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US bans American exports to Chinese phone maker ZTE

ZTE’s Axon M, a phone that uses chips from the US’s Qualcomm and Gorilla Glass.

Josh Miller/CNET

The US just leveled more penalties against a Chinese telecommunications giant. And no, this isn’t about Huawei. The Commerce Department imposed a “denial of export privileges” against ZTE, which translates to a ban on US companies selling its products and services to the Chinese company.

The ban lasts for seven years, and comes into effect after ZTE allegedly violated the terms of a sanctions agreement from last March, Bureau of Industry and Security officials said on a conference call with reporters. The ban, which could mean US players like Qualcomm and Dolby can’t sell their components into ZTE phones, comes after the company pleaded guilty in 2017 for illegally shipping US equipment to Iran and North Korea and agreed to pay up to £1.2 billion in penalties. Part of the settlement required ZTE to take actions against employees who were a part of the violations.

The Department of Commerce said ZTE officials lied about reprimanding the employees, and even gave some of them full bonuses.

“Instead of reprimanding ZTE staff and senior management, ZTE rewarded them,” Commerce Secretary Wilbur Ross said in a statement. “This egregious behavior cannot be ignored,” The action comes amid mounting pressure against Chinese telecommunications companies and a broader escalation of tariffs from both the US and China. Fellow Chinese phone giant Huawei has hit a wall in the US, with federal officials publicly warning against using them, and AT&T and Verizon reportedly dropping their plans to sell its products.

CNET broke the news that Best Buy would likewise drop all Huawei products — including laptops and smartwatches. ZTE did not respond to a request for comment. While Huawei has primarily been the focus of security concerns, ZTE has long been dragged along in the conversation.

Both Huawei and ZTE were part of a 2012 ban against their telecom equipment, although the House Intelligence Committee said that phones weren’t part of decision. Unlike Huawei, ZTE has had more success in the US, with its phones in various carriers and an established presence in the prepaid market for affordable phones. Its a primary sponsor at marquee venues like Madison Square Garden.

ZTE Mobile CEO Lixin Cheng said in an interview last month that he considered ZTE “collateral damage” in the scrutiny over Huawei, and touted the US components that go into its phones. That may change after the ban. The Commerce Department said ZTE was supposed to fire four senior employees and discipline 35 others, whether by reducing their bonuses or issuing them a letter of reprimand.

BIS officials said the Chinese company had fired the four senior staffers, but had taken no action against the other 35 employees. The story was originally published at 6:20 a.m. PT.

Update, 7:29 a.m.

PT: To include additional background on Huawei.

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