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110th Congress S. Prt.
1st Session COMMITTEE PRINT 110-25
_____________________________________________________________________
AN EVALUATION OF CFIUS REFORM
AFTER DP WORLD: BALANCING
OPEN INVESTMENT POLICY AND
NATIONAL SECURITY
__________
A Report to Members
of the
COMMITTEE ON FOREIGN RELATIONS
UNITED STATES SENATE
Richard G. Lugar, Ranking Member
One Hundred Tenth Congress
First Session
June 20, 2007
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COMMITTEE ON FOREIGN RELATIONS
JOSEPH R. BIDEN, Jr., Delaware, Chairman
CHRISTOPHER J. DODD, Connecticut RICHARD G. LUGAR, Indiana
JOHN F. KERRY, Massachusetts CHUCK HAGEL, Nebraska
RUSSELL D. FEINGOLD, Wisconsin NORM COLEMAN, Minnesota
BARBARA BOXER, California BOB CORKER, Tennessee
BILL NELSON, Florida JOHN E. SUNUNU, New Hampshire
BARACK OBAMA, Illinois GEORGE V. VOINOVICH, Ohio
ROBERT MENENDEZ, New Jersey LISA MURKOWSKI, Alaska
BENJAMIN L. CARDIN, Maryland JIM DeMINT, South Carolina
ROBERT P. CASEY, Jr., Pennsylvania JOHNNY ISAKSON, Georgia
JIM WEBB, Virginia DAVID VITTER, Louisiana
Antony J. Blinken, Staff Director
Kenneth A. Myers, Jr., Republican Staff Director
(ii)
C O N T E N T S
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Page
Letter of Transmittal............................................
v
Overview.........................................................
1
Committee on Foreign Investments in the United States (CFIUS)....
1
Exon-Florio Amendment............................................
2
Proposed DP World Acquisition of Peninsular and Oriental Steam
Navigation.....................................................
2
Reform Legislation...............................................
3
Subsequent Transactions..........................................
5
United Kingdom...................................................
5
United Arab Emirates.............................................
6
Measures to Attract FDI..........................................
8
Conclusions and Recommendations..................................
9
APPENDIXES
Appendix A.--Business Community Statement on House Passage of
CFIUS Legislation..............................................
11
Appendix B.--Insourcing Statistics...............................
13
(iii)
LETTER OF TRANSMITTAL
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June 20, 2007.
Dear Colleagues:
The committee recently sent Manisha Singh of the
professional staff to the United Kingdom and the United Arab
Emirates in order to evaluate the status of foreign direct
investment after the failed Dubai Ports World (DP World)
transaction last year and in light of subsequent reforms
proposed in the process of the Committee on Foreign Investments
in the United States (CFIUS). She met with key government
officials and private sector participants to collect and
evaluate information to analyze the effects of post DP World
reform on potential foreign direct investment (FDI) flows into
the United States.
We are pleased to share with you her trip report, which we
believe provides an effective explanation of CIFUS and its
background. It also shares insightful details about current
perceptions of potential investors abroad seeking to invest in
the U.S. In addition, it describes measures that have been
taken to counteract adverse effects occurring after DP World.
The conclusion is a concise summary of the way we should
proceed going forward. We look forward to continuing to work
with you on these issues and welcome any comments you may have
on this report.
Richard G. Lugar,
Ranking Member.
(v)
AN EVALUATION OF CFIUS REFORM AFTER
DP WORLD: BALANCING OPEN INVESTMENT
POLICY AND NATIONAL SECURITY
Overview
The U.S. has historically been an open market receptive to
foreign direct investment (FDI). Post World War II, during the
reconstruction of the economies of many countries, there were
efforts to form organizations that would restore diplomacy.
Additionally, nations sought measures to facilitate and enable
international commerce. Over the last several decades, commerce
has grown to become increasingly global in nature. One of the
challenges that has arisen is the need allow foreign investment
in the U.S., while still maintaining a close watch on how such
investment affects national security. There have been various
periods of specific concern over increasing foreign ownership
in the U.S. The result was the creation of the Committee on
Foreign Investments in the United States (CFIUS), an inter-
agency body designed to review foreign investment for national
security purposes. A further result was adoption of the Exon-
Florio amendment to the Defense Production Act, legislation
designed to give the President authority over business
transactions that may adversely impact national security.
