Hu Xijin, editor of government-run Global Times, wrote “We are all ZTE tonight,” echoing Jack Kennedy to support the 80,000 workers of ZTE. “Two thousand years ago, the proudest boast was ‘Civis Romanus sum.’ Today, in the world of freedom, the proudest boast is ‘Ich bin ein Berliner!’ ” Lily Kou of the Guardian reports a strong backlash in China to the U.S. Government total ban on ZTE.
The ZTE ruling portends that the United States government could shut down at will virtually any phone or telecom supplier in the world. I confirmed with Commerce that the decree covers software and technology. Reuters reported that Google may have to cut off Android apps, destroying ZTE’s phone business, which ships 40,000,000 units a year. Qualcomm & Broadcom can’t sell chips to ZTE, probably a billion dollars a year.
Every manufacturer outside the United States has to fear similar U.S. action, not just the Chinese. For example, Samsung could be affected if the U.S. wanted to punish South Korea for making a separate peace with the North.
Any sensible company will immediately start researching how to design products without any U.S. content. The Chinese are already spending $100B to build memory chips. They’ve just promised to up the government spending on 5G.
The cost to the U.S. over a few years would be tens of billions if U.S. components were widely eliminated.
Qualcomm and Broadcom have committed to license all their patents in standards on “reasonable and non-discriminatory terms.” The U.S. government has now ordered them otherwise. Disputes like this could destroy the entire standards process.
China now is responding with warnings, minor tariffs, and speeding up “Made in China.” They could require Huawei and ZTE to use their thousands of patents to destroy American companies, although that’s not yet on the table. ZTE and Huawei were #1 and #2 in worldwide patents in 2016.
Trump and his people clearly have no idea about the dangers.
Here is the quote from Weibo (thank you, Ms. Kuo,) the key part of the order, and the Commerce Department release.
The quote from Global Times, from Weibo in Google translation.
I just had a phone call with a friend of ZTE. I was very impressed. ZTE may have made mistakes, but it is very sincere in its attitude with the US side. The U.S. side has started to use ZTE and is trying to knock down China’s leading 5G momentum. The United States is afraid and they are desperate. ZTE and Huawei made great contributions to the development of China’s telecommunications industry. When the United States sold program-controlled switches to China, how much money each of us earned! Today is by no means the only time that China can only let the U.S. side annihilate its bare hands. China spends more than 200 billion U.S. dollars a year to buy chips. Let us take up a significant portion of the world’s largest market to support our chip research and development. We will have some difficulties, but these difficulties are even more difficult with those experienced by the Republic. It’s embarrassing to compare. Chinese society must support ZTE and Huawei. ZTE itself should also be more brave, more aggressive, and must not fall. Pay tribute to the 80,000 employees of ZTE. Lao Hu and the Global Times staff are all ZTEs tonight!
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IT IS THEREFORE ORDERED:
First, from the date of this Order until March 13, 2025, ZTE Corporation … may not, directly or indirectly, participate in any way in any transaction involving any commodity, software or technology (hereinafter collectively referred to as “item”) exported or to be exported from the United States. …
Carrying on negotiations concerning, or ordering, buying, receiving, using, selling, delivering, storing, disposing of, forwarding, transporting, financing, or otherwise servicing in any way, any transaction involving any item exported or to be exported from the United States that is subject to the Regulations, or engaging in any other activity subject to the Regulations; or C. Benefitting in any way from any transaction involving any item exported or to be exported from the United States that is subject to the Regulations, or from any other activity subject to the Regulations.
SECOND, no person may, directly or indirectly, do any of the following: A. Export or reexport to or on behalf of a Denied Person any item subject to the Regulations; B. Take any action that facil itates the acquisition or attempted acquisition by a Denied Person ofthe ownership, possession, or control of any i tern subject to the Regulations that has been or will be exported from the United States, including financing or other support activities related to a transaction whereby a Denied Person acquires or attempts to acquire such ownership, possession or control: C. Take any action to acquire from or to facilitate the acquisition or attempted acquisition from a Denied Person of any item subj ect to the Regulations that has been exported from the United States: (emphasis added.)
