[House Hearing, 109 Congress]
[From the U.S. Government Publishing Office]
CFIUS AND THE ROLE OF FOREIGN DIRECT
INVESTMENT IN THE UNITED STATES
=======================================================================
HEARING
BEFORE THE
SUBCOMMITTEE ON
DOMESTIC AND INTERNATIONAL
MONETARY POLICY, TRADE, AND TECHNOLOGY
OF THE
COMMITTEE ON FINANCIAL SERVICES
U.S. HOUSE OF REPRESENTATIVES
ONE HUNDRED NINTH CONGRESS
SECOND SESSION
__________
APRIL 27, 2006
__________
Printed for the use of the Committee on Financial Services
Serial No. 109-89
U.S. GOVERNMENT PRINTING OFFICE
30-540 WASHINGTON : 2006
_____________________________________________________________________________
For Sale by the Superintendent of Documents, U.S. Government Printing Office
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HOUSE COMMITTEE ON FINANCIAL SERVICES
MICHAEL G. OXLEY, Ohio, Chairman
JAMES A. LEACH, Iowa BARNEY FRANK, Massachusetts
RICHARD H. BAKER, Louisiana PAUL E. KANJORSKI, Pennsylvania
DEBORAH PRYCE, Ohio MAXINE WATERS, California
SPENCER BACHUS, Alabama CAROLYN B. MALONEY, New York
MICHAEL N. CASTLE, Delaware LUIS V. GUTIERREZ, Illinois
EDWARD R. ROYCE, California NYDIA M. VELAZQUEZ, New York
FRANK D. LUCAS, Oklahoma MELVIN L. WATT, North Carolina
ROBERT W. NEY, Ohio GARY L. ACKERMAN, New York
SUE W. KELLY, New York, Vice Chair DARLENE HOOLEY, Oregon
RON PAUL, Texas JULIA CARSON, Indiana
PAUL E. GILLMOR, Ohio BRAD SHERMAN, California
JIM RYUN, Kansas GREGORY W. MEEKS, New York
STEVEN C. LaTOURETTE, Ohio BARBARA LEE, California
DONALD A. MANZULLO, Illinois DENNIS MOORE, Kansas
WALTER B. JONES, Jr., North MICHAEL E. CAPUANO, Massachusetts
Carolina HAROLD E. FORD, Jr., Tennessee
JUDY BIGGERT, Illinois RUBEN HINOJOSA, Texas
CHRISTOPHER SHAYS, Connecticut JOSEPH CROWLEY, New York
VITO FOSSELLA, New York WM. LACY CLAY, Missouri
GARY G. MILLER, California STEVE ISRAEL, New York
PATRICK J. TIBERI, Ohio CAROLYN McCARTHY, New York
MARK R. KENNEDY, Minnesota JOE BACA, California
TOM FEENEY, Florida JIM MATHESON, Utah
JEB HENSARLING, Texas STEPHEN F. LYNCH, Massachusetts
SCOTT GARRETT, New Jersey BRAD MILLER, North Carolina
GINNY BROWN-WAITE, Florida DAVID SCOTT, Georgia
J. GRESHAM BARRETT, South Carolina ARTUR DAVIS, Alabama
KATHERINE HARRIS, Florida AL GREEN, Texas
RICK RENZI, Arizona EMANUEL CLEAVER, Missouri
JIM GERLACH, Pennsylvania MELISSA L. BEAN, Illinois
STEVAN PEARCE, New Mexico DEBBIE WASSERMAN SCHULTZ, Florida
RANDY NEUGEBAUER, Texas GWEN MOORE, Wisconsin,
TOM PRICE, Georgia
MICHAEL G. FITZPATRICK, BERNARD SANDERS, Vermont
Pennsylvania
GEOFF DAVIS, Kentucky
PATRICK T. McHENRY, North Carolina
CAMPBELL, JOHN, California
Robert U. Foster, III, Staff Director
Subcommittee on Domestic and International Monetary Policy, Trade, and
Technology
DEBORAH PRYCE, Ohio, Chair
JUDY BIGGERT, Illinois, Vice Chair CAROLYN B. MALONEY, New York
JAMES A. LEACH, Iowa BERNARD SANDERS, Vermont
MICHAEL N. CASTLE, Delaware MELVIN L. WATT, North Carolina
FRANK D. LUCAS, Oklahoma MAXINE WATERS, California
RON PAUL, Texas BARBARA LEE, California
STEVEN C. LaTOURETTE, Ohio PAUL E. KANJORSKI, Pennsylvania
DONALD A. MANZULLO, Illinois BRAD SHERMAN, California
MARK R. KENNEDY, Minnesota LUIS V. GUTIERREZ, Illinois
KATHERINE HARRIS, Florida MELISSA L. BEAN, Illinois
JIM GERLACH, Pennsylvania DEBBIE WASSERMAN SCHULTZ, Florida
RANDY NEUGEBAUER, Texas GWEN MOORE, Wisconsin
TOM PRICE, Georgia JOSEPH CROWLEY, New York
PATRICK T. McHENRY, North Carolina BARNEY FRANK, Massachusetts
MICHAEL G. OXLEY, Ohio
C O N T E N T S
----------
Page
Hearing held on:
April 27, 2006............................................... 1
Appendix:
April 27, 2006............................................... 37
WITNESSES
Thursday, April 27, 2006
Anderson, Jeffrey M., Executive Director, Virginia Economic
Development Partnership........................................ 12
Evans, Donald L., Chief Executive Officer, The Financial Services
Forum.......................................................... 8
Tarullo, Daniel K., Professor of Law, Georgetown University Law
Center......................................................... 13
Vikner, Paul L., President and CEO, Mack Trucks, Inc............. 10
APPENDIX
Prepared statements:
Oxley, Hon. Michael G........................................ 38
Anderson, Jeffrey M.......................................... 40
Evans, Donald L.............................................. 50
Tarullo, Daniel K............................................ 56
Vikner, Paul L............................................... 71
CFIUS AND THE ROLE OF FOREIGN DIRECT
INVESTMENT IN THE UNITED STATES
----------
Thursday, April 27, 2006
U.S. House of Representatives,
Subcommittee on Domestic and
International Monetary Policy,
Trade, and Technology,
Committee on Financial Services,
Washington, D.C.
The subcommittee met, pursuant to notice, at 11:02 a.m., in
room 2128, Rayburn House Office Building, Hon. Deborah Pryce
[chairwoman of the subcommittee] presiding.