Committee on Foreign Investments in the
United States (CFIUS)
Concerns over increased FDI gained heightened significance
during the 1970's resulting in the creation of CFIUS. It was
established by an Executive Order of President Gerald Ford and
originally consisted of the Secretaries of State, Treasury,
Defense and Commerce, the United States Trade Representative,
the Attorney General, the Chairman of the Council of Economic
Advisers, and the Director of the Office of Management and
Budget.\1\ The Secretary of the Treasury was to be the chair
with the ability to invite representatives of other agencies to
participate in the committee's functions. In 1993, President
Bill Clinton expanded the committee's membership to include the
Director of the Office of Management and Budget, the Director
of the Office of Science and Technology Policy, the Assistant
to the President for National Security Affairs and the
Assistant to the President for Economic Policy.\2\
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\1\ Executive Order 11858, Foreign Investment in the United States,
May 7, 1975, 40 F.E. 20263.
\2\ Executive Order 12860, Adding Members to the Committee on
Foreign Investment in the United States, September 3, 1993.
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CFIUS was tasked with ``. . . monitoring the impact of
foreign direct investment in the United States, both direct and
portfolio, and for coordinating the implementation of United
States policy on such investment.'' \3\ In order to carry out
its functions, CFIUS was to authorize preparation of analyses
of foreign investment trends; guide foreign governments on
their potential investments in the U.S.; review investments,
which in its judgment affect U.S. national interests; consider
new proposals for regulating foreign investment and set the
views of the Executive Branch on the issue overall, as well as
carry out the responsibilities of the relevant sections of the
Defense Production Act. The Commerce Secretary was given
responsibility for assimilating information on foreign direct
investment flows into the U.S. including the evaluation of
significant transactions. The committee was also to determine
whether a transaction should be investigated and make such
investigation if necessary. If an investigation were deemed
necessary, it would commence no later than 30 days after
receipt of notice of the transaction, and the investigation
would be completed within 45 days of such determination. If the
committee decided not to investigate a particular transaction
and a member disagreed with this decision, the chair of the
committee was to submit a report to the President discussing
the differing views so that the President could decide. If all
members were in agreement that no investigation was required,
then the matter was concluded and the President was so
notified. If the committee were unable to reach a unanimous
decision, then the chair was to submit a report with the
different views in order for the President to make a decision.
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\3\ Executive Order 11858, Section 1(b).
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Exon-Florio Amendment
In 1988, rising public concerns about increased foreign
direct investment from Japan resulted in passage of the Exon-
Florio provision. Exon-Florio granted the President authority
to investigate transactions in order to determine the effects
on national security. Its guidelines are similar to those set
forth in the President Johnson's Executive Order. An
investigation is to be commenced within 30 days of notification
and completed within 45 days of determination of the need to
investigate. Based on the findings of these investigations, the
President has the authority to suspend or prohibit transactions
in the interest of national security. The President can
exercise this authority if there are findings of credible
evidence that a foreign entity taking control could impair
national security, and relevant existing law does not provide
for national security.\4\
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\4\ Section 721 of Pub. L. 100-418, 102 Stat. 1107, made permanent
law by section 8 of Pub. L. 102-99, 105 Stat. 487 (50 U.S.C. App. 2170)
and amended by section 837 of the National Defense Authorization Act
for Fiscal Year 1993, Pub. L. 102-484, 106 Stat. 2315, 2463.
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Proposed DP World Acquisition of Peninsular
and Oriental Steam Navigation Company
In mid-October 2005, DP World, a United Arab Emirates
government controlled company, was in the process of acquiring
Peninsular and Oriental Steam Navigation Company (P&O), a
private British company. P&O managed six ports in the United
States: New York, Miami, Newark, Philadelphia, New Orleans and
Baltimore. Upon consummation of the transaction, management
responsibilities for these six ports would have shifted to DP
World. Due to this portion of the transaction, DP World
notified and sought clearance from CFIUS.
