The U.S. government is set to sanction a Chinese telecommunications firm over allegedly violating U.S. restrictions on trade with Iran. According to Reuters, Chinese firm ZTE is believed to have purposefully plotted ways to bypass U.S. restrictions and sell U.S. hardware and software to Telecommunication Co. of Iran back in 2012. In response, the Commerce Department now plans to require firms around the world to request a special export license before supplying ZTE with American equipment – and, Reuters says, citing Commerce Department documents, “the license applications generally will be denied.”
The proposed restrictions would cause serious problems for ZTE, one analysts told Reuters, saying the Chinese company counts Qualcomm, Microsoft, and IBM as among its major suppliers.
According to Reuters, the Commerce Department is basing its move off of internal ZTE documents that outlined a strategy for using shell companies to bypass U.S. restrictions on exports to Iran – and acknowledged the risks entailed in that ploy. One memo stated that ZTE’s operations in Iran “can potentially put us at risk of being put on the Blacklist by the U.S.”
A statement from ZTE provided to Reuters said the company was “highly concerned” about the reports and had been cooperating with the U.S. government “on investigations since 2012.” ZTE “is committed to fully address and resolve any concerns,” the statement continued.
China’s Foreign Ministry urged the United States not to sanction ZTE, but “to call off the wrong action lest it should jeopardize economic cooperation” between the two countries. “The Chinese side is firmly opposed to the U.S. using domestic laws to place sanctions on Chinese companies,” spokesperson Hong Lei told reporters on Monday.
China has long been vocal about its opposition to unilateral U.S. sanctions on third-party countries (in this case, Iran) being used to punish Chinese companies. And Washington has usually trod cautiously on the subject, for example, by routinely providing exemptions to China for sanctions over oil purchases from Iran.
When the United States did move forward to sanction a Chinese company – the Bank of Kunlun — in 2012 for facilitating transactions on behalf of Iranian banks, China protested angrily. The sanctions on the bank “badly violate rules governing international relations and hurt China’s interests,” Foreign Ministry spokesperson Qin Gang said at the time. On a more practical level, as Richard Nephew pointed out recently for 38 North, the Bank of Kunlun still appears to be both profitable and involved in Iran’s financial sector – meaning the sanctions weren’t exactly effective.
Meanwhile, the United States has a complicated history with the Chinese telecom sector, and ZTE in particular. A 2012 report from the House Permanent Select Committee on Intelligence found that neither ZTE nor telecoms company Huawei were able to adequately address concerns that they were affiliated with the Chinese government – and could theoretically be ordered to use their access to U.S. telecoms systems in malicious ways.
“As with Huawei, the Committee is concerned with the influence of the Chinese state in ZTE’s operations. Such access or influence would provide a ready means for the Chinese government to exploit the telecommunications infrastructure containing ZTE equipment for its own purposes,” the report noted. “[…]Because ZTE failed to answer key questions about its history and the connections to government institutions, the Committee cannot trust that it is free of state influence, particularly through its major shareholders and Board members.”
(Incidentally, the same report noted in passing that ZTE representatives “consistently declined to comment on recent media reports that ZTE had sold export-controlled items to Iran.”)
Ultimately, the report recommended that U.S. government systems avoid using any component parts manufactured by either ZTE or Huawei. It also “strongly encouraged” private firms in the United States “to consider the long-term security risks associated with doing business with either ZTE or Huawei for equipment or services.”
That bit of backstory colors the current case. Back in 2012, China’s response to the Congressional investigation into Huawei and ZTE was to accuse the United States of protectionism. Now, four years later, ZTE is back under the U.S. government spotlight, at a time when China is more focused than ever on promoting its telecommunications sector as part of its quest to become a “cyber power.”