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U.S. Restricts Exports of Dual-Use Goods to Major Mainland Chinese Telecom Company

The U.S. Department of Commerce’s Bureau of Industry and Security issued a final rule on 8 March that added three entities in mainland China and one in Iran to the list of entities restricted from receiving exports of dual-use goods from the United States. BIS has determined that one of the mainland Chinese entities – ZTE Corporation – planned and organised a scheme to establish, control and use a series of shell companies to illicitly re-export controlled items to Iran and that the other three entities were involved in this scheme.

For these entities there will be a licence requirement for all items subject to the Export Administration Regulations and a licence review policy of presumption of denial. The licence requirement applies to any transaction in which items are to be exported, re-exported or transferred (in-country) to any of these entities or in which they act as purchaser, intermediate consignee, ultimate consignee or end-user. In addition, no licence exceptions are available for exports, re-exports or transfers (in-country) to these entities.

Shipments of items removed from eligibility for a licence exception or export or re-export without a licence (NLR) as a result of this rule that were en route aboard a carrier to a port of export or re-export on 8 March pursuant to actual orders for export or re-export to a foreign destination may proceed to that destination under the previous eligibility for a licence exception or NLR.

While amendments to the Entity List are relatively common, this rule is particularly significant because ZTE Corporation is a major global supplier of telecommunications networking equipment and the fourth largest smartphone supplier to the United States. Indeed, this decision by BIS could potentially cause significant friction between Washington and Beijing, with the mainland Chinese government stating on 8 March that it is “resolutely opposed” to the export restrictions.

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