The US has banned American companies from selling parts to ZTE

The ban lasts for seven years and comes into effect after ZTE allegedly violated the terms of a 2017 settlement, officials from the Commerce Department's Bureau of Industry and Security said Monday in a conference call. The restriction will keep ZTE from getting parts from USA -based suppliers, such as Qualcomm and Dolby. ZTE was fined for shipping equipment to Iran and North Korea in times of sanction.

The move, which also dragged down some USA technology shares, means a block on sales to ZTE by U.S. companies, and ends a 2017 settlement with America, which had suspended a seven-year ban on ZTE's exports in after the company agreed to pay the United States government US$1.2 billion in penalties. Along with a huge penalty of $1.19 billion, ZTE can't use the hardware and software from the U.S. companies for the next seven years. It's also illegal for other businesses or individuals to participate in transactions with a company that has been denied export privileges, according to the department. "This egregious behavior can not be ignored", US Secretary of Commerce Wilbur Ross said. It said the Shenzhen-based company has cooperated with hundreds of USA companies and contributed to the country's job creation.

Effective immediately, ZTE will no longer be able to use any US -created hardware or software in its devices. The company can resume purchasing these components from the US after seven years.

While choking the ZTE supply chain is another step towards full-scale trade war between the USA and China, this is not the only PR battle being faced by ZTE.

The U.S. hit Chinese telecom firm ZTE with a potentially devastating enforcement action on April 16, prohibiting the company from doing business with American firms. It punishes the Chinese company for violating the terms of a sanctions violation case, by banning all United States companies from selling prohibited goods such as chipsets to ZTE. ZTE already sells both its branded and white-label smartphones via mobile carriers AT&T and Verizon in the US. Specifically, ZTE agreed to fire four senior employees and discipline 35 others.

ZTE, whose Hong Kong and Shenzhen shares were suspended on Tuesday, said it was assessing the implications of the U.S. decision and was communicating with "relevant parties". However, hardware and software aspects of those devices originated in the United States, which is a blatant violation of Iranian trade embargoes instituted by the USA government. The software is released under the open source license, which means that ZTE can presumably continue to install it on its smartphones and tablets.

The U.S. government had allowed the company continued access to the U.S. market under the 2017 agreement. Although Commerce Department officials would not discuss the report, they said the department followed up in February.

  • Wendy Palmer