Defense Industry Protection

Article excerpt


The Chinese National Overseas Oil Co. attempt to buy the American oil company Unocal had a happy ending, with Chevron winning control instead. But Congress is reviewing how foreign takeovers of U.S. firms are monitored and regulated.

Oct. 6, the Senate Banking Committee held a hearing on the Committee on Foreign Investment in the United States (CFIUS), a little-known group created by a 1975 executive order to review foreign transactions' effect on national security and the defense industrial base. Its powers expanded in 1988.

CFIUS is a rather unwieldy organization with 12 members: the Cabinet departments of Treasury, Commerce, Defense, Homeland Security, Justice, and State; and six from the Executive Office of the President, the U.S. Trade Representative, National Security Council, National Economic Council, Council of Economic Advisers, Office of Management and Budget, and the Office of Science and Technology Policy.

Like all bureaucracies, CFIUS has tended to grow as agencies expand their turf. CFIUS started with four members: Defense, State, Commerce and Treasury. With so many diverse constituencies represented, CFIUS has lost its focus.

The most problematic aspect is that CFIUS is chaired by Treasury. Sen. James Inhofe, Oklahoma Republican, has proposed legislation shifting the CFIUS chair to the Pentagon, to ensure national security is its priority.

Treasury's main concern is to support the dollar and maintain stability in financial markets. It thus favors anything that recycles the U.S. trade deficit back into the U.S. economy. If foreign consumers will not buy enough American products, foreign investors must be able to buy American productive assets to bring the dollars back home. Of 451 acquisitions referred to CFIUS between 1997 and 2004, only eight were investigated and only two sent to the president for action.

This inattentive record prompted Banking Committee Chairman Richard Shelby, Alabama Republican, to declare at the hearing: "We have enough insight ... from anecdotal information emanating from press accounts of individual cases, GAO reports dating from 1992, and committee research, to hold firm the belief that improvements to the current system are warranted." Mr. Shelby was unhappy that Treasury sent no one to testify, which lent credibility to his argument the process "is too opaque to allow for the appropriate level of congressional oversight into a process established by Congress with passage in 1988 of the Exon-Florio amendment to the Defense Production Act. That is why Congress has repeatedly tasked its investigative arm, the Government Accountability Office, to conduct studies on this subject. …