Recently, the US decided to ban Tik-Tok and WeChat from its app stores citing national security concerns over the possibility of data being siphoned off to China. The Department of Commerce in the US said it will bar people in the US from downloading both the apps from app stores.
Earlier in August, the Trump administration had issued an executive order giving a 90-day deadline to sell or to completely shut down Tik-Tok’s US business operations citing national security concerns.
US has over 100 million users of Tik-Tok, and citing national security concerns Trump has said, “Tik-Tok is to be acquired by an American Company to run its business in US and data should be stored in the country.”
Tik-Tok has reached a deal with American based company Oracle to give oversight of Tik-Tok’s operations in the US.
What is this deal?
How is it going to benefit Tik-Tok?
What can be the consequences of the deal?
ByteDance, the parent Company of Tik-Tok which is a Chinese company has agreed to a deal that would make the social media app a global company based in the US. It has agreed to Oracle taking responsibility for its US operations and user data.
Although ByteDance will retain its majority ownership in Tik-Tok, it has agreed to give operational control of the app in the US to Oracle i.e., ByteDance will keep control of the algorithm that picks which videos are shown to each user whereas Tik-Tok will run on Oracle cloud and thus Oracle will become a minority investor in Tik-Tok Global. Tik-Tok Global also plans to file for an IPO in the US within a year.
This deal is hugely lucrative for the US tech group Oracle, as it is expected to be paid hundreds of millions of dollars annually to manage the app’s data.
Another part of the deal includes that the US division of the company will install a board of directors exclusively of American Citizens that too the US government approved. The Board would also include an independent security director with national security credentials and voting power.
Trump’s intervention followed 6 Republican Senators urging the administration to reject this deal as long as ties remained to the Chinese owner ByteDance, but Trump has agreed to this deal recently. He mentioned he has given a nod to the deal and if the companies get it done it’s great and if not then also it’s fine.
President Trump has earlier expressed surprise that Washington cannot demand payment from the companies in exchange for approving the deal, which has now been resolved as the Chinese company will also donate $5bn to an educational fund.
Trump also added, if the deal goes through, Tik-Tok would create at least 25,000 jobs, predominantly in the Republican-controlled states of Texas which would make it one of the largest employers in America.
As per the deal, Oracle with the US retailer Walmart will take a stake up to 20% of the new company pre-IPO. Doug McMillon, Chief Executive of Walmart is expected to get a seat on Tik-Tok’s board.
Right now, President Trump has given his nod to the deal but the deal would still need approval from the Treasury Department-led Committee on Foreign Investment in the US as well as Chinese Authorities. If the deal goes through, Oracle will become the trusted technology provider responsible for hosting all US user data and security associated computer systems to ensure US national security requirements.
Till the deal goes through, users will not be able to download Tik-Tok or further updates.
The question remains, is it really over national security concerns or it is another step towards the beginning of a tech war between both the countries?
US had earlier banned Chinese company Huawei and ZTE equipment citing security concerns, to which China said it has created an ‘unreliable entities list’ in May 2019, but didn’t announce any names or details.
After the ban of Tik-Tok and WeChat, China has also launched a mechanism that would allow it to sanction foreign companies and China’s long-expected list of unreliable entities can be seen as a weapon to retaliate against the US. It said the new system would help the country to put sanctions on entities whose activities harm China’s national sovereignty, security, and developmental interests or violate internationally accepted economic trade and rules.
Now, we are yet to see if these sanctions are really over national security concerns, or both the countries are heading for a tech war in the name of security concerns!
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