Although there is no requirement that purchasers seek CFIUS
approval, many do so because CFIUS can require complete
unwinding if it later determines that a transaction is a threat
to national security. Congress amended the Exon-Florio statue
in 1992 to require that CFIUS investigate transactions where:
(1) the acquirer is controlled by or acting on behalf of a
foreign government; and (2) the acquisition results in control
over interstate commerce that could affect national security.
The DP World transaction met these criteria. The Department of
Treasury, chair of CFIUS, notified DP World that its
acquisition had cleared. CFIUS grants such clearance under the
authority of the President.
Reports indicate that subsequently, a Florida company which
had joint ventures with P&O became concerned when it learned of
the acquisition. The company alerted members of Congress, who
in turn took the story to the media. At this point, questions
arose as to whether the President or senior White House staff
were aware of the deal. This was significant since CFIUS is
viewed to be carrying out the policies of the President. In
February 2006, DP World postponed the final acquisition of the
U.S. ports part of the deal in order for Congress to conduct a
review. During this time, several members of Congress
introduced legislation blocking the transaction or calling for
CFIUS reform. The President threatened to veto any bill
blocking the transaction. On March 8, House Appropriations
voted to impair the acquisition.\5\ The following day, DP World
divested management of the U.S. ports to a U.S. entity.
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\5\ The House Appropriations Committee voted 62-2 to include an
amendment in an emergency supplemental bill.
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Reform Legislation
109th congress
In the wake of the DP World transaction, the House and the
Senate both passed legislation significantly reforming CFIUS
and Congressional notification requirements.\6\ The 109th
Congress concluded with no conference convened on the measures.
The move to reform CFIUS has been overwhelming. Although the
goal is to enhance national security, it has generated
significant concern in the global community that it will also
have a chilling effect on the desire of foreign companies to
invest in the U.S. The Federal Government currently does not
undertake any significant affirmative steps to attract foreign
investment. There are concerns that the detrimental effect of
DP World combined with the lack of any active measures could
lead to declines in foreign investment.
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\6\ The House passed H.R. 5337 and Senate passed S. 3549 on July
26, 2006.
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110th congress
House of Representatives. During this Congress, the House
has passed H.R. 556, the National Security Foreign Investment
Reform and Strengthened Transparency Act of 2007, which has
been sent to the Senate for consideration. This legislation
directs the President, through CFIUS, upon written notification
of a covered transaction, to identify any potential effects on
national security. A ``covered transaction'' is defined as any
``merger, acquisition, or takeover by or with any foreign
person which could result in foreign control of any person
engaged in interstate commerce in the United States.'' \7\ It
specifies that any party to the transaction, the President, the
committee or anyone acting on behalf of the committee can
determine to put the transaction forward for a review. Any
review which results in a finding that (1) there is a threat to
national security which has not been mitigated or (2) there is
a foreign government controlled transaction, is subject to
further investigation. Additionally, if a roll call vote of the
committee results in any one member objecting to the
transaction or the Director of National Intelligence identifies
particular concerns that could not be mitigated, then the
transaction is also subject to further review. It provides
statutory authority establishing CFIUS, comprised of the
Secretaries of Treasury, Homeland Security, Commerce, Defense,
State and Energy, the Attorney General, the Chairman of the
Council of Economic Advisers, the United States Trade
Representative, the Director of the Office of Management and
Budget, the Director of the National Economic Council, the
Director of the Office of Science and Technology Policy, the
President's Assistant for National Security Affairs and any
other designee of the President. There are also several
provisions regarding increased oversight by Congress. Within 5
days after completion of an investigation, reports are to be
sent to the Majority and Minority Leaders of the Senate, and
the Speaker and Minority Leader of the House. Additionally,
there are requirements for the committee to provide briefings
if requested by members of Congress and further studies and
reports required on the functioning of the CFIUS process. \8\
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\7\ H.R. 556, Sec. 2. (a)(3).
\8\ H.R. 556.
