BIS Backtrack: U.S. Temporarily Reauthorizes Certain Exports and Reexports to Two ZTE-Affiliated Entities
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.
For further information, please contact your principal Firm representative or one of the lawyers listed below. General email messages may be sent using our "Contact Us" form, which can be found at www.jonesday.com/contactus/.
D. Grayson Yeargin
Michael P. Gurdak
Chad O. Dorr
Chase D. Kaniecki
Lindsey M. Nelson
Christopher M. Tipler
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