Present: Representatives Baker, Pryce of Ohio, Kelly,
Manzullo, Neugebauer, McHenry, Waters, Maloney, Sherman,
Crowley, Bean, Wasserman-Schultz, and Blunt.
Ex officio present: Representatives Oxley and Frank.
Chairwoman Pryce. The Subcommittee on Domestic and
International Monetary Policy, Trade, and Technology is now
called to order. This is a hearing on CFIUS and the Role of
Foreign Direct Investment in the United States. I'll begin with
my opening statement, and then we'll use the Greenspan rule,
which we're going to have to soon rename. And I'll allow Mrs.
Maloney and our two chairmen to give opening statements.
I'm very pleased to welcome all of you here today. I'd like
to thank our witnesses once again, and I appreciate the
opportunity to discuss with you the CFIUS process and the role
of foreign investments in the United States.
Over the last few years, we have heard much on the CFIUS
process, and some transactions that have given pause to many
Americans. Since 9/11, Congress has taken a strong position on
the importance of national security by strengthening our ports
of entry, increasing benefits for our men and women in uniform,
and protecting our troops to ensure that our country remains
safe.
In a post-9/11 world, Congress operates under heightened
awareness when it comes to all aspects of national security.
National security, however, is not mutually exclusive of
economic security and trade. While strengthening our security,
we have also continued our work to strengthen our relationships
and open markets with nations abroad, nations like India and
China. These countries have a growing appetite for foreign
goods and products, American products, and American investment.
In the late 1990's, China began loosening its regulations
on companies wanting to invest and build. India, a country
whose economy is reportedly growing at 8 percent a year, had
started to open its markets to foreign investment after years
of negotiations. American companies, brand names that we all
recognize, like Nike and Budweiser, have grown exponentially
because of these markets opening up, and growing American
companies means a growing job force here at home.
At a time when the rest of the world is moving forward,
some here in Congress are talking of taking a step back.
Congress has no greater obligation than to protect our
homeland. Our national security is paramount above all else,
but we cannot let our national security concerns morph into
economic protectionism that views foreign investment as
inherently bad. I'm concerned that Congress's quick and
politically heated reaction to a disappointing misstep by our
Administration will lead to a decrease in international trade
and foreign investment.
In Ohio, we have seen the benefits of welcoming companies
like Siemens, Sodexho, Honda, Lexus, Nexus, and many other
global companies. Honda of American Manufacturing, a U.S.
subsidiary of the Japanese-based Honda Motor Corporation, has
become the largest auto producer in Ohio. Honda began United
States production in 1979, initially investing $35 million in
Marysville, Ohio. Honda announced a new $123 million paint
facility in Marysville, and to date, has invested $6.3 billion
in my State.
Honda's North American plants purchased more than $6.5
billion in parts from 150 Ohio suppliers in 2005 alone. In
2004, Honda produced nearly 645,000 Accords, Civics, Elements,
and Acuras in its Ohio facilities. It employs 8,500 people in
my district alone. That is one good example of foreign
investment in this country.
When a foreign company looks to invest in the United
States, they are looking to grow their business, and that
equals growing jobs in this country. A Wall Street Journal
report on April 21st said that in an annual report on its
survey of multinational corporations, the U.S. Department of
Commerce said foreign firms other than banks doing business in
the United States employed nearly 5.1 million employees in
2004, slightly less than 1 of every 20 workers in our private
sector.
Since the Dubai Ports transaction, the posturing of some of
those in our government has been to limit the role of foreign
investment. Legislation has been passed and discussions in the
press have led to a backlash in markets from Russia, China,
India, and Mexico. India has just lowered investment
retentions. Now they've voted to raise them again. The U.S.
Chamber of Commerce recently noted that the Mexican Senate
approved legislation that would create longer review periods,
or that would bar foreign investment in specific sectors, such
as transportation and telecommunications.
In Russia, President Putin has also proposed to limit
foreign investment in key sectors, and there has been an
explicit link to U.S. actions made by the economy minister as a
justification for these new limits.
This issue of reforming CFIUS has the potential to undercut
the United States' longstanding support for capital market
access and free movement of capital. We must continue to focus
our efforts on securing our Nation while remaining committed to
free trade as one of the greatest engines of prosperity.
In recent weeks, Treasury has made strides in Congressional
notification of pending deals that could potentially affect
national security, but a wake-up call is simply not enough.
More still needs to be done to ensure that a Dubai Ports World
situation does not happen again.
When questions of national security or foreign government
ownership arise, accountability is clearly needed. Clear
standards of Congressional notification need to be set, and the
President should remain the final judge for the most
consequential deals.
This subcommittee has oversight of CFIUS. We have already
held one hearing prior to today, and will continue to assess
the process as we work on both sides of the aisle to draft
legislation to reform the process of CFIUS with greater
accountability. We want the American people to have more
information about oversight and protections that are in place
to determine if foreign investment is in the best interest of
the United States' national security. CFIUS is in place to
evaluate these risks, and my subcommittee is exercising its
oversight of this process.
In a world entwined by global companies, it's important
that we continue to protect U.S. national and economic security
while promoting foreign investment. This issue touches every
American who wants to know that each day, they wake up safe.
I look forward to hearing our witnesses' testimony, and I
yield back the balance of my time and recognize my good friend,
the gentlewoman from New York, Mrs. Maloney.
Mrs. Maloney. And I thank the gentlelady for yielding and
for her leadership on this and on so many issues, and for
working constructively with all members of the committee,
including Democrats, for steps forward in safety and soundness
in our financial markets. I would also like to welcome all the
panelists, particularly former Secretary of Commerce Evans. We
worked together on the census, the accurate count, and other
areas. It's good to see you again.
I would just like to say very briefly, while the immediate
pressure to resolve the Dubai Ports fiasco has been lessened,
we simply cannot pretend that the episode did not happen, or
ignore the very real possibility that it could happen again.
The task of this subcommittee, as I see it, is to develop not
only sound oversight, but sound reform legislation that
encourages foreign investment in the United States without
putting our national security at risk or upsetting our capital
markets.
Toward this end, I have introduced H.R. 4915, the CFIUS
Reform Act, together with Ranking Members Frank and Gutierrez,
and in a bipartisan show of support, with Representative Shays.
We have many co-sponsors. I believe our bill is a moderate and
balanced reform proposal that should be supported by industry.
