The US Senate on Monday voted to block implementation of a settlement that would lift a sweeping ban on US technology being exported to ZTE. The export ban, which the Trump administration imposed on ZTE in April, amounts to a de facto death sentence for the Chinese company, which is heavily dependent on American-made chips and software.
The Trump administration recently signed a deal that would lift the export ban in exchange for a $1 billion fine and the firing of all of ZTE's senior leadership. But a bipartisan group of senators believes the deal was too lenient. "The death penalty is an appropriate punishment for their behavior," said Sen. Tom Cotton (R-Ark.) in an interview with The Wall Street Journal last week.
Cotton and other senators got language blocking the ZTE deal attached to the National Defense Authorization Act, which funds the military. On Monday, the Senate passed the overall NDAA by a wide margin.
The House of Representatives has already passed a version of the NDAA without ZTE-related language attached. The two versions must now be reconciled by a conference committee before going to President Trump for his signature. If the language makes it into the final bill, Trump will have to decide whether to veto the legislation—and risk charges that he is jeopardizing funding for the military to do a favor for the Chinese government.
ZTE is in trouble with the US government because it was caught selling telecommunications equipment to Iran and North Korea in violation of US sanctions rules. ZTE agreed to a settlement with the Trump administration last year, but then the US government says ZTE cheated on that settlement—failing to discipline employees who orchestrated the scheme and then lying to US officials about it.
So the Trump administration imposed a seven-year ban on US companies exporting technology to ZTE. ZTE's smartphone business depends on access to Qualcomm chips and Google's Android app store. Loss of access to this and other American-made technology makes it almost impossible for ZTE to continue in business. So ZTE was forced to suspend operations in May.
But the shutdown of ZTE caught the attention of President Donald Trump, whose administration is in the middle of trade negotiations with China.
"President Xi of China, and I, are working together to give massive Chinese phone company, ZTE, a way to get back into business, fast," Trump tweeted last month. "Too many jobs in China lost."
Around the same time, the Chinese government loaned $500 million to "build an Indonesian theme park that will feature a Trump-branded golf course and hotels."
Earlier this month, the Trump administration announced a deal that White House trade advisor Peter Navarro described as a "personal favor to the president of China."
To get the export ban lifted under the deal, ZTE must pay a $1 billion fine and put an additional $400 million in escrow as security against further violations of the rules. ZTE must also replace its entire board and fire all of its senior executives. The company will also be subjected to an extensive compliance monitoring regime, with a staff of at least six people overseeing the company's activities and reporting to the US government about any violations.
But those relatively harsh terms were still considered too lenient by some hawkish senators. Sen. Cotton and Sen. Marco Rubio (R-Fla.) teamed up with Senate Minority Leader Chuck Schumer (D-N.Y.) to add an amendment to the National Defense Authorization Act—a "must pass" bill to fund the military—to reimpose the export ban on ZTE. The amendment was incorporated into the final bill, which in turn was approved by the Senate in an 85-10 vote.
As a practical matter, the need for reconciliation gives a lot of power to Republican leaders in the House and the Senate, since they decide who will be on the conference committee. They could seek to shield Trump from an embarrassing situation by stripping out the ZTE language. However, they might also agree with senators like Cotton and Rubio who believe that the deal was far too lenient. In that case, they might seek to include the language in the final bill.
If the language does become part of the final bill and is approved by both houses of Congress, then the bill would go to President Donald Trump's desk for his signature. He could veto the legislation. But given the overwhelming Senate vote, he'd have to worry about his veto being overridden.