- The Washington Times - Saturday, March 11, 2006

Are you still driving your 1975 car? Probably not. Three decades of technological change have made it obsolete.

But the U.S. government is still using a 30-year old system for vetting foreign acquisitions of U.S. assets. The slipshod handling of the Dubai ports takeover shows convincingly that today’s dramatic geopolitical and economic changes have made that process obsolete as well.

When the Committee on Foreign Investment in the United States (CFIUS) was created in 1975, America was still a net lender to the world. Because the nation had avoided big international trade and investment deficits, dollars were much scarcer abroad than today, and therefore buying up America was difficult and expensive.

In 1975, moreover, America’s greatest security threats were concentrated in the communist world. The United States and its major allies agreed on diplomatic and defense fundamentals, and our homeland was safe from all but nuclear missile attack.

Today, the United States is the world’s biggest net debtor. After decades of skyrocketing trade deficits, foreign entities hold trillions of dollars — a global glut of greenbacks that ultimately can be spent only here, buying U.S. assets.

The security landscape is radically different as well. There are many new threats to American security, including a rapidly rising totalitarian China. Globalization has fostered spread of sophisticated technologies with both military and dual-use applications. Terrorists have exposed the vulnerabilities of the American homeland, but the United States and its allies have been divided on the response.

Thus, CFIUS must be reformed, beginning with new guidelines and a new structure to address current economic trends affecting national security. CFIUS has been chaired by the Treasury Department, a financially focused agency that lacks institutional experience with national security affairs.

Treasury has consistently defined economic threats to security in the narrowest possible terms. In fact, one of its main missions is to smooth the return to the U.S. of all those dollars held by foreigners, courtesy of our gargantuan trade deficits. That’s why there has been only one refusal in 1,500-plus cases.

Today, CFIUS must tackle the broadest range of economic security issues, including U.S. dependency on foreign sources for important defense and dual-use goods, as well as foreign ownership of key infrastructure. Since economic security is foremost a national defense goal, CFIUS should be co-chaired by the Defense and Homeland Security Departments.

Filings with CFIUS, now voluntary, must be made mandatory, with criminal penalties for failure to file. The current case-by-case approach must end, as it does not identify long-term foreign strategies for industrial domination. One ceramics or electronics deal might pass muster, but multiple foreign acquisitions in a strategic industry should not.

CFIUS must have institutional independence, too, along with more time to do its job. It needs a permanent staff and its own budget. The initial 30-day review should become 45 days to permit due diligence. Additional 45-day reviews in questionable cases should become normal under congressionally tightened definitions of economic security.

Further, all CFIUS recommendations must receive presidential approval or rejection within 15 days of the final report.

CFIUS is now stacked by the White House, with six presidential organizations out of 12 panel members — the Council of Economic Advisers, National Economic Council, the Office of Management and Budget, Office of Science and Technology Policy, the National Security Council, and the Office of the U.S. Trade Representative — running interference.

How then can CFIUS offer the president impartial, expert advice from his Cabinet? The White House organizations should be removed from CFIUS; they can weigh in once CFIUS recommendations are reported to the president.

Because maintaining economic security is so important today, Congress also belongs in the CFIUS loop. The president’s approvals should be submitted to Congress — to the Armed Services and Homeland Security Committees — within two days of the president’s action. Congress could then block a takeover by acting affirmatively within 15 legislative days of notification — just as it does with major foreign military sales.

While CFIUS should protect the confidentiality of Executive Branch deliberations and proprietary business information, all nonproprietary information must be published — including detailed descriptions of the buyer and seller, and of the former’s previous U.S. acquisitions, according to guidelines established by Congress, not the Executive.

CFIUS should also trust less and verify more. All successful acquiring companies must report annually to CFIUS on their U.S. assets’ composition, profits, locations, sales and employees. When CFIUS sets conditions on takeovers — e.g., that sensitive operations or technologies remain here — it must actually monitor those conditions, beginning with mandatory annual reports from the acquiring company. Noncompliance should carry criminal penalties. To alter the original deal, the acquiring company must file a brand new case with CFIUS.

Further, Congress must mandate an immediate and independent investigation of the 1,500-plus takeovers to date, something CFIUS neglected to do. Are the once-American firms still in business with a similar work force and number of plants? Have conditions been followed? Or has critical technology simply been spirited out of the United States and a shell left in place to maintain appearances?

Finally, Congress can’t wriggle off the hook simply by repairing CFIUS, whose difficulties are symptoms of much larger problems: failed trade policies, out-of-control deficits, currency manipulation, intellectual property theft, subsidies and the resulting hemorrhage of dollars abroad that allows foreigners to gobble up U.S. assets in the first place.

If Congress limits itself to bureaucratic tinkering, today’s opportunity to bring CFIUS and underlying U.S. policies into the post-September 11, 2001, world will have been squandered.

Kevin L. Kearns, president of the U.S. Business and Industry Council, dealt extensively with foreign investment issues as a Foreign Service officer and congressional aide. Alan Tonelson, research fellow at the Council’s Educational Foundation, is author of “The Race to the Bottom.”

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