Lawmakers reconciling House and Senate versions of a must-pass defense bill chose to go with the House approach of excluding ZTE from U.S. government contracts but leaving it free to do business with private companies. | Ng han Guan/AP Photo Republicans soften ZTE ban in concession to Trump

Republicans have agreed to water down legislation designed to punish Chinese telecom company ZTE, delivering a victory to President Donald Trump, according to a person close to negotiations in Congress.

Lawmakers reconciling House and Senate versions of a must-pass defense bill chose to go with the House approach of excluding ZTE from U.S. government contracts but leaving it free to do business with private companies in the United States. The Senate-passed version of the defense bill would have restored a full U.S. ban on ZTE that the Trump administration imposed but then lifted.


"By stripping the Senate’s tough ZTE sanctions provision from the defense bill, President Trump — and the Congressional Republicans who acted at his behest — have once again made President Xi and the Chinese Government the big winners and the American worker and our national security the big losers,” Senate Minority Leader Chuck Schumer said in a statement Friday.

The ZTE saga began in April, when the Commerce Department issued a seven-year ban on U.S. companies working with the Chinese telecom company due to what it called the company's illegal sales to North Korea and Iran.

But after Trump tweeted in May that he and Chinese President Xi Jinping were working on a way to get ZTE "back into business, fast," Commerce Secretary Wilbur Ross announced an alternative set of penalties that would allow the company to keep operating in the U.S. market. The deal requires ZTE to pay a $1 billion fine, replace its management and embed a U.S.-approved team to ensure compliance.

President Xi of China, and I, are working together to give massive Chinese phone company, ZTE, a way to get back into business, fast. Too many jobs in China lost. Commerce Department has been instructed to get it done! — Donald J. Trump (@realDonaldTrump) May 13, 2018

The Trump administration's push to accommodate ZTE — which U.S. officials for years have warned could provide China with a vehicle for cyber-espionage and intellectual property theft — sparked heavy resistance from members of both parties. Republicans like Sens. Tom Cotton of Arkansas and Marco Rubio of Florida joined with Democrats like Schumer and Sen. Elizabeth Warren of Massachusetts in warning about ZTE's threat to national security.

They supported the Senate's ZTE provision, passed by a vote of 85-10 in June, which would require the president to certify that Chinese telecoms had not violated U.S. law for a full year and cooperated with U.S. investigators before granting relief from civil penalties.

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Rubio on Friday called the decision to drop the Senate's approach a "cave" and suggested it was a part of a trade-off between lawmakers and Trump administration officials on language to broaden the powers of the Committee on Foreign Investment in the U.S.

“So chances that a #China controlled [telecom] will not just stay in business, but do so here inside the U.S. sadly just went up," he tweeted.

But Republican leaders like Majority Whip John Cornyn appeared eager to avoid a showdown with Trump over the issue. And Trump supporters like David Perdue (R-Ga.) argued against congressional intervention, saying they did not want to tie the president’s hands amid his broader trade negotiations with China.

Final language on the defense bill has yet to be unveiled, but lawmakers say they hope to wrap up overall negotiations on the measure by the end of July.

The uncertainty surrounding U.S. policy on ZTE has caused the company's stock price to gyrate in recent months. The Chinese telecom is the the fourth-largest vendor of mobile phones in the U.S. and buys many of its component parts from U.S. chipmakers.

The Commerce Department this month officially lifted the ban on ZTE after the company put $400 million in an escrow account that the U.S. would draw from if any further violations occur.



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U.S.-China Relations