Chinese Mobile Device Maker ZTE Banned From Buying US Goods

The inside of a ZTE smart phone

When challenged by the US Department of Commerce, ZTE agreed to plead guilty to the actions.

According to Reuters, US manufacturers provide up to a third of the components used in ZTE's network equipment and smartphones, so this seven-year-ban could have a disastrous effect on the company's business. That ban stops USA companies from supplying ZTE with components, which could be devastating to a company that possibly gets between 25 and 30% of its parts from the US.

Following the guilty plea, the company agreed with the United States government to pay $890 million (€720 million) in penalties and fire four senior employees and discipline 35 others, a Commerce Department spokesman told Reuters news agency. Trading in ZTE shares was suspended in Hong Kong. The Federal Communications Commission has proposed a new set of rules to restrict ZTE, Huawei and other Chinese firms from offering their products through US mobile companies.

"ZTE acknowledges the mistakes it made, takes responsibility for them, and remains committed to positive change in the company", ZTE's Chairman and Chief Executive Officer Zhao Xianming said at the time.

As a result, the department said it has imposed a seven-year export ban on ZTE, forbidding American companies from selling parts and providing services to it. Qualcomm declined to comment on the matter, while Acacia did not respond to an inquiry.

Douglas Jacobson, an exports control lawyer who represents suppliers to ZTE, called the ban highly unusual and said it would severely affect the company.

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The US has already effectively prevented Huawei and ZTE from selling their wares to US telcos on national security grounds, while it blocked a proposed takeover of Qualcomm by rival Broadcom because of concerns it would give Huawei an advantage in 5G. "Many banks and companies even outside the United States are not going to want to deal with them", said Eric Hirschhorn, a former USA undersecretary of commerce.

The ban in the U.S. should not really come as a surprise to anyone as steps have been taken over the last few months to make it as unattractive, or illegal, to do business with Chinese firms.

The move comes as the US government cracks down on the presence of Chinese phone companies like ZTE and Huawei in the U.S.

"We can't trust what they are telling us is truthful", the official said.

The National Cyber Security Centre, which is part of the GCHQ (home of the UK's spooks), now monitors Huawei equipment to ensure the prying eyes of the Chinese government are kept off sensitive matters and information, but the inclusion of ZTE infrastructure would add too much to the workload of paranoia. It has relied on USA companies including Qualcomm Inc, Microsoft Corp and Intel Corp for components. The inability to export components from the U.S.to build its carrier and cloud equipment would seriously impact ZTE as well.

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