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U.S. Senate, White House gear up for battle over China's ZTE

By Patricia Zengerle

By Patricia Zengerle

WASHINGTON (Reuters) - Legislation to block the Trump administration's agreement with China's ZTE Corp allowing it to resume business with American suppliers could be delayed, or even killed, by procedural rules in the U.S. Congress, lawmakers and aides said on Wednesday.

The U.S. Senate is due to vote as soon as this week on the legislation as part of the National Defense Authorization Act, or NDAA, a defense policy bill Congress passes every year. The White House strongly opposes the measure.

If it passes, before the defense bill becomes law, a joint committee of the House of Representatives and Senate must negotiate a final version of the bill. The ZTE provision could be stripped out during those negotiations. The House version does not include the ZTE measure.

Mac Thornberry, the Republican chairman of the House Armed Services Committee, said he would oppose including anything in the NDAA not germane to the Defense Department if it threatened to delay the swift package of the $716 billion bill, which governs everything from military pay raises to aircraft and ship purchases, military aid and other national security policies.

He said that process could be completed by the end of July.

The House NDAA already includes a provision barring U.S. government agencies from using "risky" technology from ZTE or Huawei Technologies [HWT.UL], describing the companies as "linked to the Chinese Communist Party's intelligence apparatus."

The measure could also be held up if President Donald Trump's fellow Republicans, who control Congress, rule that it does not belong in legislation setting policy for the Pentagon.

Should it become law, the measure would restore penalties on ZTE for violating export controls and bar U.S. government agencies from purchasing or leasing equipment or services from the Chinese company.

The United States government banned the company earlier this year, but the Trump administration reached an agreement to lift the ban, while it is negotiating broader trade agreements with China and looking to Beijing for support during negotiations to halt North Korea's nuclear weapons program.

Chinese President Xi Jinping requested the change.

In a settlement with the U.S. Commerce Department, the company agreed to pay a $1 billion fine, overhaul its leadership and meet other conditions, including putting $400 million in escrow in a U.S.-approved bank.

The White House pushed back against the legislation, defending the agreement as "part of an historic enforcement action" giving the U.S. government some leverage over ZTE's activity without "undue harm" to U.S. suppliers and workers.

White House spokesman Hogan Gidley said the administration will work with Congress to ensure that the final version of the NDAA "respects the separation of powers."

The ZTE measure's main sponsors, Democratic Senator Chris Van Hollen and Republican Senator Tom Cotton, both said they believed it had enough support from Republicans and Democrats to pass the Senate despite White House opposition.

"We can't let them off the hook with a slap on the wrist, because if we do that it will ... send the wrong messages to countries around the world," Van Hollen said in a Senate speech.

Cotton said he and Van Hollen would keep working in the common months to ensure the ZTE measure stays in the defense bill.

ZTE shares plunged in Hong Kong and Shenzhen markets on Wednesday in its first day of trading after an almost two-month halt. Investors wiped about $3 billion off its market value, or about 40 percent, in initial trading.

(Reporting by Patricia Zengerle, additional reporting by Jeff Mason; editing by Damon Darlin and Tom Brown)