In fact, some members of industry have contacted my office
already in support of it. Its provisions are based in large
part on recommendations made by the General Accounting Office
in a report they issued before--and I want to emphasize that
this report came out before the Dubai Ports World crisis and
before Dubai Ports World became a household word.
In their timely report, GAO found serious problems with the
Administration's management of the Committee on Foreign
Investment, CFIUS, and I believe it's time that we enact the
simple reforms that they recommended. Some of the key elements
of the CFIUS Reform Act are, first, ensuring adequate scrutiny
of transactions that are most likely to raise national security
concerns, such as those involving companies owned by foreign
governments, while preserving a timely review process for cases
that are of less concern.
Second, increasing the transparency of CFIUS operations
without endangering the proprietary business information, our
national security information. And third, ensuring that CFIUS
adequately monitors transactions that either have been
withdrawn from CFIUS or are subject to assurance agreements.
I look forward to working with the chairwoman and my other
colleagues in a bipartisan manner to develop legislation to
reform the CFIUS process, and I very much look forward to the
testimony today. I yield back the balance of my time.
Chairwoman Pryce. Thank you, Mrs. Maloney. We're waiting
for Chairman Oxley. Let me just say that without objection, all
members' statements will be made part of the record. But we'll
go to Mr. Frank, if you don't object.
Mr. Frank. Thank you, Madam Chairwoman. I appreciate you
calling this hearing, and I know it's going to lead to a
markup, and I am pleased that this is one of those issues in
which we are proceeding on a bipartisan basis. And I will
express in advance my regret that your side will probably get
attacked in a Wall Street Journal editorial for our being
collaborative in this. But hey, you take the good with the bad
in our business. And I'm not sure from my standpoint that we're
being attacked by the Wall Street Journal falls along that
particular spectrum.
But I think we do recognize that foreign direct investment
in particular is very important to our economy. And again, I
say ``direct investment.'' We are not talking here about simply
investing in financial instruments. That doesn't get into this
process. We are talking about foreign companies investing in
real economic activity in our country. And there has been, I
think, a history of people being too nervous about that.
I remember, having been here for a long time, when people
were very upset that the Japanese were buying up these valuable
assets. And they bought Rockefeller Center and Pebble Beach,
and got one of the worst financial self-inflicted hosings in
the history of the world. And it always seemed to me excessive
to worry that the Japanese were somehow going to airlift
Rockefeller Center to Tokyo. And in fact, Americans benefitted
from that.
So we ought to be very clear, there's a lot of controversy
about international economic activity. I understand that. And
there were problems with buy-outs and mergers, and there were
problems, in my judgment, with working people not being treated
fairly.
But on the question of foreign direct investment, there
shouldn't be any controversy. It's a good thing, in general. It
is bringing real resources into real economic activity, and I
don't want to see it unduly hindered.
And I have to say--and this may be outside of the
parameters of our bipartisanship--one of the things that
troubles me, frankly, is the fact that the Bush Administration
messing up the Dubai Ports issue could lead us to make changes
beyond what is necessary in the law.
Now, we have different views of the competence of this
Administration, obviously. But I think--look, we went through
this with Hurricane Katrina, and we're going through it now. I
do think people on my side have to be aware of the danger that
we will overreact that every time this Administration messes
something up, people say, ``Well, we've got to change the
law.'' Frankly, I have a better solution, which would, of
course, be to change the Administration.
But leaving aside that, which isn't going to happen for a
while, it is not always the case that because something was
handled badly, the law is at fault. In this case, I think,
frankly, the law was better than the way it was administered.
That does not mean that there shouldn't be changes.
The gentlewoman from New York and I have talked, and she
has legislation, and we talked about the GAO. Yes, I think
there are ways that we can improve the process. I do not think
this is a case where drastic change is needed. It is certainly
not the case where we want to have this thing be more
politicized.
Let me say at the beginning, any suggestion that we should
get early advance notice, we and the Congress, of particular
transactions on a confidential basis seems to me an invitation
to greatly expand the law of insider trading abuses. I cannot
think that it is useful for large numbers of Members of
Congress and our staffs to be given confidential information
about impending financial transactions. Let me be very clear.
In this case, I don't want to know.
I do want rules that would say that if there are, in fact,
things that are likely to be a problem, in that case, we may
want to know.
I do think it is reasonable to differentiate between
foreign governments and legitimate foreign enterprises which
are non-governmental. That doesn't mean everything that the
government does is bad. It means that it's logical to have a
different set of rules apply. The rule ought to be that we
welcome foreign direct investment, but we should also recognize
that there is a category of exceptions, both with regard to who
the purchaser would be, or the investor, and with regard to
what the function should be that should require some heightened
sensitivity. And that's our job is to improve that part of the
process without putting any obstacles in the way.
I think there was an agreement--well, the analysis leading
up to the agreement may differ. I think there was agreement
among us--and that's the way we want to go--that we want to
make it less likely that there will be problems in the future.
In this case, by the way, it seems to me the problem could have
been solved by someone in this Administration saying,
``Probably not a good idea for Dubai to buy the ports at this
point. Why don't you go buy some movie theaters or a chain of
restaurants or something else?''
I think we can make it less likely that we will have this
kind of mistake without making the kind of excessive changes
that would interfere with something which is essentially
positive, and that is foreign direct investment. Thank you,
Madam Chairwoman.
Chairwoman Pryce. Thank you, Mr. Frank. Chairman Oxley is
not here yet, and he does have an opening statement. But I
think we will proceed and circle back. Oh, here he is. Well,
that's very good timing. Are you ready to be recognized, Mr.
Chairman?
The Chairman. I am, Madam Chairwoman.
Chairwoman Pryce. Chairman Oxley is recognized.
The Chairman. That's ominous. All the members know that
this time of year we have visiting school kids from all over
the country, and I just happened to have one from my district,
so--
Mr. Frank. Will the gentleman yield?
The Chairman. I'd be glad to yield to my friend from
Massachusetts.
Mr. Frank. I just want to say for someone not running for
reelection, to see a school group is real dedication.
The Chairman. Above and beyond, yes.
[Laughter]
The Chairman. I also found out that I was the only one
standing between them and lunch.
Thank you, Madam Chairwoman, and thank you for holding this
important hearing. You've been a leader in the effort to ensure
that the American economy will have the needed investment
muscle to continue its expansion and job creation, while not
impairing national security, and we all appreciate your
efforts.
The debate earlier this year about CFIUS was all about a
single transaction that clearly could have been handled better.
