Economy & Trade, Headlines, North America

FINANCE-US: Congress Reins in Foreign Investors

Emad Mekay

WASHINGTON, Jul 13 2007 (IPS) - The U.S. Congress passed legislation this week that strengthens the vetting system for foreign purchases of companies in the U.S., a measure that observers say will mostly likely lead other countries to tighten their rules as well.

The legislation came into existence in the wake of a major controversy that erupted after Dubai Ports World, a company owned by the government of Dubai, bought the commercial operations of six major U.S. ports. The deal caused an uproar among U.S. lawmakers, who cited threats to national security for their strong opposition.

“The Dubai Ports World deal last year exposed serious flaws with the committee that reviews foreign investment decisions in our country,” said Republican congressman Roy Blunt, a leading advocate of this week’s bill.

Dubai Ports World backed out of the 6.8-billion-dollar deal after Congress’ House appropriations committee voted 62-2 to bar the company from holding leases or contracts at U.S. shipping facilities.

“When six of our biggest ports were to be sold to Dubai without any red flags being raised, it was like an alarm bell to strengthen the vetting system,” said U.S. Senator Robert Menendez, a Democrat form New Jersey, who was one of the most vocal critics of Dubai Ports World’s purchase.

“This reform is a necessary component to our national security, and it will help ensure that Americans don’t wake up one day to find without any warning that the port in their backyard is controlled by a foreign government – as almost happened in New Jersey last year,” he said.

The Foreign Investment and National Security Act of 2007 modifies the process by which the Committee on Foreign Investment in the United States (CFIUS) reviews acquisitions of businesses operating in the U.S.

The bill requires higher-level signoff for approval of deals, heightens inspection of transactions involving foreign governments, involves the director of national intelligence in the process and pumps up Congressional notification of CFIUS investigations. CFIUS represents 12 U.S. departments and agencies and is now chaired by the secretary of the treasury.

It requires senior-level administration officials to approve all but the most routine transactions and gives the intelligence community greater oversight of foreign companies’ and governments’ investments in the United States.

It includes a provision to notify U.S. senators of investigations into foreign acquisitions in their home states.

It also greatly expands the concept of national security to include investment areas such as critical infrastructure, homeland security and energy security – areas in which foreign investors are likely to feel its impact for a long time to come. The law makes many more types of transactions subject to review, such as acquisitions of ports and power plants, natural gas terminals, toll roads and tunnels.

While proponents argue that the bill is balanced, analysts say that other countries could slap greater restrictions on U.S. investments.

“Other countries have been watching how the United States treats foreign investment and are tightening their review procedures too, making it more difficult for U.S. companies to invest abroad,” said Christopher Wall, a international trade attorney in the Washington office of Pillsbury Winthrop Shaw Pittman LLP.

The George W. Bush administration has argued that the law could impede foreign investments in the country, and highlights the growing protectionist policies sweeping the country. But Democrats said the administration should place national security first.

“Now that both Houses of Congress have passed this landmark legislation, we call on the president to strengthen the national security reviews of foreign investments in our country,” said Senator Harry Reid. The bill has been sent to Bush for signature.

Initially, U.S. business groups opposed the measure, saying that it could prompt a backlash against their expansive presence and free trade agenda across the globe. But the groups later changed their stance.

The U.S. Chamber of Commerce, the nation’s largest business interest group, now says the bill strikes the appropriate balance between keeping the U.S. safe and protecting the economy.

“This bill will help maintain America’s competitive edge and continue to contribute positively to the U.S. economic growth,” the chamber said in a statement.

Passage of the legislation was also hailed for ending a controversial period for foreign investors in the United States and cooling the political fever that accompanied the botched ports deal, analysts say

“After DPW [Dubai Ports World], the foreign investment review process became highly politicised and Congress’ frequent and vocal criticism of the administration’s handling of national security reviews scared foreign investors, who feared they might become the target of the next uproar,” said Wall.

“Most importantly, however,” he said, “the new law will give Congress greater confidence in the CFIUS review process, so future reviews will not be as political.”

Foreign direct investment supports 5.1 million jobs in the United States that typically pay compensation well above the national average. Investment from abroad also supports 19 percent of all U.S. exports.

In 2005, a number of foreign-owned companies reinvested 59 billion dollars in profits back into the U.S. economy.