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Secretary Ross Announces Activation of ZTE Denial Order in Response to Repeated False Statements to the U.S. Government
Apr162018
Trade and InvestmentTrade Enforcement
Posted at 9:49 AM
FOR IMMEDIATE RELEASE
Monday, April 16, 2018
Office of Public Affairs
(202) 482-4883
publicaffairs@doc.gov
Secretary of Commerce Wilbur L. Ross, Jr. today announced that the U.S. Department of Commerce’s Bureau of Industry and Security (BIS) has imposed a denial of export privileges against Zhongxing Telecommunications Equipment Corporation, of Shenzhen, China (“ZTE Corporation”) and ZTE Kangxun Telecommunications Ltd. of Hi-New Shenzhen, China (“ZTE Kangxun”) (collectively, “ZTE”).
In March 2017, ZTE agreed to a combined civil and criminal penalty and forfeiture of $1.19 billion after illegally shipping telecommunications equipment to Iran and North Korea, making false statements, and obstructing justice including through preventing disclosure to and affirmatively misleading the U.S. Government. In addition to these monetary penalties, ZTE also agreed a seven-year suspended denial of export privileges, which could be activated if any aspect of the agreement was not met and/or if the company committed additional violations of the Export Administration Regulations (EAR).
The Department of Commerce has now determined ZTE made false statements to BIS in 2016, during settlement negotiations, and 2017, during the probationary period, related to senior employee disciplinary actions the company said it was taking or had already taken. ZTE’s false statements only were reported to the U.S. Government after BIS requested information and documentation showing that employee discipline had occurred.
“ZTE made false statements to the U.S. Government when they were originally caught and put on the Entity List, made false statements during the reprieve it was given, and made false statements again during its probation.” said Secretary of Commerce Ross.
These false statements covered up the fact that ZTE paid full bonuses to employees that had engaged in illegal conduct, and failed to issue letters of reprimand.
“ZTE misled the Department of Commerce. Instead of reprimanding ZTE staff and senior management, ZTE rewarded them. This egregious behavior cannot be ignored,” Secretary Ross said.
Click HERE to view the denial order.
BACKGROUND:
Denial Orders are issued by the Assistant Secretary for Export Enforcement of the Bureau of Industry and Security, denying the export privileges of a company or individual. A denial of export privileges prohibits a person from participating in any way in any transaction subject to the EAR. Furthermore, it is unlawful for other businesses and individuals to participate in any way in an export transaction subject to the EAR with a denied person.
This is a regulatory action and is unrelated to any ongoing trade-related actions.
BIS is the principal agency involved in the implementation and enforcement of export controls for commercial technologies and many military items. The BIS Office of Export Enforcement detects, prevents, investigates and assists in the sanctioning of illegal exports of such items. For more information, please visit us at www.bis.doc.gov.
I just had a phone call with a friend of ZTE. I was very impressed. ZTE may have made mistakes, but it is very sincere in its attitude with the US side. The U.S. side has started to use ZTE and is trying to knock down China’s leading 5G momentum. The United States is afraid and they are desperate. ZTE and Huawei made great contributions to the development of China’s telecommunications industry. When the United States sold program-controlled switches to China, how much money each of us earned! Today is by no means the only time that China can only let the U.S. side annihilate its bare hands. China spends more than 200 billion U.S. dollars a year to buy chips. Let us take up a significant portion of the world’s largest market to support our chip research and development. We will have some difficulties, but these difficulties are even more difficult with those experienced by the Republic. It’s embarrassing to compare. Chinese society must support ZTE and Huawei. ZTE itself should also be more brave, more aggressive, and must not fall. Pay tribute to the 80,000 employees of ZTE. Lao Hu and the Global Times staff are all ZTEs tonight!