"We are literally embedding a compliance department of our choosing into the company to monitor it going forward," Wilbur Ross says. | Daniel Leal-Olivas/AFP/Getty Images U.S. strikes deal with ZTE

The U.S. government has struck a deal with Chinese telecommunications company ZTE, Commerce Secretary Wilbur Ross said on Thursday, accommodating a major request of the Chinese government amid continuing trade talks between Washington and Beijing.

The deal includes a $1 billion fine for ZTE as well as entirely new management and a compliance team, chosen by the U.S., that will be embedded inside the company at ZTE's expense. Commerce said the penalties are collectively the most severe that the agency has ever imposed on a company.


"We are literally embedding a compliance department of our choosing into the company to monitor it going forward,” Ross said on CNBC. “They will pay for those people, but the people will report to the new chairman.”

The announcement, which reverses a Commerce decision this year that had banned U.S. companies from doing business with ZTE for up to seven years, could clear a path forward for the U.S. and China to make meaningful progress in trade talks.

At the same time, it is drawing sharp rebuke from lawmakers, who regard the move as a huge concession to China that exposes U.S. technology to national security concerns.

Huawei, another Chinese telecommunications company, and ZTE “have direct links to the Chinese government and Communist Party. Their products and services are used for espionage and intellectual property theft, and they have been putting the American people and economy at risk without consequence for far too long," Sen. Marco Rubio (R-Fla.) said in a statement Thursday.

Congress is trying to rein in any executive action on ZTE on numerous fronts. Most recently, the Senate Appropriations Committee approved a spending bill on Thursday that includes an amendment from Rubio preventing any government money from being used to purchase equipment from ZTE and Huawei.

The Senate Banking Committee also approved language last month that would set a number of conditions the president would have to meet before modifying any of ZTE's penalties. House appropriators also advanced a measure to uphold the ban. Neither move, however, is expected to pass either chamber with a veto-proof majority.

Sign up for Morning Trade A speed read on global trade news — weekday mornings, in your inbox. Email Sign Up By signing up you agree to receive email newsletters or alerts from POLITICO. You can unsubscribe at any time. This site is protected by reCAPTCHA and the Google Privacy Policy and Terms of Service apply.

Commerce defended the agreement, saying it puts the company on a 10-year probation during which it will be "answerable" to its Bureau of Industry and Security. Any additional violations during the probationary period will activate an order that will once again block ZTE's access to U.S. technology and require the company to forfeit $400 million in additional fines that will be held in escrow.

"The purpose of this settlement is to modify ZTE’s behavior while setting a new precedent for monitoring to assure compliance with U.S. law," Commerce said in a statement. "Embedding compliance officers into the company vastly improves the speed with which the Department of Commerce can detect and deal with any violations."

Beijing had said that getting the ban lifted was a crucial negotiation demand in ongoing trade discussions with the United States. Commerce had initially brought the hammer down on ZTE in April after the company was found to have violated U.S. sanctions against Iran and North Korea and then lied to U.S. officials about efforts to address the violation.

That decision led ZTE to announce last month that it had been forced to cease its main business operations because the U.S. government ban crippled its ability to survive as a company. But President Donald Trump announced days later that he and Chinese President Xi Jinping were working together to find a way to get ZTE back into business, saying there were “too many jobs in China lost.”

“Commerce Department has been instructed to get it done!” he tweeted.

The tweet undermined the enforcement action by Trump’s own Commerce Department and angered lawmakers, who have not conceded any ground in the matter. Even Trump's new CIA Director Gina Haspel said during her recent confirmation hearing that she would not use ZTE phones.

"This is where you have unanimity between both the Obama and Trump administration officials talking about ZTE and Huawei — this is a national security concern," Sen. Mark Warner (D-Va.), the Intelligence panel's ranking member, told POLITICO. "You don't trade that away in an off-again, on-again conflict with China.”

News of the deal was also sure to further anger lawmakers who had called for the initial ban to remain in place, and Senate Minority Leader Chuck Schumer suggested Congress will try to act to overturn Trump's decision.

"When it comes to China, despite his tough talk, this deal with ZTE proves the president just shoots blanks," Schumer said in a statement.

“There is absolutely no good reason that ZTE should get a second chance, and this decision marks a 180 degree turn away from the president’s promise to be tough on China," he said. "It’s up to Congress now to act to reverse the deal.”

Sen. Ron Wyden (D-Ore.), ranking member of the Finance committee, which has jurisdiction over trade, also called for Congress to intervene.

"The Trump administration is giving ZTE and China the green light to spy on Americans and sell our technology to North Korea and Iran, as long as it pays a fine that amounts to a tiny fraction of its revenue," he said in a statement.

A deal to rescue ZTE had been reported as being close at hand for the last few days. But Beijing stood firmly against U.S. trade demands, including requests that it purchase more agricultural and energy products from the United States in order to help reduce America's trade deficit with China, while officials worked out a deal to allow ZTE to resume operations.

Ross and other administration officials had initially sought to emphasize that the ZTE penalty was an enforcement action that was separate from those negotiations, but Trump made the link clear last month when he tweeted that his change in stance on ZTE was “reflective of the larger trade deal we are negotiating with China and my personal relationship with President Xi.”

The deal with ZTE could also unlock U.S. chipmaker Qualcomm’s takeover of Chinese company NXP Semiconductors, which has been blocked by Chinese regulators.

“There’s been speculation that the Qualcomm-NXP deal, which has basically been in the deep freeze, suddenly, miraculously started percolating over the last couple of weeks,” said Eric Altbach, a senior vice president at the Albright Stonebridge Group, which advises multinational corporations on deals with the U.S. government. "Is that an unrelated development? Could be. It doesn’t seem like it.”

Adam Behsudi and Doug Palmer contributed to this report.