Denial of Export Privileges Against ZTE Corporation to Be Lifted Once Order Is Signed

Today, the U.S. Department of Commerce announced that a new settlement has been reached with Zhongxing Telecommunications Equipment Corporation (ZTE Corporation) and ZTE Kangxun Telecommunications Ltd. (ZTE Kangxun) (collectively "ZTE") that will result in the suspension of the denial of export privileges imposed against ZTE in April 2018. Pursuant to the new settlement, ZTE will pay further monetary penalties of approximately $1 billion, install a new board of directors and senior leadership and U.S.-government-selected compliance monitors, and the Commerce Department's Bureau of Industry and Security (BIS) will suspend the denial order. With the suspension of the denial order, ZTE will be removed from BIS's List of Denied Persons and, as a result, ZTE can again receive and participate in transactions involving virtually any commercial items exported from the U.S. The terms of the settlement will not be finalized or implemented until BIS signs the order in the administrative enforcement proceeding. While no date has been given for the signing of the order, absent action by Congress, we expect it to occur promptly and likely within the next week. It is important to note that certain members of Congress are calling for legislation or other action that would overturn or negate the new Commerce Department settlement with ZTE, particularly with respect to the lifting of the denial order.

Suspension of the Denial of Export Privileges—What Does it Mean?

Once the order is signed and ZTE is removed from BIS's List of Denied Persons, the export licensing requirements under the Export Administration Regulations (EAR) will return to the same level that existed prior to ZTE's inclusion on the List of Denied Persons. Thus, if an export to ZTE was authorized under no license required (NLR) prior to the April 15, 2018, listing, then that export also will be eligible to be sent NLR to ZTE after the removal. Also, according to press reports, there is no prohibition or restriction on using license exceptions for exports, reexports, and in-country shipments to ZTE of items subject to the EAR.

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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