The US Presidential administration has reportedly clashed with the UK over the imposition of "unnecessary obstacles" for US defence firms aiming to operate in the UK. It's been reported that the Biden administration has threatened, if restrictions are not removed, to limit its sharing of intelligence.
The row has reportedly kicked off over the takeover of British firm Ultra Electronics, a supplier of secret tech to nuclear submarines. Cobham, the private equity-backed buyer, is another UK defence business.
The proposed deal will in effect put Ultra under the control of the American Advent International, which has owned Cobham for the past 18 months, selling off most of its assets until this point. Intelligence sources said Business Secretary Kwasi Kwarteng will jeopardise future partnerships between the UK and US if he blocks the £2.6billion sale of Ultra to Boston-based Advent, reports The Express.
Mr Kwarteng ordered the Competition and Markets Authority (CMA) to investigate whether the deal poses a national security risk, reportedly leading him to be accused of discriminating against US companies. A senior US Congressional intelligence source said: "At a time when allies like the US and the UK are looking to deepen defence cooperation, we need to remove obstacles, not create them."
There are recently-lifted restrictions on British companies such as BAE Systems and Rolls Royce which allow them to operate more freely across the Atlantic. The source reportedly noted: "Congress has already taken action to ease some of the restrictions on British defence companies operating in the US.
"But instead of adopting a similar approach, it seems the British government is determined to impose unnecessary obstacles that make it harder for American defence firms to operate in the UK."
The takeover of Ultra, which makes military communications equipment including highly classified kit for Trident nuclear submarines, was subject of an inquiry ordered by Mr Kwarteng in August last year. He has received an initial report on the deal and last month agreed to further discussions with Advent to try and find a compromise for it to go ahead.
If these talks fail, the Business Secretary is likely to order the CMA to carry out a rare in-depth phase two review that would make it hard to reach the August 4 deadline set by Advent to complete the deal and could ultimately block the takeover. London and Washington are committed to strengthening defence cooperation ties to counter the threat posed by hostile powers such as Russia and China.
Last year, the two nations signed a trilateral security pact with Australia — the controversial AUKUS — that saw Canberra tear up a French submarine deal worth more than €50billion to instead acquire nuclear-powered subs from the US. Prime Minister Boris Johnson called the pact "a great step forward for global security".
Negotiations are now underway to expand the agreement to cover other military research projects, such as the development of hypersonic missiles. But US officials argue the British government is misusing powers introduced in January that are designed to limit the ability of hostile powers to acquire companies with links to Britain's security establishment.
These powers, they argue, should not be applied to close allies like the US, as Britain and America already enjoy intelligence-sharing arrangements under the Five Eyes alliance(FVEY), comprised of the two powers along with Australia, Canada and New Zealand. The two also closely cooperate on Britain's nuclear deterrence capabilities.
A senior US official said: "We make no distinction between a British investor in an American company on national security grounds. It is not fair that the British government is treating US firms in this way."
Washington fears any further delays could ultimately compromise the Ultra takeover. Officials at the Department of Business, Energy and Industrial Strategy said the deal could still get the green light if Advent is ready to make commitments to reduce national security concerns.
A spokesman for Ultra said it is working with the Government on the preparation of "suitable undertakings to protect UK national security interests".