Congress and the Administration need to work out a better way
for Congress to carry out the necessary oversight of that
process.
However, the basic process works well in that it has done a
good job of screening takeover proposals from foreign companies
for American companies. I can think of quite a number of times
that the process has stopped the deals that shouldn't go
through and approved the ones that should, sometimes doing so
with appropriate modifications to protect against the loss of a
defense industrial base or a critical technology.
The results have been, in a nutshell, spectacular. U.S.
subsidiaries of foreign-owned companies employ over 5 million
Americans. The average salary for those workers is a healthy
$60,000, and a third of those jobs are in manufacturing. In a
time when we worry about our balance of trade, it's important
to remember that more than 20 percent of U.S. exports are
produced by U.S. subsidiaries of foreign companies. Even the
phrase, ``foreign company'' is something of a misnomer. In our
increasingly global financial economy, citizens of the United
States invest heavily in the equities of so-called foreign
companies, owning $2.9 trillion worth of those stocks. Nokia,
the Finnish telecommunications company, is 40 percent American-
owned. Twelve percent of Swedish automobile and construction
equipment manufacturer Volvo is owned by Americans, either
through direct stock ownership or mutual funds, and one of its
10 largest investors is a U.S. funds manager.
Though these firms are based overseas, Americans holding an
ownership stake in these and other similar companies directly
benefit from foreign investment in the United States. It's not
even just manufacturing and service industry jobs that are in-
sourced. A lot of the profits from these U.S. subsidiaries are
reinvested here in the United States in new plant and equipment
and in research and development.
The Swiss firm Navartis, in fact, has its worldwide
research and development headquartered in Massachusetts.
Panasonic was able to develop the plasma television sets we all
know that we need so we can better watch golf and baseball
after buying a U.S. company that developed a technology but
couldn't find financing here to refinance breakthrough. That
was a great breakthrough--high definition television and those
kind of screens. I'm sure the former Secretary of Commerce
agrees with that.
It's been a decade since the terms ``foreign'' and
``domestic'' were distinct, and we need to update our thinking
to match our modern global economy. While the benefits of
foreign direct investment should be apparent to all, and are
probably in every Congressional district in the country in some
shape or form, the downsides of erecting a protectionist wall
cannot be overstated.
If Congress makes it too onerous to invest in this country,
why would anyone in their right mind do business here? Labor is
cheap in China. Resources are cheap in South America. Markets
are huge in Europe. Already with the talk of making investment
here more difficult, the parliaments of Russia, India, Mexico,
and elsewhere have begun debating new retaliatory moves. There
are a number of countries ready to use this issue as a reason
to make their own markets harder to crack for Americans.
An incorrect move right now would be a particular setback
when China is beginning to open up to foreign investments. The
door to China is open to European manufacturers and financial
institutions, but not to U.S. firms. I think we can all imagine
the consequences.
Madam Chairwoman, I just returned from a trip with the
Speaker to India and to Vietnam, and I was struck by the
changes--I didn't know what to expect in Vietnam, but I was
struck by the changes that have taken place there since the
war. And they have rejected the old eastern European style
economy that they had for 10 or so years, and have moved to a
market-based economy that has produced immense growth in that
part of the world, and they desperately want to have permanent
normal trade relations with the United States and to join the
WTO. That's how much the world has changed. Just 30 short years
ago, we were killing each other in the rice paddies of Vietnam.
It's an amazing, amazing change.
I think we can all take a deep breath before we decide to
legislate things that might feel good, but actually do real
damage to the country that we live in, that we will leave to
our children. If America is to stay strong, we need the
opportunities and challenges that foreign investment brings. We
can protect our national security by constant vigilance, but we
cannot protect it if we lack the economic prosperity that
allows us for that protection.
With that, Madam Chairwoman, and with my sincere welcome to
our distinguished panel, I yield back.
Chairwoman Pryce. Thank you, Mr. Chairman. And it is an
honor to have you gentlemen here with us today. And without
objection, your written statements will be made part of the
record. Each of you will be recognized for 5 minutes to
summarize your testimony. And I will begin with introductions.
Don Evans, it's great to see you. Former Secretary of the
Department of Commerce and current CEO of the Financial
Services Forum. The Financial Services Forum is an association
comprising the chief executive officers of 20 of the largest
financial institutions doing business in the United States. The
Forum works to promote policies that enhance savings and
investment in the United States, and that ensure an open,
competitive, and sound global financial services marketplace.
Welcome.
Mr. Paul Vikner, president and chief executive officer of
Mack Trucks. Mack is a member of the Volvo Group, a publicly-
held company headquartered in Gothenburg, Sweden. Today, Mack
is one of North America's largest producers of heavy-duty
trucks, and Mack vehicles are sold and serviced in more than 45
countries worldwide. Welcome.
Jeffrey Anderson is the executive director of Virginia's
Economic Development Partnership. The VEDP identifies and
markets to companies worldwide seeking to expand or relocate
business facilities. In addition, VEDP promotes the export of
Virginia products and services through its International Trade
Division. In 2004, the organization accounted for the
announcement of more than 45,000 new jobs for Virginians, and
nearly $3.5 billion in new capital investment. Welcome.
And Daniel Tarullo--is that the correct--all right--is a
professor at Georgetown University, teaching in the area of
international economic regulation, international law, and
banking law. Prior to his work with the University, Professor
Tarullo worked in the Clinton Administration as an assistant to
the President for International Economic Policies. We welcome
all of the witnesses, and look forward to your summaries. And
without objections, your statements will be made a part of the
record, and we will proceed with testimony from Secretary
Evans.
STATEMENT OF DONALD L. EVANS, CHIEF EXECUTIVE OFFICER, THE
FINANCIAL SERVICES FORUM
Mr. Evans. Thank you very much, Madam Chairwoman. I'm
absolutely delighted to be here. And Ranking Member Maloney,
I'm just delighted to see you. As I look all the way across the
top row, I see friends that I made while I was here as
Secretary of Commerce, and every one of you, I was able to work
together with on various projects. I think we did some
constructive things while I was here, and I thank you for your
support.
I particularly like the spirit of bipartisanship on this
specific issue. I've only heard one mild partisan remark since
I've been here today, something about changing the
Administration. Other than that, it seems like a very
bipartisan kind of effort under way.
Let me proceed with my written testimony. Madam Chairwoman,
I'm here as chief executive officer of the Financial Services
Forum, which is an association comprising the chief executive
officers of 20 of the largest and most diversified financial
institutions with operations in the United States. The members
of the Forum share Congress's commitment to national security.
