3Com deal becomes issue of free trade

Bain Capital's $2.2 billion agreement to buy networking equipment maker 3Com Corp. of Marlborough is shaping up to be a political showdown over free trade and national security due to the involvement of a major Chinese telecom company, Huawei Technologies.

Huawei, a company with close ties to the Chinese military, will get a 16.5 percent stake in 3Com if the deal goes through. But 3Com makes networking and data security products used by the US government, and critics say Huawei could provide the Chinese government with information that would make it easier to disrupt sensitive American computer and communications networks.

"This deal should not be approved," said James Mulvenon, director of the Center for Intelligence Research and Analysis, a think tank that does consulting work for the US intelligence community. "I don't think it's going to happen."

A statement issued by Bain Capital said the firm has requested that the deal be reviewed by a special federal organization, the Committee on Foreign Investment in the United States.

Bain said it was "confident CFIUS will conclude that the company remains firmly in the control of an American firm, has only a small minority foreign shareholder, and that the deal presents no risk to national security."

The committee was created by Congress in 1988 to review transactions that could compromise US security and to empower the president to halt any such deals. That law was beefed up last year, after the committee and the Bush administration approved the sale of facilities in six US seaports to a company based in Dubai. Members of Congress urged that the deal be blocked because of evidence that Dubai is a center of terrorist activity. In the end, the Dubai company sold ownership of the port facilities to a US company.

The new, tougher law takes effect in late October, but US Senator Jon Kyl of Arizona, a Republican, is circulating a letter among fellow senators asking Treasury Secretary Henry Paulson to apply it to the 3Com deal. "Senator Kyl has serious concerns about the purchase of 3Com by a consortium that includes a company with numerous ties to the Chinese People's Liberation Army," said his spokesman, Ryan Patmintra.

Senator John Kerry of Massachusetts, a Democrat, has also urged a close review of the acquisition. "I'm concerned about any plan that could inadvertently put sensitive communications assets into the hands of a foreign military," said Kerry, "and I expect the administration will look very closely at this deal."

In the House of Representatives, Republican Thaddeus McCotter of Michigan is circulating a letter of his own, and said he's gotten about 25 signatures. McCotter goes further than Kyl and some other congressional critics of the acquisition, calling bluntly for the deal to be scrapped. "I'm a Reaganite," said McCotter. "I wouldn't trade with the Soviet Union, and I wouldn't trade with China." Indeed, McCotter wants to repeal the US policy of permanent normal trade relations with China. He said this would give the US government more leverage to demand greater human rights for Chinese citizens and fairer trading practices.

McCotter tied his opposition to the 3Com-Huawei deal to his constituents' anger over the massive US trade deficit with China. "This is something that is a clear and present danger to their standard of living," he said.

Mulvenon said that Bain and 3Com officials may have underestimated the surge in public concern over Chinese trade practices widely perceived as unfair. He cited a recent Wall Street Journal poll that found that Republican voters oppose free-trade policies by a 2-to-1 margin - a major shift for members of a party that usually backs liberalized trade laws. "There's a very protectionist mood in D.C. right now," said Mulvenon.

Hiawatha Bray can be reached at bray@globe.com.