Senate. The Banking Committee has reported the Foreign
Investment and National Security Act of 2007 to the full Senate
for consideration. The Senate bill is significantly similar to
the House passed bill. It is therefore likely that should this
bill pass the full Senate and proceed to conference with the
House bill, differences will not be difficult to resolve and
the final legislation sent to the President will meet with
approval of both chambers. The Senate bill provides for
statutory establishment of CFIUS. It also enhances the role of
the Director of National Intelligence in the committee. It
further requires that in addition to Treasury, a lead agency be
designated for each transaction which will be tasked with
oversight of any mitigation agreements and follow-up for
compliance with such agreements. It provides for an exception
to the requirement that a state-owned agency automatically go
through the investigation process if designated officials
determine that there is no impairment to national security. In
addition, it expands the list of criteria to be considered by
CFIUS when conducting reviews. Similar to the House passed
bill, it provides for reports to be submitted to Congress and
additional reporting and oversight on the functioning of the
CFIUS process overall.\9\
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\9\ S. 1610.
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Subsequent Transactions
Currently, no reform legislation has reached the stage of
passage by both chambers and signature of the President.
However, there have been impacts on the CFIUS process in
transactions since DP World. Two such transactions merit
attention as a part of this analysis. The first is Nokia
Corp.'s acquisition of Siemens AG. Neither company is based in
the U.S., however, Siemens supplies equipment to various
branches of the U.S. government and has provided services in
the area of airport security.\10\ Because of this, the
transaction fell into CFIUS review and a mitigation agreement
was required to address U.S. national security issues. This
prompted concerns in the international business community about
the reach of U.S. CFIUS review since a condition was imposed on
a transaction between two European headquartered companies. The
CFIUS position is that although neither was based in the U.S.,
their conduct of business did affect U.S. national
security.\11\ The second is the acquisition of the U.S. company
Lucent Technologies by French company Alcatel. This transaction
generated interest due to the inclusion of an ``evergreen''
provision, meaning that the government would have the ability
to unwind the transaction for an indefinite period if security
commitments were breached. The opinions of the national
security agencies have been given more weight in the post DP
World CFIUS reviews. This generated a strong reaction from the
business community which felt that it was far reaching and a
departure from past practice.\12\ There are strong concerns
about the overall impacts of DP World on the CFIUS process.
These concerns exist not only regarding deterred foreign
investment in the U.S., but also regarding backlash against
U.S. companies seeking to invest in other countries.\13\
However, the business community has recently reacted positively
to both the House passed and Senate proposed legislation.\14\
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\10\ U.S. Expands Oversight of Deals; Ron Orol, The Deal, L.L.C.,
January 10, 2007.
\11\ Assistant Secretary of Treasury Clay Lowery, Testimony before
the House Armed Services Committee, November 14, 2006.
\12\ ``That CFIUS sought to and, apparently, did impose this
condition on the Alcatel-Lucent merger is a disturbing departure from
the government's stated support for an open trade and investment
regime. Such conditions can chill investment, make those who do invest
more cautious about the types of commitments they are willing to give
the government in the context of the CFIUS review, and ultimately, harm
the economy.'' Letter from Business Roundtable, Financial Services
Forum, Organization for International Investment and United States
Chamber of Commerce, December 5, 2006.
\13\ ``Just last week, the Russian government approved two laws.
The first would create a CFIUS-like review process for foreign
investments in 39 sectors. The second would ban foreign ownership in
certain gas, oil, gold and copper assets. It September, China passed a
new regulation allowing the government to block transactions that
negatively affect China's ``economic security'' and state owned
enterprises. Debate has started in Korea about whether they need an
Exon-Florio law. In November, Canada's Minister of Finance called for a
``principle-based approach'' to address situations where ``a particular
foreign investment might damage Canada's long-term interests.'' The
Indian government has begun an internal consultation process on the
need for legislation to deal with foreign investments that have
national security implications.'' David Marchik, Partner, Covington and
Burling; Testimony before the House Financial Services Committee,
February 7, 2007.
\14\ See Appendix A.
