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Selling National Security

China bids for firm that makes "intrusion prevention" technology for the Department of Defense.

12:00 AM, Sep 29, 2007 • By IRWIN M. STELZER
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THE CHINESE ANNOUNCED on Saturday that they would be buying into the company that provides the Pentagon with technology to prevent cyber-attacks--of the sort the Chinese launched a few weeks ago. Why worry? We are all free traders now, according the president and his secretary of the Treasury--all except misguided Democrats, trade unions, displaced workers, and those who worry about our national security.


True, free trade is great--when dealing with other parties who are in it for the same thing--to make money. But that ain't the name of the game these days. Now we have a company that must answer to the Chinese government picking up a piece of an American company, 3Com, that--get this--makes "intrusion prevention" technology that helps the Defense Department, among other clients, protect itself from hackers.


True, the Chinese company, Huawei Technologies, will be a minority shareholder. But it--and one must assume any Chinese government official who asks for Huawei's cooperation--will have access to the books, financial records and any other company documents that they might find useful. Remember: The Pentagon is convinced that the Chinese Peoples' Liberation Army hackers were the perpetrators of a massive cyber-attack on it just a few weeks ago.


So never mind that Bryan Whitman, a Pentagon spokesman, told the Financial Times that he is "not aware of any concern" over the acquisition. Or that there is big money in this for 3Com shareholders, who are being offered a 44 percent premium over the share price set in the market--which only proves how really, really interested in 3Com's technology Huawei and its partner, Bain Capital, are.


Or that the Committee on Foreign Investment (Cifus) will review the deal. It is already leaking that it would be satisfied if the deal is drawn so that Huawei agrees, cross its heart and hope to die, to limit its access to certain technologies. And rest assured that Cifus will hear soothing words from Citibank, UBS, HSBC, and ABN Amro, who are putting the debt financing package together--oh yes, along with Bank of China.


One can only hope that Treasury Secretary Hank Paulson reads up on his Adam Smith, no protectionist he. Smith warned that when national security is at stake, free trade takes a distant second place as a national priority. The great Scot is, as usual, as relevant to our day as he was when he wrote The Wealth of Nations 230 years ago.

Irwin M. Stelzer is a contributing editor to THE WEEKLY STANDARD, director of economic policy studies at the Hudson Institute, and a columnist for the Sunday Times (London).