In a fresh twist of events that could seriously disrupt the telecommunications industry, the U.S. government through the Commerce Department has imposed export restrictions on China’s ZTE Corp for alleged Iran sanctions. Under the sanction announced in early March, U.S. manufacturers will not be allowed to sell components to ZTE. Also, foreign manufacturers will be banned from selling certain components to ZTE.

ZTE is a multinational telecommunications company based in China which supplies telecom networking equipment worldwide. The sanction is, therefore, likely to create substantial parts shortages in the USA.

According to a Reuter’s report, the Commerce Department claims that ZTE was planning to illegally re-export controlled items to Iran. This violates the U.S. export control laws. The Department has since said that although they are aware that ZTE might try to apply for a license to ship American-made parts, such applications will be revoked. ZTE will, however, be allowed to sell handsets in the USA.

Experts in the industry believe that the ripple effect of such a sanction could be bigger than many expect.

“This won’t end well,” said attorney Doug Jacobson. “There will be a lot of people affected and the ripple effect will be huge.”

Jacobson says that he has already got calls from people who ZTE.

“I tell them that if the shipment to ZTE isn’t already on a plane to China, then you can forget about it. Then I also advise them to screen their consumers, both pending and future orders, to ensure that items destined for ZTE are flagged or stopped for the moment.”

ZTE is one of the leading phone makers in China and definitely the one with the largest consumer base in the USA. Currently, it is ranked the 4th largest smartphone maker in the USA with a seven percent market share. Only Apple, Samsung, and LG are performing better. The company sells handset devices to some of the major carriers including T-Mobile, AT&T, and Sprint Group among others. The ZTE website also lists Microsoft, Honeywell, Intel Corp., and IBM as key strategic partners in the US. Qualcomm has also openly said that they closely work with ZTE.

It remains to be seen how they respond to this restriction and whether they exercise their right to appeal.  For traders who already have offshore merchant accounts from companies such as emerchantbroker.com that they use to sell their products in China, it will come as a major setback but one which you have to deal with.