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U.S. reaches deal to keep China's ZTE in business: congressional aide

FILE PHOTO - Visitors pass in front of the Chinese telecoms equipment group ZTE Corp booth at the Mobile World Congress in Barcelona, Spain, February 26, 2018. REUTERS/Yves Herman/File Picture

By David Shepardson and Karen Freifeld

WASHINGTON (Reuters) - The Trump administration told lawmakers the U.S. government has reached a deal to put Chinese telecommunications company ZTE Corp back in business, a senior congressional aide said on Friday.

As with a similar announcement earlier in the week, the proposed deal ran into immediate resistance in Congress, where Democrats and Trump's fellow Republicans accused him of bending to pressure from Beijing to ease up on a company that allegedly poses a significant risk to U.S. national security.

ZTE was banned in April from buying U.S. technology components for seven years for breaking an agreement reached after it violated U.S. sanctions against Iran and North Korea. It would now be allowed to resume business with U.S. companies, including chipmaker Qualcomm Inc.

The deal, communicated to officials on Capitol Hill by the Commerce Department, requires ZTE to pay a substantial fine, place U.S. compliance officers at the company and change its management team, the aide said. The Commerce Department would then lift an order preventing ZTE from buying U.S. products.

U.S. President Donald Trump on Tuesday floated a plan to fine ZTE up to $1.3 billion and shake up its management as his administration considered rolling back more severe penalties that have crippled the company.

The White House did not immediately confirm reports of the latest deal, but a spokeswoman said, "This is a law enforcement action being handled by Commerce. We are making sure ZTE is held accountable for violating U.S. sanctions, pays a big price, and that we are protecting our security infrastructure and U.S. jobs."

Fox News said Trump told them on Thursday that he had negotiated the $1.3 billion fine with Chinese President Xi Jinping in a phone call.

ZTE, which is publicly traded but whose largest shareholder is a Chinese state-owned enterprise, agreed last year to pay a nearly $900 million penalty and open its books to a U.S. monitor for breaking a 2017 agreement after it was caught illegally shipping U.S. goods to Iran and North Korea, in an investigation dating to the Obama administration.

The company has lost over $3 billion since the April 15th ban on doing business with U.S. suppliers, according to a source familiar with the matter.


Responding to news of the administration's proposed settlement with ZTE, Republican Senator Marco Rubio tweeted: "Yes they have a deal in mind. It is a great deal ... for #ZTE & China. #China crushes U.S. companies with no mercy & they use these telecomm companies to spy & steal from us."

Rubio, as well as Democratic Senators Chuck Schumer and Chris Van Hollen, said Congress should act to stop Trump from letting ZTE get back into business.

U.S. intelligence and U.S. law enforcement agencies have serious concerns that ZTE and other Chinese telecommunications firms use their equipment to gather intelligence on U.S. citizens.

William Evanina, the acting director of the National Counterintelligence and Security Center, said at his May 15 confirmation hearing that he would not use a ZTE phone nor recommend that anyone in a sensitive position in government use one.

Chinese officials sought a pullback on ZTE as part of any broader deal to prevent a trade war between the world's two biggest economies. U.S. Commerce Secretary Wilbur Ross is scheduled to visit China next week for another round of talks.

ZTE needs U.S. components for its mobile phones and network equipment. U.S. companies provide an estimated 25 percent to 30 percent of components in ZTE's equipment.

As part of the agreements ZTE made last year it dismissed four senior employees.

Shares of ZTE's U.S. suppliers traded higher on Friday. Optical networking equipment maker Acacia Communications Inc, which got 30 percent of 2017 revenue from ZTE, rose 4.4 percent. Optical component company Oclaro Inc, which received 18 percent of its fiscal 2017 revenue from ZTE, rose 2.7 percent.


(Reporting by Roberta Rampton and Doina Chiacu; Additional reporting by Jonathan Landay; Writing by Chris Sanders; Editing by Meredith Mazzilli and Tom Brown)

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