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United Kingdom
There were several aspects of the DP World transaction
which were felt in London. The initial was that the subject of
DP World's acquisition was a British company, and subsequently,
there were concerns that the U.S. public might fear foreign
ownership generally, regardless of nationality. The private
sector in London seems to have determined to approach the CFIUS
reforms from a practical perspective. Multinational companies
indicated an understanding that it was inevitable that the
process would be reformed after the circumstances surrounding
the DP World transaction. They were focused on understanding
the new process and factoring it in to their business analysis.
One of the primary considerations is when a CFIUS filing is
required. After DP World, companies indicated they will err on
the side of making a filing rather than not in order to
safeguard the transaction from potential peril down the road.
If a company determined that in spite of the time and cost of a
CFIUS filing, it was still commercially beneficial to proceed,
there are other aspects which could impede the transaction. For
instance, if financing from an outside source were required,
that source would have to make a determination regarding the
risk. In transactions since DP World which could trigger a
CFIUS filing, funding sources must now add in the additional
time, cost and risk of possibility that the transaction might
not proceed. Another factor increasing time and cost is the
need to educate corporate executives regarding the CFIUS
process.
Some of the larger multinational companies indicated they
would be slightly more cautious when investing in the U.S. due
to the CFIUS process. If the risk were too great, a transaction
might be abandoned altogether. Executives also said they are
currently exploring developing markets and that governments in
these markets have affirmatively reached out to attract foreign
investors. Commonly cited examples of such markets are India
and China. For many, investing in the U.S. is their first
choice; however, to the extent that it becomes more difficult
to do so, they will explore these other markets. There was also
a sense, however, that because they had been navigating the
CFIUS process for so long and had become experienced in it,
they were developing the expertise to proceed with CFIUS
reported transactions. Concerns would be stronger from smaller
companies and those who are not as experienced at investing in
the U.S. These entities could potentially be disadvantaged when
attempting to determine the appropriate procedures to follow
due to lack of experience and resources.
United Arab Emirates
Meetings with U.S. embassy officials in Abu Dhabi provided
broader context for the overall bilateral relationship. They
indicated that in addition to the bilateral trade and
investment relationship, it is important to understand the
significance of the relationship for purposes of regional
stability. The UAE government has pledged money and training
resources for U.S. operations in Iraq and Lebanon. It has also
historically supported and assisted moderate elements in the
region.
U.S. officials indicated that the UAE was not inclined to
let the DP World transaction compromise the overall bilateral
relationship. There was a sense that government-owned entities
would continue to seek to invest in the U.S., but would be more
cautious in looking at investments which might trigger CFIUS
filings. There was also concern that the UAE public was feeling
as if foreign direct investment from Arab countries in
particular was not welcome. The larger, more sophisticated
investors are still able to contemplate investments in the
U.S., however, small and medium size companies have expressed
reluctance in trying to do so. Although it is difficult to
quantify the overall effect of investment flows from the UAE to
the U.S., it was felt that there has been adverse effect.
UAE government officials indicated that they were surprised
at the extent of the political fallout surrounding the DP World
transaction. It was entered into as purely a commercial
transaction. They explained that when the business opportunity
arose, it was to purchase the British company P&O. The fact
that P&O managed several U.S. ports was an incidental factor
and not the reason for the transaction. From their perspective,
the bilateral relationship is still considered strong and this
single event will not change its nature altogether, however,
there was a sense of disappointment that it occurred in spite
of the strides that they felt have been taken to cooperate with
the U.S. on national security. They also felt that although
government to government discussions on a range of matters
would continue to progress, there has been an impact in the
private sector. Corporate executives signaled to the government
that they did feel less welcome and more cautious when
considering whether or not to invest in the U.S.
The failed DP World transaction also complicated other
aspects of the commercial relationship. It was not cited as the
reason for the halt in free trade agreement (FTA) talks,
however, there were indications that post-DPW, UAE trade
officials would be less willing to compromise their position in
the negotiations. The President had notified Congress in
November 2004 of his intent to commence FTA discussions with
the UAE, which began in early 2005. Although many issues have
been resolved, some, such as labor and investor-state dispute
settlement remain open. The renewal of Trade Promotion
Authority (TPA) may ultimately determine from the U.S. side if
talks are resumed. There have been concerns that the DP World
transaction fueled protectionist fears and could potentially
have an adverse effect on renewal of TPA and other upcoming
free trade measures.
