US sets restrictions on China telecoms giant over Iran violations

Delegates look at the ZTE products on display at the Mobile World Congress in Barcelona, Spain, on Feb. 22, 2016.
Delegates look at the ZTE products on display at the Mobile World Congress in Barcelona, Spain, on Feb. 22, 2016.PHOTO: BLOOMBERG

WASHINGTON (AFP) - The United States said Monday it is placing trade restrictions on Chinese telecommunications equipment giant ZTE due to violations of US sanctions on Iran.

The Commerce Department said in an order to be officially published on Tuesday that ZTE Corp and related companies set up a scheme to circumvent US sanctions and "illicitly export" controlled items to Iran, violating US laws.

The company will be forced to apply for permission on its exports and reexports from the United States in the future due to actions "contrary to the national security or foreign policy interests of the United States", the order said.

ZTE, China's second-biggest telecom equipment maker, confirmed earlier that it will be hit with the restrictions, though it did not provide any background or reason.

Trade in ZTE shares was halted in Hong Kong and Shenzhen as it notified the exchanges of the "United States Commerce Department's proposal to implement export restrictions on the company".

China's Global Times newspaper on Monday quoted a ZTE statement as saying: "ZTE closely complies with international industry rules as well as the laws of foreign countries."

The order could hamper ZTE's ability to purchase technology hardware and software in the United States.

The company is one of the world's largest suppliers of telecommunications equipment and services, from networks to popular cellphones.

The case dates back to 2012 when the Commerce Department first began investigating the transfers of US technology to Iran, according to reports.

Under the Commerce Department order, ZTE Corp and three other companies - ZTE Kangxun Telecommunications, Beijing 8-Star, and Iran-based ZTE Parsian - were placed on the export restrictions list.

The order said the latter three were identified in ZTE documents for a scheme specifically aimed at circumventing US export controls.

Asked about the ZTE case, Beijing criticized US government actions against Chinese companies.

"China is always opposed to US sanctions on Chinese enterprises citing domestic laws," foreign ministry spokesman Hong Lei told reporters in Beijing.

"We hope that the US side can stop such erroneous practices so as to avoid further damage to Sino-US economic cooperation and bilateral relations." Washington in January eased several restrictions on doing business with Iran, following an international agreement over the country's nuclear program.

But sanctions tied to accusations that Teheran supports terrorism remain in effect, still largely blocking US companies from business with Iran.

Founded in 1985, ZTE offers both telecom equipment and services, with customers in more than 160 countries.

In January, Norway's public pension fund divested from ZTE because of corruption fears, according to the country's central bank, which manages the fund.

An ethics council that advises the bank said ZTE was facing corruption allegations in 18 countries and the group was or had been under investigation in 10 of them.

Another Chinese telecom giant, Huawei, has in the past been barred from involvement in broadband projects in the United States and Australia over national security fears due to its alleged ties with the government.

Huawei denies any such suggestions.