US senators negotiate with Trump to lift ban on ZTE if it is saddled with security restrictions

The deal with Trump could ban ZTE hardware from critical assets, with US government employees prohibited from buying the Chinese firm’s products

PUBLISHED : Wednesday, 27 June, 2018, 8:16am
UPDATED : Wednesday, 27 June, 2018, 10:55pm

US senators are working on a potential deal with President Donald Trump that would allow the Chinese telecommunications company ZTE Corp to stay in business if there are tighter restrictions on the use of its products on national security grounds, according to people with knowledge of the discussions.

The changes, which would be made to an amendment in a defence appropriations bill approved by the Senate last week, include prohibiting US government agencies from buying ZTE products, according to the people, who asked not to be named because they are not authorised to speak publicly on the matter.

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The senators’ deal with Trump, the sources said, would also ban ZTE from selling software or hardware in the US that could be used in critical technology or infrastructure assets.

Such assets would be defined by a new Foreign Investment Risk Review Modernisation Act, or FIRRMA, also part of the defence appropriations bill.

In exchange, senators would no longer seek to reinstate the original ban that the US Department of Commerce applied to ZTE in April, the sources said.

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That order prohibited American technology suppliers from selling components to ZTE for seven years, after the company violated US laws by selling products to Iran and North Korea and flouted terms of an agreement it had reached to punish the company executives involved in those sales.

The ban led ZTE, the second largest telecommunications equipment maker in China, to shut down its operations within weeks.

If reached, the deal will bring to a close of a months-long wrangle between Congress and the White House on how harshly to punish ZTE. It will also lend much-needed certainty for ZTE and its US suppliers after the ban roiled technology industries that are highly interconnected.

The compromise is the result of a meeting Trump held with Republican senators last week after the Senate passed an amendment to the appropriations bill aiming to undo Trump’s deal to save ZTE, which Trump said he had made at the request of Chinese President Xi Jinping.

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At the meeting Trump urged the senators not to undermine his efforts, warning them that the deal was part of a broader geopolitical negotiating strategy with China.

Some senators continue to pressure Trump on the need to restrict ZTE. Senator Marco Rubio, Republican of Florida, and Senator Mark Warner, Democrat of Virginia, sent a letter on Tuesday urging Trump to reconsider any deal lifting the ZTE ban, citing “a significant threat to our national security”.

Rubio, fellow Republican Senator Tom Cotton of Arkansas and the Democratic senators Chuck Schumer of New York and Chris Van Hollen of Maryland are involved in the negotiations with the White House.

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Bridgett Frey, a spokeswoman for Van Hollen, said that “the central tenet of the amendment from Senators Van Hollen, Cotton, Schumer, and Rubio is to hold ZTE accountable and stop the administration from letting them off the hook for violating US law and undermining our national security”.

“Anything short of that is unacceptable,” she added.

In the deal under discussion, the senators are adding specific language of “critical infrastructure” as defined by FIRRMA, which was passed by the Senate as part of the appropriations bill last week. The bill would also strengthen the ability of the Committee on Foreign Investment in the United States, known as CFIUS, to reject foreign acquisitions of US companies on national security grounds.

FIRRMA defines critical infrastructure as “systems and assets, whether physical or virtual, so vital to the United States that the incapacity or destruction of such systems or assets would have a debilitating impact on national security”.

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FIRRMA also defines “a critical technology company” as “a United States business that produces, trades in, designs, tests, manufactures, services, or develops one or more critical technologies, or a subset of such technologies,” as defined by CFIUS regulations.

The Senate bill, once fully revised, will be sent to the House of Representatives for reconciliation with the defence bill passed by the House before it is presented to Trump to sign.

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Trump walked back from the ban in May and the Commerce Department struck a deal in early June after ZTE agreed to pay a fine, replace its board and install US compliance officers.

To resume buying American components crucial to its products, ZTE has paid a US$1 billion fine and is close to setting up a US$400 million escrow account in the US for potential future violations.