Our industry is deeply aware of the serious threats faced by
our Nation and the need for Congress to consider all aspects of
national security in its decision-making.
We fully support the President's authority to suspend or
prohibit any foreign acquisition, merger, or takeover of a U.S.
corporation that is determined to threaten the national
security of the United States. We also believe strongly that
protecting U.S. national security and advancing U.S. global
economic leadership are compatible and reinforceable goals. We
cannot achieve one without pursuing the other. In today's
interconnected world, the health and future of the U.S. economy
and American jobs rests on open markets and the free flow of
capital.
Indeed, a new poll released today by the Financial Services
Forum shows that Americans value the benefits of foreign
investment when they have the facts. When the interviewer
explained that 5.3 million jobs were provided by foreign
investment, and that those jobs paid more than the average, 52
percent said they had a more favorable view of foreign
investment. Of those that initially had an unfavorable view of
foreign investment, one in three, or 34 percent, said that they
had a more favorable view after hearing the economic benefits.
Given the importance of foreign investment to the U.S. economy,
any changes to the CFIUS process should result from a
thoughtful, considered, and fact-based assessment.
I'd like to mention four points which we believe should
guide Congressional consideration of reforms to the CFIUS
process.
First, the vast majority of foreign acquisitions have no
bearing on U.S. national security. Rather, they play a positive
role and make significant and increasing contributions to our
economy by creating millions of jobs by American workers and
for American workers and enhancing our competitive position in
the global marketplace.
Second, successive Administrations of both political
parties have for decades worked aggressively to establish a
global rules-based system founded upon the principles of open
investment and free trade. This continuity in policy has
enabled America to prosper, assert a leadership role in the
global economy, and to advance our broader foreign policy and
strategic interests.
Third, the existing CFIUS process is fully capable of
identifying and dealing with potential threats to our national
security, although we recognize that the process has some
shortcomings, particularly with regard to communications with
Congress, and that some reform may be warranted. Existing law
provides the President with sufficient authority to block any
foreign acquisition or mitigate related national security
concerns.
Finally, it is instructive that upon establishing CFIUS,
Congress wisely chose to insulate it from political influence.
And by imposing strict confidentiality requirements, Congress
explicitly recognized the sensitivity of the data relative to
such transactions from a national security standpoint, as well
as a commercial standpoint. The rationale supporting both
decisions is as valid today as it was 2 decades ago.
We support more open communications between the
Administration and Congress regarding the CFIUS process. We
are, however, very concerned about proposals that would give
Congress unprecedented new power to delay or overturn decisions
by CFIUS.
We are also troubled by proposals that would discourage
foreign investment by requiring lengthy review periods, or
proposals that, while intended to elevate national security
scrutiny of foreign investments, might well prompt
decisionmakers to disapprove meritorious investments that do
not pose genuine national security threats.
Of particular concern are proposals that would provide for
Congressional override of a Presidential decision regarding
foreign investment, increase required time periods for review
and investigation, require unprecedented notification to
Congress and State officials, expand the scope of CFIUS to
include notions of economic security, summarily deny foreign
acquisitions or ownership, management or operation of U.S.
critical infrastructure, and require a 45-day investigation for
acquisitions of U.S. companies by state-owned entities.
Madam Chairwoman, as reform alternatives are further
deliberated, we urge Congress to take a thoughtful and measured
approach, ever mindful of the critical importance to America
and to the world of thriving global trading relationships. We
urge Congress to keep America's markets open, even as it
protects America's security. Protecting national security and
promoting foreign investment and free trade are not mutually
exclusive. We can, and must, do both.
Thank you for the opportunity to appear before your
committee.
[The prepared statement of Mr. Evans can be found on page
50 of the appendix.]
Chairwoman Pryce. Thank you very much, Mr. Secretary. Now
we'll hear from Mr. Vikner.
STATEMENT OF PAUL L. VIKNER, PRESIDENT AND CEO, MACK TRUCKS,
INC.
Mr. Vikner. Good morning, Madam Chairwoman, ranking
members, and other members of the committee. My name is Paul
Vikner. I am the president and CEO of Mack Trucks,
Incorporated, and a member of the Group Executive Committee of
the overall Volvo Group around the world. Volvo is Mack's
parent company, and they are a member of OFII, and they're
headquartered in Gothenburg, Sweden.
First, I should note that neither Mack nor Volvo has ever
been through a CFIUS review, so I have no personal experience
of the process. Moreover, on behalf of myself and the thousands
of proud Americans and their families who work for Mack, we
fully support appropriate and thorough oversight of foreign
investment to ensure the security of our Nation and its people.
But at the same time, we also recognize the need to establish
the right balance between managing national security risks and
preserving the benefits of an open investment policy to the
United States and its people.
My goal today is to share Mack's experience with the
benefits of foreign direct investment, or what we call in-
sourcing, to provide you with the perspective of a global
corporation like Volvo, that is routinely evaluating where in
the world it should invest its capital.
Since 1900, 105 years, the Mack name has become something
that stands for strength, and is one of the leading brands in
the overall truck market here in the States and around the
world. And we use a phrase that we use quite a bit, ``It's
built like a Mack truck.'' And it's become part of the
language, I think, that many of us use, and we are very proud
of that.
We are also one of North America's largest producers of
heavy-duty trucks. We are the leader in construction, refuse,
and the regional hauling segments of the industry, and we are
the number one exporter of heavy trucks from our plants in
North America to other world markets.
However, in the last 20 years, the truck industry has gone
through some dramatic changes that have impacted the cost of
developing and manufacturing products both around the world and
here in the United States. And these costs are driven by the
needs of an increasingly demanding client base, and by ever
more stringent factors coming in the form of movements of
various technologies around the world.
Ultimately, this has meant that a regional truck maker like
Mack could not compete, and in fact, could probably not
survive, only as a regional truck maker here with most of our
business in the States.
In 2001, Mack was bought by Volvo, a global leader in
capital equipment and commercial transportation products, with
annual North American sales of approximately $8 billion, the
Volvo Group's operations employ about 12,000 people in 19
States. With the Volvo Group support, Mack manufacturing
operations in Pennsylvania and Virginia have been upgraded not
just in terms of productivity and output, but also in terms of
environmental responsibility and workplace safety.
