Is TikTok to Stay in the USA?

Photo source: REX Features

Oracle’s bid for TikTok’s US operations beats Microsoft, which is a good sign for all the TikTok-ers state-side.

Oracle is an enterprise software provider with a significant cloud computing business. Its expertise pairs well with TikTok. However, the story is more than your business as usual case; it is at the centre of geopolitical tensions between the US and China.

Donald Trump, US President, gave TikTok, owned by China’s ByteDance, until the 20 September 2020 to sell shares in its US operations. There are concerns over US National security because of the influence the Chinese Communist Party (CCP) is believed to have over the company. Secondly, some have suggested that the app extracts extensive data related to their users and raises data protection and privacy risks. This announcement provides a glimmer of hope in resolving the matter.

It is no secret that US-China relations have been strained since 2018, which began with the US’s concerns over the trade deficit, on the Chinese side, between the two nations. It led to a series of tariffs from the US and retaliatory tariffs from the CCP. Furthermore, the recent coronavirus pandemic has further contributed to these strains. President Trump has openly accused the CCP of its negligence regarding reporting the seriousness of the novel coronavirus to the international community. Additionally, TikTok’s success with 800 million monthly users has heightened the US administrations concerns.

The current situation of this deal is that it is in its preliminary stage and could be altered if necessary.

Considering this development, the US administration stated they were examining the deal. On Friday it announced that from Sunday 20 September, US downloads and updates of TikTok and Chinese-owned app WeChat were banned due to claims that they pose threats to national security. Although existing TikTok users will be able to use the app, from 12 November some technical transactions via the app will also be ban.

It is important to note that Trump could revoke this new ban on US downloads of TikTok if the deal with Oracle and ByteDance is finalised.

Why does this matter?

Oracle is an interesting choice considering the US technology group chair, Larry Ellison, has openly supported Trump. Moreover, protests outside its Beijing-based office after making 900 employees from its R&D (research and development) department redundant last year. It is alleged by some to be motivated by his alleged anti-China stance and the US-China trade war. For instance, a developer for Oracle’s PeopleSoft team at the time stated: “[o]ur team is profitable, and in fact two years ago we were given a new project to develop”. Therefore, some felt that if this were genuinely a business decision, there would have been strategic redundancies.

The key takeaway is that this is a “technical Partnership” and according to insiders to the FT (Financial Times), the current plans are subject to change. There are also questions over whether the US administration would accept such a deal as its existing structure does not include a majority sell of ByteDance shares to a US buyer, which was a condition within Trump’s ultimatum.

Who does this affect?

(1) TikTok’s global perception may improve. The negative press and political scrutiny around the app has led to some users mistrusting the app. However, this seems to have had a limited impact. Its US users 18 and over was 23.2 million in January and rose rapidly to 39.2 million in April. Thus, the success of this deal may make at least some US users feel more relaxed about using the app.

(2) Foreign employees, due to start working at TikTok, have experienced job insecurity. According to the Los Angeles Times, some workers have had their visa stalled at the U.S. Citizenship and Immigration Services. The government’s premium processing services (used by TikTok) should take under 15 days. One engineer said, “[y]ou can’t stop feeling that as an individual you were caught in the heat of the government pushing a company out of the country”. Additionally, given the job market resulting from the coronavirus pandemic job offers are scarce. Therefore, a resolution will provide some certainty to those workers.

(3) This could start a precedent for Chinese companies entering the US market and could lead to further forced restructuring of popular Chinese apps. It may deter some Chinese start-ups from entering the US market.

(4) This provides another case to increase the regulatory environment, perhaps to include further requirements for tech companies when processing users' data. Many tech companies in recent years have faced scrutiny over how they have used this data and without consent, such as the Facebook and Cambridge Analytica case. Although according to the Wired, TikTok does not

The legal perspective

Under the current terms, ByteDance will become the majority shareholder in the newly established US company and will run TikTok’s global business. The plan is to have Oracle independently process TikTok’s US data to safeguard and ringfenced American users and potentially all data from around the globe. It is in this way that Oracle will be ByteDance’s technical partner.

The deal does not include any transfer of assets or technology, for example, TikTok’s algorithmic code, any Chinese data or source code. After all the Chinese media stated this would not be sold to a US buyer and such assets are under export controls.

Under these conditions, some have suggested that the CCP will not have an objection to the current deal structure. However, according to US lawmakers, the current deal fails to meet the standard demanded by Trump. Additionally, the US administration has not commented on whether they will accept this deal but announced they would start to assess the agreement last Tuesday.

Update: President Trump has approved the Oracle and TikTok deal, which includes Walmart. The new entity will be called TikTok Global with ByteDance holding 80% in the new company. US investors own 40% of ByteDance, so this evens out to US investors owning 53% across ByteDance and the new entity. TikTok Global will be responsible for processing the data of US users and outside China. Lastly, a Judge has blocked the US Department of Commerce's ban on downloads of the messaging and payment app, WeChat, on the bases that it prohibits freedom of speech.