The decision to impose export bans on ZTE could be a damaging one for its US and Chinese suppliers, as well as for the vendor itself. But it does raise questions, particularly -- what on earth was ZTE thinking? (See ZTE Faces Trade Restrictions Over Iran Links.)
First, in ZTE's favor, it's worth noting that the timing of the US Commerce Department appears unusual. The probe into ZTE's business with Iran began four years ago and at the time ZTE stated it no longer conducted business in that market. Penalizing ZTE now suggests this is unfinished business the Commerce Dept. wanted to get sorted before Iran sanctions are lifted.
That said, documents released to the Wall Street Journal strongly indicate ZTE's involvement in sanctions-busting not just with Iran, but with Cuba, North Korea, Sudan and Syria as well.
One of those documents, issued by the ZTE legal department, described itself as seeking "long-term, healthy and sustainable development of our company's business in those [five] countries." It details how ZTE can hide its identity behind a series of shell companies.
Significantly, the Chinese Ministry of Commerce (MofCom), despite strong words of condemnation, did not attempt to defend ZTE.
"The Chinese side expresses deep dissatisfaction and its strong opposition" to the US restrictions, it said in a statement issued Monday. It went on to say that as well as the impact on Chinese companies, ZTE had contributed to thousands of US jobs.
While ZTE is an established global exporter and seemed aware of the laws it was breaching, it does come from a very different legal environment.
For one thing, businesspeople tend to behave abroad as they behave at home. US and European executives turn up in Asia or Africa assuming the same rules apply as at home. Chinese tend to think that bonding through karaoke and banqueting is more important than legal contracts.
In China's legal system, laws fall more or less into two categories: those that have to be obeyed, and those that can be ignored. The first are those invoked by the government in, say, outing a corrupt official or taking aim at a foreign business in China. The second are those that are important to have on the books, like environmental laws, but which are only occasionally enforced because of the embarrassment they can cause.
Sometimes it's not clear which category a law might fall into, but in any case the people at ZTE obviously decided US sanctions fell in the latter.
Why ZTE thought it was a good idea to test the laws of one of their biggest markets can only be guessed at, but it is a state-owned company and deserving of sound advice from government agencies such as MofCom, whose job is to take care of these things. It is quite possible no one in Beijing warned ZTE that the US takes its sanctions very seriously.
Another problem is that as a result of the tightly controlled media and the Great Firewall, Chinese don't have much of an idea about how the rest of the world works. The main item in one Chinese telecom news website today, for example, suggests the Obama administration placed bans on ZTE because of the 2016 election.
It's hard not to be influenced also by certain staples in state-dominated media about the China and the west, such as unfair media reporting, the dominance of foreign "monopolies" over tech industries, or that China is being contained.
Formed in this environment, a lot of businesses in China would have no problem in sidestepping US controls that would appear to be aimed specifically at them.
ZTE is likely to appeal this decision. But as long as the US has sanctions, Chinese companies will be willing to find ways to skirt them.
— Robert Clark, contributing editor, special to Light Reading