U.S. and Chinese officials had said those penalties would effectively put ZTE out of business.
Trump had ordered his own Commerce Department to lift the penalties as part of a broader negotiating strategy with Chinese President Xi Jinping, but senators voted to reimpose them as part of a sweeping defense policy bill they passed last month.
But the House version of the defense bill did not include the same provision. And senators have now decided to leave it out of the final compromise bill, agreeing to language advanced by the House instead. The House language bars U.S. government agencies and contractors from doing business with ZTE, but allows the company to continue doing business with private U.S. firms.
The final version of the defense bill is expected to come to a vote in the House and Senate in coming days.
Senate Minority Leader Charles E. Schumer (D-N.Y.) blasted the decision in a statement Friday.
“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,” Schumer said.
According to Sen. Marco Rubio (R-Fla.), who was among the lawmakers pushing for a tough stance on ZTE, the cave on that issue was connected to a deal on language bolstering the Committee on Foreign Investment in the United States, or CFIUS.
CFIUS is an interagency committee that reviews deals between foreign investors and U.S. businesses for potential threats to national security. Lawmakers including Sen. John Cornyn (Tex.), the No. 2 Senate Republican, have been pushing to broaden its purview so it could have greater ability to block transactions with Chinese companies that could pose national security risks to the United States.
Lawmakers have now agreed to include the expansion in the final compromise version of the National Defense Authorization Act. The changes would allow CFIUS to intervene in more cases, not just when a foreign entity is poised to take control of a U.S. company, as is now the case. Terms of the CFIUS deal were first reported by the Wall Street Journal and confirmed Friday by Cornyn’s office.
Rubio denounced what he called a trade-off of ZTE for CFIUS.
“This deal on #CFIUS is good news. The bad news? They had to cave on #ZTE in order to get it. So chances that a #China controlled telecomm will not just stay in business, but do so here inside the U.S. sadly just went up. #BadTradeoff,” Rubio wrote Friday on Twitter.
Rubio later added: “Given the specific details many of my Senate colleagues know about #ZTE & how #China intends to use them against the U.S., I am surprised they caved so easily.”
No immediate comments were available from the White House, the Commerce Department or Majority Leader Mitch McConnell (R-Ky.).
ZTE had been accused of making illegal shipments of U.S. goods to Iran and North Korea in defiance of U.S. sanctions and lying about its response, and the Commerce Department announced in April that the Chinese company would be banned for seven years from buying American technology. Commerce’s move was met with bipartisan applause, with Sen. Tom Cotton (R-Ark.) describing it as the “death penalty” the Chinese firm deserved.
The next month, Trump took GOP lawmakers and members of his own administration by surprise when he announced that he was working with the Chinese president to help ZTE, writing on Twitter, “Too many jobs in China lost.”
In lieu of the “denial order” that would prevent ZTE from buying U.S. products from companies such as the chipmaker Qualcomm, the Trump administration announced plans to require ZTE to pay a large fine, replace its entire board of directors and fund a new in-house compliance team staffed by U.S. experts. Rubio and other senators viewed that as little more than a slap on the wrist.
Trump’s concession did little to move Beijing on broader trade negotiations, as the United States and China have hit each other with tariffs on billions of dollars of imported goods and are threatening to impose more.