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U.S. regulator permits China's ZTE to submit more evidence

By Karen Freifeld
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The logo of China's ZTE Corp is seen on a building in Nanjing

The logo of China's ZTE Corp is seen on a building in Nanjing, Jiangsu province, China April 19, 2018. REUTERS/Stringer

By Karen Freifeld

NEW YORK (Reuters) - The U.S. Commerce Department has granted ZTE Corp's request to submit more evidence after the agency banned American companies from selling to the Chinese technology firm, a senior Commerce official said on Saturday.

The U.S. Commerce Department's Bureau of Industry and Security, or BIS, this week banned American companies from selling to ZTE for seven years, saying the Chinese company had broken a settlement agreement with repeated false statements. The action was sparked by ZTE's violation of an agreement that was reached after it was caught illegally shipping U.S. goods to Iran.

According to Commerce regulations, there is no appeals process, but the agency has "exercised discretion" to let ZTE present additional evidence through an "informal procedure," the senior official said.

The Wall Street Journal first reported the decision by Commerce to allow more evidence.

ZTE, in a statement on Friday, called the initial decision "unacceptable" and said it could cause damage to both the company and its partners.

It is unclear whether the decision to accept more evidence would provide a chance for resolution between U.S. regulators and the company.

This week's U.S. action, first reported by Reuters, could be devastating to ZTE since American companies are estimated to provide 25 to 30 percent of the components used in ZTE’s equipment, which includes networking gear and smartphones.

The ban is the result of ZTE's failure to comply with an agreement with the U.S. government after it pleaded guilty last year in federal court in Texas to conspiring to violate U.S. sanctions by illegally shipping U.S. goods and technology to Iran.

The company paid $890 million in fines and penalties, with an additional penalty of $300 million that could be imposed.

As part of the agreement, Shenzhen-based ZTE promised to dismiss four senior employees and discipline 35 others by either reducing their bonuses or reprimanding them, senior Commerce Department officials told Reuters. But the Chinese company admitted in March that while it had fired the four senior employees, it had not disciplined or reduced bonuses to the 35 others.

Under terms of the ban, U.S. companies cannot export prohibited goods, such as chip sets, directly to ZTE or via another country, beginning immediately.

The U.S. action against ZTE is likely to further exacerbate current tensions between Washington and Beijing over trade. After the United States placed export restrictions on ZTE in 2016 for Iran sanctions violations, China’s Ministry of Commerce and Foreign Ministry criticized the decision.



(Reporting by Ginger Gibson in Washington and Karen Freifield in New York; Editing by Matthew Lewis)