Ports deal puts focus on vetting

Committee approved sale to UAE firm

February 26, 2006|By JAMIE SMITH HOPKINS | JAMIE SMITH HOPKINS,SUN REPORTER

The federal panel that signed off on the Dubai port deal is charged with ensuring that foreign takeovers of U.S. companies don't jeopardize national security, but it's hardly spoiling for a fight.

Of the roughly 1,600 cases it has reviewed in the past generation, the Committee on Foreign Investment in the United States has considered 25 in need of a full investigation. A dozen were forwarded to the president to decide their fate. Of those, one deal - 16 years ago - was quashed.

Now that a United Arab Emirates company is poised to assume some operations at six U.S. ports, including Baltimore's, the resulting surge of criticism has cast a glaring light on a process so enigmatic that it gives the tight-lipped National Security Agency a run for its money.

"Clearly," said Peter Morici, a University of Maryland business professor who once worked for the U.S. International Trade Commission, "it's too secretive."

Formed during the Cold War, the panel is chaired by the Treasury Department and has tended to be most concerned about deals involving technology important in defense, at least in situations that broke through its closed doors. Typically the Chinese were involved.

Because Congress doesn't want to unduly interfere with market forces, the bar for government intervention is set high, and the committee uses a bar that's even higher, critics say. Some consider the committee's record little better than rubber-stamping.

Others said the panel is more attuned to conventional dangers than to the terrorism of today. The Government Accountability Office, Congress' investigative arm, concluded last fall that the panel was operating in a way that significantly limited its effectiveness.

"The Treasury ... narrowly defines what constitutes a threat to national security and, along with some other member agencies, is reluctant to initiate investigations," the GAO said in its report.

But supporters say the very existence of the panel is a deterrent to corporate espionage or terrorism; its secrecy - though necessary, they say - makes it seem less effective than it is.

It has required concessions from many companies, persuaded others to back away from deals voluntarily and has never approved an acquisition that later proved to be a threat, say some academics, attorneys and government officials.

"Where did the committee make a mistake? Where is the company that was sold to a foreign corporation where the national security of the United States is weaker today?" asked Tony Fratto, a spokesman for the Treasury Department.

More than national security is at stake, others say.

"It's very difficult for America to be an advocate for free markets," said David Braunschvig, senior fellow for the think tank Council on Foreign Relations, "if it takes a protectionist stance."

By law, the committee must tread carefully so as not to reveal sensitive corporate information, Fratto said. But some facts are publicly available, if not precisely public knowledge.

The committee - often referred to as CFIUS (pronounced see-fee-us) - is made up of 12 government bodies focused on safety and economic issues, such as Homeland Security and Commerce.

The process is either flexible or loose, depending on one's point of view. CFIUS doesn't have regular meetings. Each member unit conducts its own review, followed by - if needed - a conference call or a face-to-face session, Fratto said.

Participants are rarely higher ranked than assistant secretary because the issues are so technical, Fratto said. Though his department chairs the committee, Treasury Secretary John W. Snow has been quoted in news reports as saying he didn't know about the Dubai deal until after the committee concluded its review in favor of the state-owned company more than five weeks ago.

Formed in 1975 to monitor the impact of foreign investments, the panel was given teeth in 1988 when Congress - concerned about Japanese acquisitions of semiconductor firms - permitted the president to block foreign purchases of U.S. companies. He can do so only if "credible evidence" exists that the takeover might threaten national security and there's no other legal authority to adequately contain that threat.

Since then the committee has served as the president's investigator, sifting through hundreds of deals. (Companies aren't required to notify the administration, but if they don't, they run the risk of the president's breaking up the deal after the fact.)

The committee has 30 days to decide whether to give its OK or launch an investigation of an additional 45 days.

The single deal officially killed by the process was the 1990 acquisition of aerospace parts-maker Mamco Manufacturing Inc. by a corporation owned by the Chinese government. The previous President George Bush ordered the company to sell Mamco.

Such a track record raises eyebrows.

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