Germany's Social Democrats (SPD) will decide on Tuesday whether to adopt a proposal that could bar China's Huawei from taking part in the rollout of 5G services, which could further strain its alliance with conservative Chancellor Angela Merkel.
Merkel's right-left government wants to toughen up technical certification and scrutiny of telecoms equipment suppliers, but insists that no country or vendor should be excluded.
Merkel's careful approach, which her critics say stems from fears of Chinese retaliation against German companies heavily invested in China, faces criticism from lawmakers in her own party as well as her SPD junior partners.
SPD and conservative lawmakers last week agreed a blueprint that would make it more difficult for Huawei to take part in building Germany's 5G mobile infrastructure.
The proposal, seen by Reuters, stipulates that suppliers from countries where "state influence without constitutional supervision, manipulation or espionage cannot be ruled out are categorically excluded from the network, both the core and peripheral."
But after objections from the government, SPD lawmakers decided to hold an internal vote on Tuesday on the proposal.
Conservative group parliamentary leader Ralph Brinkhaus said on Monday intensive talks were taking place to find a solution acceptable to all stakeholders.
All telecoms operators in Germany are customers of Huawei and have warned that banning it would delay the launch of 5G networks.
Last week, Telefonica Deutschland picked Nokia of Finland and Huawei to build its 5G network. Earlier this month, market leader Deutsche Telekom put all deals to buy 5G network equipment on hold pending a government decision.
"I advise companies to be very careful," said SPD lawmaker Falko Mohrs.
Merkel is under pressure from the United States to exclude Huawei, which the Trump administration considers a security threat.
Huawei says it is an independent company and dismisses such concerns as baseless attempts by the United States to damage its business and reputation.
The stakes are high for Merkel, who is eager to stay on good terms with both China's leaders and U.S. President Donald Trump.
China's ambassador to Germany Ken Wu indicated last week that China could retaliate if Huawei was excluded from Germany's 5G rollout, pointing to the millions of cars that German automakers sell in his country.
"If Germany were to take a decision in the end that would exclude Huawei from the German market, then it should expect consequences," the Chinese ambassador said at an event hosted by German business daily Handelsblatt.
He added: "The Chinese government will not just stand by and watch. Look, 28 million cars were sold on the Chinese market last year, including seven million German cars. Could we say too one day that German cars are not safe - because we are capable of producing our own cars? No, this is pure protectionism."