports, and transfers of items subject to the Export
Administration Regulations ("EAR") to these four
entities. While this new license temporarily returns ZTE Corp. and
ZTE Kangxun to the status they held prior to being placed on the
Entity List, exports, reexports, and transfers of items subject to
the EAR to Beijing 8-Star International Co. and ZTE Parsian remain
prohibited.
After being named to the Entity List, ZTE Corp. and ZTE Kangxun
filed a request to remove or modify their listings with BIS. All
entities named to the Entity List have the right to request removal
or modification of their listing. The End-User Review Committee
("ERC") reviews such requests to determine, among other
considerations, "whether there continues to be reasonable
cause to believe, based on specific and articulable facts, that the
entity has been involved, is involved, or poses a significant risk
of being or becoming involved in activities that are contrary to
the national security or foreign policy interests of the United
States...." Temporary General License, 81 Fed. Reg. 15634
(Mar. 24, 2016). During its review of ZTE Corp. and ZTE
Kangxun's request, the ERC considered binding commitments made
by the entities and then voted unanimously to issue the temporary
general license.
The temporary general license restores the status quo ante
licensing policy, i.e., the licensing policy in effect before the
entities were named to the Entity List on March 8, 2016, to ZTE
Corp. and ZTE Kangxun. This means, for example, that companies may
use any No License Required, or NLR, designations and license
exceptions that were available on March 7, 2016 when engaged in
transactions involving ZTE Corp. and ZTE Kangxun. However,
companies still must comply with other provisions of the EAR, such
as: (i) the proscription against exports to end users or for end
uses that are prohibited by the EAR, or (ii) the requirement to
apply for an export, reexport, or transfer license required by
other provisions in the EAR. The temporary general license is
effective until June 30, 2016 and may be renewed if BIS determines
that ZTE Corp. and ZTE Kangxun are fulfilling the agreed-upon
binding commitments and otherwise cooperating with the U.S.
government.
While the temporary general license eases restrictions on exports,
reexports, and transfers to ZTE Corp. and ZTE Kangxun, companies
should remain wary of potential pitfalls. For example:
Failure to Renew the Temporary General
License. While BIS may renew the temporary
general license, renewal is not guaranteed. Because ZTE Corp. and
ZTE Kangxun both remain on the Entity List, all exports, reexports,
and transfers of items subject to the EAR to these entities would
be effectively prohibited if BIS does not renew the temporary
general license. As a result, companies should consider including
contingencies in their contracts that protect against the
possibility that the temporary general license is not
renewed.
Other Restrictions on Transactions Involving ZTE.
The U.S. government appears to be generally wary of ZTE Corp. and
its affiliates, as evidenced by the continued prohibition against
transactions involving Beijing 8-Star International Co. and ZTE
Parsian. Thus, the U.S. government quickly could take actions to
restrict transactions involving ZTE and its affiliates, such as
naming ZTE-affiliated entities to the Specially Designated
Nationals and Blocked Persons List maintained by the U.S.
Department of the Treasury, Office of Foreign Assets Control.
Companies should exercise caution when considering transactions
involving ZTE Corp. and ZTE Kangxun. We will continue to monitor
developments related to the March 24, 2016 temporary general
license, the March 8, 2016 final rule, and ZTE-affiliated
entities.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.
