- The Washington Times - Wednesday, March 29, 2006

Today, reacting to the public concern about the Dubai Ports World transaction, the Senate Banking Committee will begin a legislative process in which very important national issues will be the focus — none more than national security. But Congress needs to be careful as it moves forward in this area: National security, our economy and the health of many American’s investment portfolios are at stake.

As leading business associations representing multinational companies based here and abroad, we have a strong interest in making sure the public and elected officials view the Committee on Foreign Investment in the United States (CFIUS) process as an effective national security tool. Our member companies will either have to comply with any changes to U.S. foreign investment policy or live with other nations’ reaction to them.

Members of Congress are introducing legislation to “fix” the CFIUS system that many say created the storm in the first place. Some legislation focuses on refinements to CFIUS, while other bills go beyond to ban non-U.S. firms from entire sectors of our economy.

The most draconian proposal would ban non-U.S. companies’ ownership of U.S. assets not only in seaports, but in energy, telecommunications, financial services and other industries viewed as “critical infrastructure.” The bill would force companies based in countries that are among our staunchest allies, such as Great Britain, to sell their U.S. operations within a five-year period, the equivalent of a fire sale.

Why is it a bad idea to restrict foreign direct investment in the United States, provided it does not endanger our national security interests? Let’s start with jobs. Restricting foreign direct investment would put at risk the jobs of 5.3 million Americans employed by foreign companies in the United States.

Next, let’s look at the American investor’s stock portfolio. Americans now hold more than $2.9 trillion in shares of foreign companies. For instance, cell phone maker Nokia may be based in Helsinki, but 40 percent of its shares are owned in America. The forced sale of U.S. assets by foreign-owned companies would hurt U.S. pensions, mutual funds and investors through falling stock prices and lower investment returns.

Foreign direct investment is also critical to the success of our capital markets, which provide the “seed corn” essential to the creation of new businesses and jobs, innovations and ideas. Our growing economy and robust capital markets attract more foreign investment than any other single country: more than $1.5 trillion. Shut off that spigot and our competitive edge and mighty economic engine will run dry.

And just think of how our trading partners would respond. While nearly 90 percent of U.S. company investments on an annual basis are made in this country, the fact is we invest more in their countries than they do in ours — more than $2 trillion. Closing our markets would lead to retaliatory actions that would deeply harm the U.S. economy.

Clearly some changes are warranted. While we know the CFIUS process to be extremely rigorous, there is room for improvement. Congress was clearly unimpressed with the quality and depth of communication from the administration. To remedy this, there should be a focused process for dialogue between CFIUS and the committees of jurisdiction in Congress. Also, CFIUS should be especially alert in the case of wholly state-owned enterprises. One only has to look at Venezuelan President Hugo Chavez’s political use of CITGO Petroleum to see the reasoning for the current law’s heightened review of state-controlled enterprises.

However, a congressional “veto” over CFIUS decisions would inevitably lead to politically motivated interference in a national security process. This would depart from every other administrative procedure in law regarding specific commercial transactions. Congress does not have a procedure for second-guessing anti-trust reviews, anti-dumping decisions or patent and trademark awards. It should not start here.

Nor should Congress tinker with the law’s flexible definition of national security or, worse, expand CFIUS’ mission to include “economic security.” One of the strengths of the current law is its flexibility to adjust with the times: The Internet was barely known in 1988 when the law was written, but CFIUS now reviews most cross-border telecom transactions because the Internet backbone is part of critical communications infrastructure. Including “economic security” in the definition of the law is protectionism masquerading as national security policy. This charade emulates the very worst of other nations’ policies.

As Congress debates how to respond to the Dubai deal, it should keep the Hippocratic oath in mind: First, do no harm. America enjoys the world’s strongest economy, the most open and transparent markets, and one of the highest standards of living in the world, thanks in no small measure to international investment. Let’s not put those benefits at risk now.

John Castellani is president of the Business Roundtable. Thomas Donohue is president and CEO of the U.S. Chamber of Commerce. Todd Malan is president and CEO of the Organization for International Investment.

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