Executives of the government owned or controlled
corporations in Abu Dhabi indicated that although foreign
perceptions are that the majority of UAE capital is housed in
Dubai, in reality it is in Abu Dhabi. These executives,
therefore, followed the DP World transaction carefully. They
explained that any enhanced compliance requirements for
investment from ``government controlled'' entities would have
greater consequences in the UAE due to the fact that such
entities are the largest source of investment outflows. There
were also fears that in the case of foreign investors, the U.S.
government could seize assets or take other forms of adverse
unilateral action. However, they still indicated a desire to
invest in the U.S., and to be a part of an environment where no
single issue controls the bilateral relationship. The potential
to have to make a CFIUS filing is a relevant issue when
determining whether or not to do business in the U.S., but it
did not appear to be the only, or the determinative issue.
Other significant factors cited when determining whether to
invest in the U.S. were travel and immigration. They felt that
it has become more difficult to navigate U.S. immigration
policies and to enter the country to do business.
Business executives, whether in wholly private owned or
government owned companies, all indicated a desire to move
beyond the DP World issues and find other ways to generate
increased business relations. An FTA was discussed as something
that could serve this purpose. In addition to the actual
technical reduced tariffs and duties from such an agreement,
simply its existence would signal an affirmative desire on the
part of both governments to increase bilateral trade. Another
area of increased cooperation discussed was student exchanges.
Executives indicated that they previously sponsored students to
study in the U.S., but the numbers have now dropped
significantly. There was a sense that student exchange was an
effective way to create a comfort level for the up-and-coming
generations in both countries. To the extent there are greater
common understandings, there is more trust and more possibility
for cooperation on all fronts.
Measures to Attract FDI
During the 109th Congress, subsequent to the DP World
fallout, there was a growing perception that the U.S. was no
longer a welcome destination for foreign direct investment. In
order to counteract this sentiment, Senators Bingaman and Lugar
introduced legislation aimed at attracting foreign direct
investment so that the benefits that flow to the U.S. from FDI
would not be lost. Statistics indicate the foreign companies
not only employ significant numbers of workers in each state,
but employ such workers in higher wage jobs.\15\ The bill has
been introduced in the 110th Congress as the Invest USA Act of
2007.\16\
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\15\ See Appendix B.
\16\ Introduced in the 109th Congress as the United States Direct
Investment Act of 2006.
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It provides guidelines for the establishment of a new
division in the Department of Commerce, the United States
Investment Administration, which would be headed by a newly
created Under Secretary of Commerce for Investment. The
responsibilities of this new agency and Under Secretary would
be to gather specific data about foreign investment and create
a report to be submitted to Congress. The duties of the Under
Secretary would include coordination with the administration on
the CFIUS process. It also provides for an annual investment
report. The report would specifically include the amount of
investment coming into each state, a description of programs
designed to attract foreign investment, comparisons of
investment flows into the other countries, the sectors into
which investment is being made and sectors in which it is
lacking. The bill contains details on how the analysis should
be made including the impact that investment trends have on the
competitiveness of domestic industries globally, employment in
the U.S., and the provision of health care and benefits by
companies to domestic workers. Based on this report, the agency
would develop and implement policies which would seek to
increase foreign investment in communities where employment has
been adversely affected due to trade.
The bill also requires an Annual Investment Agenda (AIA)
which includes an evaluation of research and development (R&D)
expenditures being made, particularly with respect to the high
technology industry. In the AIA, the new Under Secretary would
also be required to develop proposals that encourage investment
which will enhance domestic competitiveness, and increase job
opportunities. In addition, there is a requirement for
consultation with Congress in development and implementation of
the AIA. The bill further provides for the establishment of an
interagency Investment Promotion Committee comprised of the
Commerce Secretary, Treasury Secretary, Agriculture Secretary,
the USTR, members of the International Trade Commission and
National Economic Council.\17\ It is currently pending before
the Senate Finance Committee. Subsequent to introduction of
this bill, the Department of Commerce, International Trade
Administration, introduced its own initiative to affirmatively
attract foreign direct investment, ``Investing in America,''
which based on the same concepts in the Invest USA Act.