Our ability to serve customers through our distributor
network, which also employs tens of thousands of people, has
also been improved, and the Volvo Group's investment in Mack
has made possible the most extensive, rapid, and broadest
product renewal of Mack products that we ever received in our
105-year history.
Now let me mention one specific investment by the Volvo
Group in the United States. It's the $150 million
transformation of our engine and transmission plant in western
Maryland. And thanks to that commitment, the facility will
provide Mack and Volvo trucks and other Volvo products in North
America clean diesel engines that meet some of the strictest
environmental standards in the world, all assembled by
Americans here in the United States. And this investment could
have been made, frankly, in other places around the world, but
Volvo decided to invest in Hagerstown based upon, among other
factors, the welcoming environment for international investment
in the United States.
Our experience at Mack is by no means different from any
other companies, and in my written testimony I note many ways
that foreign direct investment is improving the employment,
economic, and investment situation across the United States.
Also in my written testimony, I note results from the annual
CEO Survey conducted by OFII regarding competitiveness in the
United States as a location for business investment.
For the sake of time, I will just point out that that
survey, I feel, is a very important set of information, and I'm
sure that OFII will be glad to share it with the members if
asked.
In conclusion, I want to reiterate that the commitment of
resources by our parent company is a major reason that Mack is
able to compete not only in the United States, but around the
world. I also want to again emphasize that both Mack and the
Volvo Group are fully committed to the concept that national
security is any nation's first priority. But we also believe
that a balance can be struck between those concerns and the
economic value of open investment policy without raising
unnecessary barriers to foreign investment.
I thank you, Madam Chairwoman, for the opportunity to
appear before the committee today.
[The prepared statement of Mr. Vikner can be found on page
71 of the appendix.]
Chairwoman Pryce. Thank you very much for your testimony.
Mr. Anderson.
STATEMENT OF JEFFREY M. ANDERSON, EXECUTIVE DIRECTOR, VIRGINIA
ECONOMIC DEVELOPMENT PARTNERSHIP
Mr. Anderson. Good morning, Madam Chairwoman and ranking
members. I'm Jeff Anderson. I'm the executive director of
Virginia Economic Development Partnership, and I'm here today
representing the Commonwealth of Virginia, and to briefly
describe our focus on foreign investment in Virginia. We are
the lead agency within the State of Virginia to drive
investment and expansion of businesses across the Commonwealth.
We are here to promote the positive business environment and
the ability to grow businesses here in Virginia.
In 1607, an English venture known as the Virginia Company
established a colony in Jamestown. Almost 400 years later, that
investment has become the Commonwealth of Virginia. We believe
today, 400 years later, that Virginia is the place for foreign
investment in the United States. We currently have 145,000
people employed in the State of Virginia by companies that are
foreign-owned. The Virginia Development Economic Partnership
has tracked the investments of those companies since 1980. In
the last 26 years, 62,000 jobs have been created, and $9
billion of capital has been invested.
One of the main selling points for Virginia is that we
offer a competitive operating cost here in the United States.
Virginia has become a business climate that is advantageous to
all companies, foreign and domestic.
In 1968, Virginia became one of the first States to open up
foreign offices to attract business capital from foreign
markets. We initially opened up in Brussels, and subsequently
moved our European base of operation to Frankfurt. In addition
to our European operations, we have offices in Japan, South
Korea, and Hong Kong. In addition, we have trade offices in
Mexico and Brazil.
Companies have a choice in making location decisions.
Transparent business regulations and open legal systems in the
United States give Virginia a tremendous competitive advantage
in the international marketplace. Competition is global, not
just with competing States. Recently, we have competed with
Asia, Latin America, and Europe for new jobs and new
opportunities in Virginia.
I'd like to briefly go through two of the companies that
are headquartered in Virginia that are foreign-owned. One is
Infineon. Currently, Infineon employs 2,275 people in Henrico
County, just outside of Richmond. They started off with an
initial investment in 1996. In 2004, they announced a billion-
dollar expansion of that plan, and subsequently will have 2,900
people employed in Henrico County.
The key point I'd like to make is that because of that
Infineon investment in Henrico County, another 85 companies
have located in Virginia to be suppliers and servicers of
Infineon.
The other company I'd like to speak to is Maersk. In 2004,
Maersk announced that they were going to be opening up a
terminal in Portsmouth as a part of the Hampton Roads complex.
They will be spending a half a billion dollars to open up that
port, which will give us a 50 percent increase in capacity in
addition to the Virginia Port Authority operation already
existing there.
This is critically important to Virginia, because one of
our key competitive advantages in the global marketplace is
that we are the global logistics choice for the East Coast.
With our deep water ports, our Virginia port operations, the
Maersk terminal that is coming on line, our nine airports, one
of which, Dulles Airport, is clearly international, our two
major rail carriers, and our six interstate highway systems, we
can and will use that foreign investment to both import and
export goods and draw businesses into Virginia.
As we look forward, and as we look at Virginia's
positioning, we know that this increase in foreign investment
is going to continue. As we look at our pipeline today, we have
opportunities that cut across medical, energy, building
supplies, food products, and plastic industries. These
companies are looking at Virginia and will be investing in
Virginia because of the competitive nature and the open market
in which we exist. Our people can respond to the challenge. We
take technology and we deploy it in the most productive way on
the globe.
In conclusion, the one thing I'd like to point out in my
written testimony, we have listed some sample companies across
the major industries in Virginia. Those companies are critical
to our infrastructure and critical to our growth strategy.
Madam Chairwoman, thank you for calling me here today and
let me explain our foreign investment strategy. And we hope
that as you move forward with your regulation that you'll
consider that and make the regulations specific to the needs of
our security while still considering our need to grow our
economy. Thank you.
[The prepared statement of Mr. Anderson can be found on
page 40 of the appendix.]
Chairwoman Pryce. Thank you very much.
Professor Tarullo.
STATEMENT OF DANIEL K. TARULLO, PROFESSOR OF LAW, GEORGETOWN
UNIVERSITY LAW CENTER
Mr. Tarullo. Thank you, Madam Chairwoman, Mrs. Maloney, and
members of the committee.
It goes without saying that there is nothing more important
than Congress assuring that the laws that it has passed to
protect the American people are being administered in an
effective fashion. I think our presence here today is a
reflection of the fact that, right now, a broad segment of the
Congress does not have that level of confidence in the way in
which Exon-Florio is being administered by the Administration--
the DP World incident being the obvious manifestation of that
lack of confidence.
