IBM-Lenovo Deal Faces House Pressure

IBM’s sale of its PC business to China’s Lenovo Group took a decidedly
political turn earlier this week when three Republican Congressmen sent a
letter to Treasury Secretary John W. Snow questioning a number of aspects of
the $1.75 billion deal.

U.S. Reps. Henry Hyde and Donald Manzullo of Illinois and Duncan Hunter of California
want Snow to extend Treasury’s regulatory review of the
deal that is currently scheduled to conclude by the end of this month. Hyde
is chairman of the House International Relations Committee while Hunter
heads the House Armed Services Committee.

The three lawmakers claim the deal may involve the transfer of U.S.
technology and corporate assets to the Chinese government in addition to
raising questions about the transfer of licensable or export-controlled
technology transfers.

“We believe it is manifestly in the public interest to extend the time for
review by those agencies in the federal government responsible for defense,
foreign policy and intelligence in order to ensure that there are no adverse
national security ramifications of the sale,” the letter states.

IBM announced the
blockbuster transaction in early December. The Federal Trade Commission has
already blessed
the deal, and the Treasury’s Committee on Foreign Investment in the United
States (CFIUS) has until Jan. 31 to approve the transaction or to seek an
extended investigation.

“Given the importance of this matter — and the limited ability of Congress,
affected agencies and other interested parties to evaluate this process and
provide input — we believe the process ought to remain open,” the lawmakers
wrote to Snow. “Further, before any final determination is made, we would like to
request a briefing on the national security, licensing issues, and any [U.S.
government contracts] affected by the sale.”

“IBM has filed the required legal notice with the Committee on Foreign
Investments. IBM is following all the normal and routine procedures in the
review of this transaction,” IBM spokesman Ed Barbini said.

Inquiries to the
Treasury Department were not initially returned.

Analysts initially
the sale say there are no U.S. security concerns since the transfer of
assets doesn’t involve high-performance computing systems that might be used
in China’s military systems.

Daniel J. Ikenson, a trade policy analyst at the Cato Institute,
said the congressional reaction to the IBM-Lenovo deal is a “reflection of a
broader concern. Every month, every year, we’re hearing about China’s
emerging star. There is still a lot of sentiment among conservatives in
Congress that don’t trust China.”

China is considered the fastest growing IT market in the world, especially
in growth areas such as services and software. The Lenovo deal will raise
the company’s profile as a PC maker in the U.S. Ikenson likened the
situation to the 1970s when the talk was about Japan taking over
corporate America.

“There’s some sentiment to put the brakes on and slow the fate,” Ikenson
said. “When you talk about selling technology to a country we’re still
suspicious of, you have a political justification to raise the issue.”

Ikenson said the current debate has “undertones of geopolitical issues
rather than economic issues.” He added, “There is a lot hot air on this [issue]
and this won’t be the end of it.”

Ultimately, Ikenson predicted, opposition to the deal won’t stand up.

“There are questions if the Bush administration has been responding
stridently enough to hold China’s feet to the fire on its World Trade
Organization commitments,” he said. “[The opposition] is not going anywhere.
There are no legal hurdles [to this deal].”

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