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\17\ S. 740.
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In discussions with embassy officials in the UK and the
UAE, including U.S. Foreign Commercial Service (FCS) officers,
all indicated that such affirmative measures seeking foreign
investment were welcome and needed. The stated purpose of the
FCS is to assist American companies seeking to do business
abroad. Occasionally, they receive inquiries from foreign
companies in their host countries that ask advice on how to do
business in the U.S., however, such counseling is beyond their
mandate and they often lack the time and resources to provide
such advice.
Conclusions and Recommendations
It is difficult to quantify the business effects of the DP
World transaction on foreign direct investment into the U.S. in
terms of numbers. It is safe to say that there was adverse
effect, both in terms of actual parties seeking to invest here
and in the perception of those who might seek to do so in the
future. However, there was an overriding sentiment that because
the U.S. is the largest consumer market in the world, investors
who want to achieve world class business status would continue
to come here and learn to navigate the process. The reactions
varied from the UK to UAE, with those in the UAE being a bit
more wary and concerned that there would be discriminatory
effects on UAE companies due to ethnicity.
The experience of DP World, combined with the legislation
pending in both the House and Senate should provide some
certainty and increased transparency in the process. It will
also provide for increased communication between the
administration and Congress, which has been cited by many as
one of the major reasons for the political fallout from DP
World. Both the current House and Senate bills provide for
reporting to Congress and more information for those Members
whose states and districts may be affected.
In addition to the affect on FDI, DP World and the
publicity it garnered had an impact from a diplomatic
perspective. Foreign companies doing business here and American
companies doing business abroad create more than just bilateral
commerce. They also contribute to common understandings among
populations, which are vital in shaping and maintaining a
greater diplomacy. Cooperation on the commercial front
increases the ability to work with nations on all other fronts
and seek solutions to common concerns. It is essential that we
maintain global ties because it is our open market which
provides opportunity for the American worker and our open
diplomacy which provides well being for the American public.
Over the last several decades, and in particular after
September 11, 2001, it has become more challenging to balance a
strong national security while remaining open to foreign direct
investment from all regions of the world. It is vital to
achieve the correct balance for many reasons. Our national
security should never be compromised. However, we can continue
to maintain it while still remaining relatively open to foreign
investment. In fact, the perception that the U.S. is no longer
open to foreign ownership, and in particular ownership from
certain parts of the world, may work against our national
interest. There should be a transparent process and careful
review of any questionable transactions. Those that are in the
commercial and diplomatic interest of the U.S. and which do not
compromise our national security should go forward. ``A world
with strong investment flows is the opposite of a zero sum
game. We believe there are only winners, no losers, and all
participants gain from it.'' \18\
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\18\ Ronald Reagan Statement on Investment Policy, September 9,
1983.
A P P E N D I X E S
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APPENDIX A
May 16, 2007.
The Hon. Harry Reid,
U.S. Senate, Washington, DC.
The Hon. Mitch McConnell,
U.S. Senate, Washington, DC.
Dear Senators Reid and McConnell: We are writing to express
our support for the Foreign Investment and National Security
Act of 2007 which passed unanimously out of the Senate Banking
Committee today. The bipartisan legislation will protect our
national security and American jobs, and restore certainty to
the CFIUS process while avoiding undue barriers to foreign
investment in the United States. For this reason, we would urge
you to quickly schedule this bill for floor consideration.
We commend Chairman Chris Dodd and Ranking Member Richard
Shelby and other members of the Senate Banking Committee for
working in a bipartisan manner to craft legislation that, like
its House counterpart, recognizes the significance of foreign
investment to the U.S. economy while ensuring that the
President maintains the necessary clear authority to block the
foreign acquisition of a U.S. company if the transaction were
found to have an adverse impact on our national security.