The sensitivities around this process have only increased,
as the Chair suggested, since September 11th, when the
increased emphasis on homeland security, as opposed to the
traditional concerns of national security abroad, has been
added and emphasized in the CFIUS process, among others. But as
you consider how to shape or change this process so as better
to effect your own intentions, I would urge you to keep in mind
what I think is a simple but fundamental starting point for
designing the legislative and administrative processes.
The resources of the CFIUS member agencies involved in the
investment review process should be deployed to maximize the
benefits for U.S. national security resulting from their
activities. Now it seems very simple. Concentrate your
resources on proposed acquisitions where the fact of foreign
investment is going to raise real national security concerns.
There is a risk--many of you have already alluded to it--
that overreaction, whether administrative or legislative, can
produce counterproductive results rather than productive
results, results that actually diminish the national security
rather than enhance it. For example, to the degree that career
government employees are spending more and more of their time
initiating investigations in order to protect themselves from
scrutiny later on, they will be spending less time
investigating the kinds of transactions that raise real
national security concerns.
The three gentlemen to my right have been emphasizing the
importance of foreign investment. Explicit in Secretary Evans'
testimony, implicit in the other two gentlemen's testimony, is
a concern that casting too broad a net may serve as a
disincentive to the foreign investment which can be
extraordinarily helpful in the growth of the American economy.
I think, in fact, there need not be a trade-off here. Once
you have decided on the national security standard that you
want the Administration to implement, and once we acknowledge
that there are limited resources to do any task that you set
for the Administration, having CFIUS and its member agencies
concentrate on the real national security concerns will mean
that they will not spend their time in areas that simply
discourage foreign investment, delay foreign investment, or
have unnecessary effects on the kind of foreign investment that
we want to encourage in the United States.
In general, then, effectively using CFIUS agency resources
in pursuit of national security aims should be congruent with
the aim of avoiding costly disruption of inward investment
flows.
Now, as you go forward, you have multiple tools available
to you. I recognize that you all know that. Obviously, you can
legislate, and it feels to me as though there is legislation
coming down the pike here. But you have other tools available
as well.
I think that the mere fact, Madam Chairwoman, that you've
held hearings, that your counterparts on the other side of the
Hill have had hearings, has already had an effect. You have
within your province the capacity to have later hearings, to
call senior Administration officials up to meet with you to
explain their plans for change, to require some sort of follow-
up. There are a variety of methods available to you to move the
Administration to the point where you again have confidence in
their administration of the Exon-Florio Act.
I included in my testimony a number of areas in which I
think there is a need for change, whether effected
administratively or through legislation. And I hope that the
members of the committee will pursue those areas.
But as you go forward, I again urge you to keep in mind
that the changes you will make legislatively will have a life
well beyond the period it takes to turn Administration policies
and practices around, and this is not necessarily something
that you want to enact so as to encumber the process
indefinitely.
Thank you for your attention.
[The prepared statement of Mr. Tarullo can be found on page
56 of the appendix.]
Chairwoman Pryce. Thank you all very, very much. I believe
that we have an opportunity here, as well as an obligation, an
obligation to make sure that we protect our country and our
infrastructure, and we secure America. But we also have an
opportunity to take a good hard look at this CFIUS process, see
if it's an old process, see if it is efficient in today's
world, see if it can be changed. And if any of you have
comments as to how we can make it better, I'd be very happy to
hear those.
One thing I'd like someone to address. Perhaps Secretary
Evans, you would maybe know more about this than the others.
But these time frames that we deal with seem very arbitrary to
me. And how were they arrived at, and are they useful? Should
they be that straightforward and arbitrary, whether it's 15 or
45 or 30? Is that something that we should take a look at?
Mr. Evans. Madam Chairwoman, I'm going to say certainly
it's something that you ought to take a look at. My own
judgment is, having been involved in the process while I was
here for 4 years, is that the time line worked rather well.
And I think what you have to keep in mind is, let's just
say for a moment that I'm a CEO of a foreign-owned company, and
I'm considering an acquisition in the United States. Well, the
first thing I'm going to do is I'm going to bring my team in,
and I'm going to ask them what does it take to make an
acquisition in the United States, and particularly if it may
have some national security-related kind of issues. And what
they're going to tell me is that well, there's the CFIUS
process that is in place in the United States, and so, you
know, you're going to need to make sure that you can meet all
the requirements within that process, and this acquisition will
not in any way impact the national security of America.
And so what happens is that lawyers that will be hired will
sit down and talk to some 200-plus professionals who work for
the United States Government in the CFIUS process well before a
time clock ever begins. There are days and days--I don't know
how many it might be, but it can be 30 or 60 or 90--where
there's a lot of discussion before this mandatory 30-day time
clock begins.
And so it's in that early stage there's a lot of facts on
the table, a lot of discussion about what's going to kind of be
acceptable and what won't be acceptable before the review
period even begins.
And the review period, although it can start some say
before you have an actual transaction to present, it typically
won't start until an actual transaction has been agreed to. And
it's in that time frame that it gets very sensitive with
respect to the threat of proprietary confidential information
getting out into the public domain. Because two parties have an
agreement, and they're getting ready to go through this
national security process which, justifiably so, rightly so,
was designed to protect the confidentiality of the information
for security purposes and commercial issues.
And so if you extend those 30-day, 30-day, 15-day periods
too long, as a CEO of a company that's thinking about making an
acquisition, well, wait a minute. I mean, I may be comfortable
with kind of having myself exposed for the time periods of 30
days and 30 and 15, but I'm not sure how comfortable I am as
people begin to kind of extend it beyond and beyond and beyond,
particularly if--and I think there should be--some form of
further notification to Congress of some sort in the process
that does not exist today. And I think you've got to be pretty
narrow and pretty careful with that.
But, you know, I think that kind of the time lines that
were laid out 2 decades ago are really pretty healthy time
lines once you consider the fact there's a lot of work that
happens before you ever start the clock. And quite frankly, I
think that 30-day period, that initial one, is an investigation
period. It's not a kind of general review kind of period.
Chairwoman Pryce. My time has expired. Do any of the other
panelists disagree with that?
Mr. Tarullo. No, Madam Chairwoman. I would just add that if
you look at the Omnibus Trade Act of 1988 of which Exon-Florio
was a part, 15-day multiples were the order of the day. There's
something slightly arbitrary about it. But then again, you have
to pick some time period, and that was the period that was
chosen, with some, as I recall--I happened to be working in the
Senate at the time--there was some thought about exactly what
the Secretary just said, how you would get the time frame long
enough to make a decent decision without encumbering foreign
investment.
