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CFIUS weekly news roundup: May 18

May 18, 2018 by in News

The CFIUS reform effort heats up, Trump does a serious about-face on ZTE, allies are laying contingency plans and more. As always, you can signup for the Kabealo PLLC mailing list here.

Let’s get to it:

Softening on FIRRMA: Senate Republicans. Congress made significant progress in passing the CFIUS reform bill this week. The Foreign Investment Risk Review Modernization Act (FIRRMA) has been the subject of much debate. Original proposals would have swept outbound licensing of U.S. technology under CFIUS jurisdiction. The business community, led by IBM and GE, vociferously objected that too much overseas business would become subject to national security regulatory oversight (and, consequently, much slower and costlier to engage in). House and Senate Republicans appear to have reached a compromise by requiring CFIUS to regularly update a list of emerging technologies that should be subject to export licensing requirements, and then passing decisions regarding companies’ overseas business to the Department of Commerce’s Bureau of Industry Security (BIS), which already has jurisdiction over technology exports. This compromise represents a sensible approach to the concerns raised by the business community by harmonizing the separate CFIUS and export controls regimes. It also elevates the role of Commerce within CFIUS.

Like they always say, “Follow the altruism.” Last month it was reported that the Department of Commerce had banned U.S. exports to Chinese telecom giant ZTE, cutting it off from purchasing critical supplies for its phones. The move struck deep, and shortly thereafter, ZTE reported that it was shutting down its main operations. The response appeared to be a massive vindication of President Trump’s aggressive posture towards what he perceives to be unfair or illegal trade practices by China and its companies. So it was curious, to say the least, when Trump announced via tweet that he was lifting the ban on ZTE. Naturally, there were several theories regarding his motivations. Analysts noted that shortly after the ZTE announcement, China appeared willing to resume a stalled-out review of Qualcomm’s acquisition of NXP, deemed critical for Qualcomm’s survival, and Qualcomm is deemed critical to U.S. 5G wireless technology leadership. The U.S. agriculture industry hoped it would get relief from Chinese countersanctions in exchange for an American lifeline to ZTE. The conservative-leaning press was either not thrilled or apoplectic, depending on who you read. Caught unawares, Commerce staffers threw up their hands, likely wondering when they will have dinner with their families again. Trump said nothing had happened. Perhaps more tellingly, Trump also said he made his decision because he was concerned about job losses in China. Investigative journalists noted that shortly after ZTE announced that it was shutting down, the Chinese government made good on a half-billion dollar construction loan to an Indonesian resort that will feature a number of Trump-branded hotels and golf courses. National security specialists simply scratched their heads, having uniformly warned that ZTE’s devices can be used by the Chinese government to conduct espionage. The Chinese are well aware of all of this sausage being made.

Trump: introspective and doubtful. And completely sincere. After the last round of trade talks in Beijing, senior U.S. trade leaders screamed at one another. This week, China and the U.S. are reengaging in trade discussions after an unproductive first round of talks. This time around, China appears to be playing ball, having offered fairly reasonable suggestions to cut its $200 billion trade surplus with the U.S. in response to President Trump’s demand. The President appeared unmoved by the offer, expressing doubt that we will reach agreement with China. Likewise, China denied that it made the $200 billion gesture. It’s still early in the game, and Trump has been known to posture publicly in an effort to further a deal at least a time or two.

 “You and what army?” Speaking of not being optimistic: In that other massive trade renegotiation—NAFTA—U.S. Trade Representative Bob Lighthizer expressed his own doubt that we will reach agreement with Canada and Mexico anytime soon. Yesterday (May 17) was the deadline Paul Ryan had given Lighthizer to submit a new treaty for Congressional review. The administration’s failure to meet the deadline could mean that any agreement (if one is reached) will be voted on by a new congress after the midterm elections. In fairness to the administration, when you want to blow up every massive trade arrangement (TPP, China, NAFTA, Europe), it should take more than a few months to put the pieces back together. In response to the delay, Paul Ryan reportedly found some “wiggle room” for more time. Basically, the week’s events amounted to Lighthizer looking at Paul Ryan and saying “…or else what?” and Ryan responding (paraphrasing here), “Not much, really.”

Trump the uniter: Although often criticized for divisive politics, Donald Trump has managed to unite a large, diverse and often bitterly quarrelsome group: Europe. As we’ve discussed before, European leaders are frustrated with Donald Trump’s trade policies, and at an EU summit in Bulgaria, European leaders seemed to march in lock step against Trump’s trade policies and his decisions to back out of multilateral agreements such as the Paris Climate Accord and the Iran Joint Comprehensive Plan of Action. By the end of the summit, finding voice in French President Emmanuel Macron and German Chancellor Angela Merkel, European leaders demanded to be exempt from U.S. tariffs without conditions. EU Council President Donald Tusk said, notably, that unpredictable enemies are fine, but an unpredictable “closest friend” is the last thing Europe needs. Germany, which has significant economic and strategic ties to Russia (in the form of undersea gas pipelines, among other things), is now overtly exploring closer ties with Putin’s regime.

On the other side of the world, Japan and South Korea are taking steps to insulate themselves from their once-critical ally, even as Chinese stance in the region becomes ever more assertive.

 Another inside job: authorities have identified the alleged culprit behind a massive and severely damaging leak of CIA “cyber weapons” last year. It was an inside job. Joshua Adam Schulte was an Agency employee who is now being held on unrelated charges as authorities continue to investigate the publishing of the CIA’s tools by Wikileaks, in a leak dubbed Vault 7. Virtually all of the most damaging compromises (Ames, Snowden, etc.) have been inside jobs, and reports are scathing that the U.S. government is not doing enough to address the risk of this particular threat. Of course, private contractors subject to Defense Counterintelligence and Security Agency oversight know the new and significant focus that DSS has placed on insider threats and should carefully review and update their Insider Threat Programs before their next field audit (or breach).

A rogue nation scorned: The U.S. expects a resurgence of Iranian cyberattacks now that we have withdrawn from the JCPOA. As we have discussed before, Iran is known for its aggressive cyber activity, and the global jilt by the U.S. is likely to motivate the country to ramp up its activities…

Moving at the speed of government: …fortunately, the Department of Homeland Security has just released a plan 14 months after it was due to deal with cyber risks. The plan does not break much new ground, but having an articulated policy seems like a good thing. We’re not the only ones playing attention. Separately, the Department of Energy released its own plan to fortify the nation’s power grids against cyberattack. One may wonder if the White House’s move this week to eliminate the country’s top cyber advisory role is well advised.

Technology to the rescue: Google is offering free “cyber attack shields” for election-related networks and campaigns, in the form of an application that helps to prevent DDoS attacks—one of the most common forms of cyberattack…

On second thought… An army of bots have been spawning fringe-right YouTube videos, garnering hundreds of millions of views and driving fringe ideas closer to the mainstream over the past two years. There was a particular country that is known to use an arm of bots to manipulate social media, and has been in the news some lately…





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