This is important legislation for our economy, and we
applaud the efforts of the Senate Banking Committee in passage
of the Foreign Investment and National Security Act. We would
strongly urge that this bill be moved expeditiously through the
full Senate. Thank you for your time and consideration.
Sincerely,
John Castellani,
President, Business Roundtable.
Rob Nichols,
President and COO Financial Services Forum.
Todd Malan,
President and CEO, Organization for International Investment.
Thomas Donohue,
President and CEO, U.S. Chamber of Commerce
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BUSINESS COMMUNITY STATEMENT ON HOUSE PASSAGE OF CFIUS LEGISLATION
WASHINGTON, DC.--Business Roundtable, The Financial
Services Forum, the Organization for International Investment
and the U.S. Chamber of Commerce issued the following statement
on today's vote in the House of Representatives to pass H.R.
556, legislation reforming the Committee on Foreign Investment
in the United States (CFIUS):
The passage today of bipartisan CFIUS legislation is
a victory for American jobs and a demonstration of how
both parties can work together on legislation that will
protect our national security while restoring certainty
to the CFIUS process. We commend Chairman Frank,
Ranking Member Bachus, Minority Whip Blunt and
Representatives Maloney, Pryce, and Crowley for
crafting a bill that strikes a critical balance between
protecting national security and encouraging beneficial
foreign investment. The bill recognizes the importance
of foreign investment in the United States and the 5.1
million American jobs it supports. At the same time, it
ensures that the President has the clear authority to
block a foreign acquisition of a U.S. company to
adequately and effectively protect our national
security.
We look forward to working with Senate Banking
Committee Chairman Christopher Dodd, Ranking Member
Richard Shelby, and Senate leadership as the Senate
considers this issue. We encourage the Senate to act
promptly on this key legislation.
Together, Business Roundtable, The Financial Services Forum, the
Organization for International Investment and the US. Chamber of
Commerce represent a broad range of U.S. businesses employing tens of
millions of Americans. The organizations recognize the critical
importance of foreign investment to both the US. economy and to the
over five million American jobs it supports.
APPENDIX B
Insourcing Statistics\1\
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\1\ Excerpted from Organization for International Investment
website, www.ofii.org. The information was reformatted for inclusion in
this report.
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The Facts About Insourcing
<bullet> U.S. subsidiaries employ 5.1 million Americans. OFII
has compiled a state jobs study, detailing the
insourcing employment in each state.
<bullet> U.S. subsidiaries of companies headquartered abroad
support an annual payroll of $324.5 billion--with
average compensation per worker of $63,428, over 32
percent higher than compensation at all U.S. companies.
<bullet> U.S. subsidiaries heavily invest in the American
manufacturing sector; with 31 percent of the jobs at
U.S. subsidiaries in manufacturing industries.
<bullet> U.S. subsidiaries manufacture in America to export
goods around the world--accounting for nearly 19% of
all U.S. exports, or $153.9 billion.
<bullet> U.S. subsidiaries of companies headquartered abroad
reinvested a record-high of $80.3 billion in their U.S.
operations in 2006.
<bullet> U.S. subsidiaries share of American employment
represented 28.2% of the American chemicals industry,
24% in the U.S. motor vehicles industry and nearly 24%
of the U.S. non-metallic mineral products industry.
<bullet> U.S. subsidiaries' federal income taxes went up 57%
from the previous year, to an all-time high of $29.9
billion.
<bullet> Foreign direct investment (FDI) in the U.S. totaled
$183.5 billion in 2006; an increase of 67 percent from
the previous year (OFII analysis of Commerce Department
numbers.)
<bullet> U.S. subsidiaries spent $29.9 billion on U.S.
reasearch and development activities, up from $29.8
billion the previous year.
<bullet> U.S subsidiaries also spent $108 billion plant
construction and new equipment.
<bullet> Ninety-four percent of total assets owned by foreign
companies are from OECD countries.
<bullet> Ninety-eight percent of U.S. FDI is from private
sector firms--only two percent of total direct
investment (assets) is owned by companies that are
controlled by foreign governments.