'Where's the national security?': What the TikTok deal achieved

TikTok promised to pay US$5 billion in "new tax dollars" and create an educational initiative for an AI-driven online video curriculum. PHOTO: AFP

SAN FRANCISCO (NYTIMES) - The saga of TikTok had everything: Ominous threats of surveillance. A forced fire sale. Threats of retaliation. Head-spinning deal terms that morphed by the hour. Dark horse bidders and a looming deadline.

Now, as the dust settles on the weeks of drama over the social media app, investors and others are asking what it was all for.

The answer? A cloud computing contract for the Silicon Valley business software company Oracle, a merchandising deal for Walmart and a claim of victory for US President Donald Trump.

In the deal announced on Saturday (Sept 19), which was spurred by Mr Trump's national security concerns over TikTok, the social media app said it would separate itself from its Chinese parent company, ByteDance, and become an independent entity called TikTok Global. Oracle would become TikTok's new cloud provider, while Walmart would offer its "omni-channel retail capabilities", the companies said.

Oracle and Walmart would own a cumulative 20 per cent stake in TikTok Global, which said it planned to hire 25,000 people in the United States over an undisclosed period and go public sometime in the next year.

TikTok also promised to pay US$5 billion (S$6.78 billion) in "new tax dollars to the US Treasury" and create "an educational initiative to develop and deliver an AI-driven online video curriculum", according to a joint announcement from Oracle and Walmart.

Mr Trump pronounced the agreement a success and blessed it, saying on Saturday that TikTok would "have nothing to do with China; it'll be totally secure; that's part of the deal".

And he was partly right: The deal puts more control of TikTok into the hands of Americans, with four of the five members of the new entity's board being American. Oracle would also oversee the app and could verify the security of TikTok's code and any updates.

But the agreement does not deliver on Mr Trump's original demand of a full sale of TikTok and it does not eliminate China from the mix. Under the initial terms, ByteDance still controls 80 per cent of TikTok Global, two people with knowledge of the situation have said, although details may change.

ByteDance's chief executive, Zhang Yiming, will also be on the company's board of directors, said a third person. And the government did not provide specifics about how the deal would answer its security concerns about TikTok.

Even the US$5 billion that Mr Trump trumpeted was mired in confusion. The education initiative associated with the agreement was lumped together with the US$5 billion in "new tax dollars," even though they are separate. No further details were publicly given on how the money would be provided.

Lawmakers, policy specialists and others said the way that TikTok's deal got done also deserved more scrutiny. That is because Mr Trump first forced TikTok into a corner with an executive order on Aug 6, in which he threatened to block the app in the United States if it did not satisfy national security concerns. He then approved the deal only after Oracle - which has a cozy relationship with the White House - got involved. At different points, Trump also said the government deserved a cut of any deal.

"There's no there there," said Carl Tobias, a law professor at the University of Richmond who focuses on federal courts and the Constitution.

"Is this really about trade, or about the political benefit of trying to bash China and show how tough the administration can be?"

The sharpest criticism was reserved for how the deal came about. Mr Trump invoked the International Emergency Economic Powers Act for his executive orders to block TikTok from the United States. Previous administrations have used the authority cautiously for purposes like sanctioning foreign governments. It was the first time the law has been used against a technology company.

Vetting deals "is normally a process that involves multiple thoughtful people coming to the issue from multiple different concerns," said Tom Wheeler, a former Democratic chairman of the Federal Communications Commission.

"This appears as though what passes for process is what pleases one man: Donald J. Trump."

Until Saturday, TikTok was among those questioning the legality of Mr Trump's executive order. In August, TikTok sued the US government and accused it of a lack of due process in attempting to ban the app. In the lawsuit, TikTok said it "had no choice but to take action." TikTok is no longer expected to move forward with the suit.

In an upbeat video shared on social media on Saturday, Vanessa Pappas, the app's interim chief executive, said she was "thrilled" about the deal.

Security experts said the national security threat posed by TikTok and other Chinese tech companies was certainly worthy of examination. Chinese law forces companies to cooperate with the government on national intelligence work, and officials from both parties in the United States said there was a risk that Beijing could access Americans' sensitive data.

Yet the lack of specifics on how the new TikTok Global would handle national security concerns raised new questions on Sunday.

"The premise was national security, but where is the national security in this quote-unquote deal?" Tobias said.

TikTok, Oracle and Walmart declined to comment. The White House did not provide a comment.

Senator Mark Warner, D-Va., who is sceptical of Chinese technology companies, said in a speech on Wednesday that prohibiting certain technologies from the United States must be done "honestly".

But, he added, the "haphazard actions on TikTok fail that test and will only invite retaliation against American companies."

On Saturday, the Chinese government enacted a new system for blacklisting foreign companies and restricting their business activities in the country. Beijing stopped short of naming any specific enterprises that would be included on the list.

One result of the soap opera: Tech companies and investors said they were increasingly wary of doing business with any company that could attract the scrutiny of the Trump administration. The outcome is too illogical and unpredictable, said David Pakman, a partner at Venrock, a venture capital firm with offices in Silicon Valley and New York.

"When there are frameworks applied consistently, one can understand the rules of the game and you maneuver within those rules," he said. "But there is no consistency here."

A news release published by Walmart on Saturday on its website - then edited later - captured the chaos.

"This unique technology eliminates the risk of foreign governments spying on American users or trying to influence them with disinformation," the company said.

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