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WASHINGTON (Reuters) – U.S. President Donald Trump said on Wednesday he will use a strengthened national security review process to thwart Chinese acquisitions of sensitive American technologies, a softer approach than imposing China-specific investment restrictions.
The Treasury Department has recommended that Trump use the Committee on Foreign Investment in the United States (CFIUS), whose authority would be enhanced by new legislation in Congress, to control investment deals. The legislation expands the scope of transactions reviewed by the interagency panel to address security concerns, Trump said.
The decision marks a victory for Treasury Secretary Steven Mnuchin in a fierce White House debate over the scope of such curbs.
Mnuchin had favored a more measured and global approach to protecting U.S. technology, using authority approved by Congress, while White House trade adviser Peter Navarro, the administration’s harshest China critic, had argued for China-specific restrictions.
“We are not, on a wholesale basis, discriminating against China as part of a negotiation,” Mnuchin said on CNBC on Wednesday.
The investment restrictions are part of the administration’s efforts to pressure Beijing into making major changes to its trade, technology transfer and industrial subsidy policies after U.S. complaints that China has unfairly acquired American intellectual property through joint venture requirements, unfair licensing and strategic acquisitions of U.S. tech firms.
“I have concluded that such (CFIUS) legislation will provide additional tools to combat the predatory investment practices that threaten our critical technology leadership, national security, and future economic prosperity,” Trump said in a statement that did not specifically name China.
U.S. stocks rose after Trump announced the new approach to U.S. investment restrictions but reversed gains in afternoon trading.
Senior administration officials told reporters on a conference call that sticking with CFIUS, a process companies are familiar with, would ensure strong inward investment into the United States while protecting the “crown jewels” of U.S. intellectual property.
Trump said in his statement that upon final passage of the legislation, known as the Foreign Investment Risk Review Modernization Act, he will direct his administration “to implement it promptly and enforce it rigorously, with a view toward addressing the concerns regarding state-directed investment in critical technologies.”
If Congress fails to pass the legislation quickly, Trump said, he would direct the administration to implement new restrictions under executive authority that could be applied globally.
The decision to stick with CFIUS was a pragmatic move because the new CFIUS legislation “will put a crimp in China’s efforts to move up the value chain in high tech,” said Scott Kennedy, head of China studies at the Center for Strategic and International Studies in Washington.
But it will likely do little to stop the activation of U.S. tariffs on $ 34 billion worth of Chinese goods, scheduled for July 6, or jump-start trade negotiations between the two economic superpowers, Kennedy said.
And the mixed messages from the administration do not help Trump’s negotiating position, he said.
“It shows the Chinese that the Trump administration is still undependable and can be moved back from the most hardline positions,” Kennedy added.
Mnuchin on CNBC downplayed the dissent within the administration, saying that Trump wants to hear differing views on important issues, but the administration’s economic team typically comes together on major recommendations such as the investment restrictions.
Mnuchin said the new CFIUS legislation, passed 400-2 in the House of Representatives on Tuesday, would broaden the types of transactions that could be reviewed by the panel on national security grounds, including minority stakes, joint ventures and property purchases near U.S. military bases.
“This isn’t a question about being weak or strong, this is about protecting technology. We have the right tools under this legislation to protect technology,” Mnuchin said.
COMMERCE EXPORT CURBS
Trump also said that he has directed Commerce Secretary Wilbur Ross to examine U.S. export controls and recommend modifications that may be needed “to defend our national security and technological leadership.”
A Commerce Department spokesman could not be immediately reached for comment on the study.
The CFIUS legislation is headed for negotiations between U.S. House and Senate lawmakers in the coming weeks to craft a final version, with guidance from the Treasury.
A sticking point that could emerge is language in the Senate version that would reinstate the ban on Chinese telecom equipment maker ZTE Corp (000063.SZ) from purchasing U.S. components for a year. The Commerce Department ban had effectively shut the Shenzhen-based company down, angering Beijing.
The House version has less stringent language prohibiting the U.S. Department of Defense from purchasing any ZTE communications gear.
Reporting by David Lawder; Editing by Jeffrey Benkoe and Steve Orlofsky
WASHINGTON (Reuters) – A U.S. Senate Commerce Committee panel plans to call a former Cambridge Analytica contractor at the center of a scandal involving the use of data from millions of Facebook users, a committee source told Reuters on Thursday.
The panel’s subcommittee on Consumer Protection, Product Safety, Insurance, and Data Security will hold a hearing next Tuesday on data privacy risks focusing on Cambridge Analytica, a British political consultancy, and other Facebook Inc (FB.O) partners, the committee announced Wednesday.
The session follows hearings in April with Facebook Chief Executive Mark Zuckerberg and will focus “on the collection and use of social media data, the privacy concerns raised in the wake of the Cambridge Analytica/Facebook scandal, and potential steps to protect consumers,” the committee said.
The committee will call Aleksandr Kogan, a contractor for Cambridge Analytica, to testify, a source briefed on the matter said. A lawyer for Kogan did not immediately respond to a request for comment.
Facebook said in April that the personal information of up to 87 million users, mostly in the United States, may have been improperly shared with Cambridge Analytica. The London-based consultancy’s clients included President Donald Trump’s 2016 election campaign.
Facebook says Kogan harvested the data by creating an app on the social media network that was downloaded by 270,000 people, providing access not only to their own personal data but also data from their friends. Facebook said Kogan then violated its policies by passing the data to Cambridge Analytica.
Cambridge Analytica disputed Facebook’s estimate of how many users were affected.
Cambridge Analytica and its British parent, SCL Elections Ltd, said in May that they would shut down immediately and begin bankruptcy proceedings in both the United Kingdom and the United States after suffering a sharp drop in business. Cambridge Analytica filed for Chapter 7 bankruptcy in New York last month.
In April, Kogan, who worked for the University of Cambridge, told British lawmakers that all the data he collected had, to the best of his knowledge, been deleted. He said he would double-check that none remained.
“This has been a very painful experience, because, when I entered into all of this, Facebook was a close ally,” Kogan said. “I was thinking this would be helpful to my academic career and my relationship with Facebook. It has very clearly done the complete opposite.”
Also expected to appear at next week’s hearing are John Battelle, who helped found Wired Magazine and is a board member of database marketing company Acxiom Corp (ACXM.O), and Ashkan Soltani, who was former chief technologist for the Federal Trade Commission during the administration of President Barack Obama.
Reporting by David Shepardson; editing by Jonathan Oatis