Today a notice appeared in the Federal Register indicating that Chinese telecom giant ZTE, effective immediately, has been placed on the Department of Commerce’s "Entity List." This means that nothing can be exported from the United States to ZTE without an export license from the Department of Commerce. At the same time, Commerce said that it would impose a policy of denial on all applications for export licenses involving ZTE.
In its most current annual report, ZTE stated that it had more than $13 billion in revenues for 2014. During that same period, ZTE spent $6.6 billion in purchases of manufacturing inputs, a substantial portion of which were likely imported from the United States.
The scope of the order, which can be found here, is extremely broad. All unlicensed exports by U.S. and foreign persons and companies of items subject to the EAR are prohibited. Items are subject to the EAR if they are in the United States, were exported from the United States or were manufactured abroad using more than 25 percent U.S. content.
No license exceptions are available. The biggest impact here will result from the unavailability of license exception RPL. This will effectively prohibit the servicing and repair of items already shipped to ZTE, even if those items are still under warranty.
Exports of technology are also covered, thereby making ongoing service of items previously exported to ZTE problematic. This restricts technology transfers not only for dual use items that were exported to ZTE under license but also for EAR99 items which did not require a license.
Technology is defined as information necessary for the development, production or use of an item. Given the breadth of this definition of technology, it may be difficult to determine whether information provided to ZTE is technology that cannot be transferred without a license.
There is an exception for information that is published (for example, by appearing on a website) or that is generally taught at academic institutions. Such information is not considered technology that is subject to the EAR and may be provided to ZTE without license.
There is some evidence that ZTE is continuing to place orders with U.S. companies and with foreign companies for U.S. goods, no doubt hoping to obtain as many items as possible before news of the export ban is widely known. Companies should act diligently to make sure that no such last-minute orders make it out their doors.