Chairwoman Pryce. And those 15-day pieces still work 30
years later in this marketplace.
Mr. Tarullo. Well, the Secretary alluded to a very
important part of the CFIUS process, which is that frequently
there is consultation before a notification is formally made.
And in a smaller range of cases, the notification will be
withdrawn, and the deal redone in order to address national
security problems, and then refiled. So in fact, the committee
does often take longer than 30 days, but it is not done within
that formal, running clock period.
Chairwoman Pryce. Thank you. My time has expired. Mrs.
Maloney?
Mrs. Maloney. Thank you. In the current CFIUS process, if
the review panel determines that a business deal impacts on
national security, then you have the 45-day longer period to
review. And what happened with Dubai is that the committee
determined that selling 20 of our ports, including some of our
largest in New York City and New Jersey, to a foreign-owned
entity did not impact our national security. And I think that
the American public really disagreed that it did not impact our
national security.
So I would like all of the panelists, if they could discuss
how they think national security interest should be defined in
the CFIUS process. And I would like to quote from the GAO
report in 2005 on the Exon-Florio report on this particular
issue. And I quote, ``The manner in which the committee
implements Exon-Florio may limit its effectiveness because,
number one, Treasury in its role as chair has narrowly defined
what constitutes a threat to national security. And secondly,
the committee is reluctant to initiate a 45-day investigation
because of a perceived negative impact on foreign investment
and a conflict with the U.S. open investment policy.''
As a result of the narrow definition now in CFIUS, some
issues that Defense, Homeland Security, and Justice officials
have important national security implications such as security
of supply, which is, I think, a very important issue, security
of supply in our own country, may not be addressed. And I would
like people to comment on really the GAO's comments on this and
what you think should be the definition of national security
that would then initiate this further review. I think that most
Americans would think that selling 20 ports would be a national
security concern.
I open it up to anyone. Mr. Tarullo, would you like to
start?
Mr. Tarullo. Well, Mrs. Maloney, obviously, I don't have
the inside knowledge, and I guess none of us do, which is part
of the problem with the oversight function. I would just say
the following. I think to a considerable extent, the--I'll say
two things. One, the definition of national security, although
it matters, is always going to be sufficiently broad, I think,
that when a CFIUS review process identifies something that
might be considered a problem, that definition will cover it.
And that, I think, takes us back again to the confidence
that you have in how it's being administered right now. The
absence of judicial review means that something can simply be
passed through if it's not considered to be a national security
problem; again, no matter what the definition says.
So I come back to this point of whether the confidence
exists between the Congress and the Administration that their
interpretation and their implementation of the law accords with
what your intentions are.
The second thing I would say--I was in the Executive
Branch. I worked in the Congress. There was something--I
thought the GAO report was a very good report and extremely
helpful in a lot of ways. And like you, some of the issues
about not monitoring agreements were troubling and well-raised.
But there's one thing that did strike me as a little bit
out of accord with my experience in the government, which is
that if the Secretary of Defense or the Secretary of State or
the Attorney General thought that there was a problem with a
transaction, it doesn't strike me as too likely that an office
director at Treasury would say, ``Let's go full speed ahead.''
Now, something else may be going on here. But I just--
Mrs. Maloney. If I could, let the former commissioner of
Commerce comment. And also, there was a concern raised by some
of my colleagues that on this CFIUS review panel, there was no
one from national defense. The NID director was not on it, or
no one was on this review panel from Homeland Security. And in
a post-9/11 world, there is a deep concern.
And I would say that most Americans in the Administration
and out of the Administration would think that the selling of
ports to a foreign government, 20 ports, would be a national
security concern, therefore triggering the 45-day review. So
there's a concern that I've heard from my constituents in a
non-partisan way that, you know, how in the world can you make
a determination in a CFIUS review panel that it was not a
national concern?
So my question is do you think someone from national
security or maybe Homeland Security--well, the floor is yours.
Mr. Evans. You know, quickly, I would say that this is a
post-9/11 world, and so that certainly has to be factored into
this whole process. There's no question about that. And I think
it already has been to some degree. Because when you look at
what's happened in the last 4 years, I know there has been 3
times the number of cases that have been looked at and reviewed
than the previous decade. So I know there has been some
expansion of thinking as to what all really should be reviewed
and looked at.
The other thing I would say about my own personal
experience is when they get into the investigation process,
there is a very spirited debate. I must tell you that, as
Secretary, I was always informed as to what the progress was
with any case that was in the investigation stage.
My then-deputy, now Secretary Sam Bodman, always kept me
informed as to what his views were and what was going on and
what our point of view was. And I can assure you that there was
a very, very spirited debate that was taking place during that
process. I can also assure you that I don't know any American,
particularly any of the 200-plus career professionals who are
involved in the process, who would want to be there putting
their stamp on something that they would be approving that they
would think in any way would jeopardize the national security
of this country.
Now, to your specific point as to who ought to be there at
the lead or at the table, I mean, certainly any department that
has much more responsibility over the national security,
homeland security of the country should be at the table. In
fact, the process is set up so that they can lead it. The
Treasury Secretary, or the Department, is just kind of the
coordinator, and they have to look at the specific case and
say, ``Well, that should be led by the Department of Defense,''
or ``That ought to be led by Homeland Security,'' or ``That
ought to be led by the Department of Labor,'' or whomever it
is.
And so it's something certainly to look at, if, in fact,
some of the right players were not at the table. But I can
assure you my experience was through the process, not only was
this a lot of front-end activity, but in the investigation
process, there was a lot of spirited debate that, you know,
I've heard feedback on throughout the process.
The Chairman. [presiding] The gentleman's time has expired.
The Chair will now ask unanimous consent that the gentleman
from Missouri be recognized, the majority whip who has been
active in this issue, and is actually--he's on leave from this
committee. Without objection, the gentleman from Missouri is
recognized for 5 minutes.
Mr. Blunt. I thank the chairman. I apologize to the panel
for not being here to hear the testimony, though I had a chance
to read the testimony last evening that was submitted by three
of you. And I'm going to have brief questions for three of you,
and then I'll look at the testimony that was presented that I
hadn't seen, and we may have a written question or two on that.
But again, I apologize for getting caught up and not being able
to be over here when your testimony was issued.
Certainly in a post-9/11 world, as I just heard the
Secretary say, we have concerns that we didn't once have on
national security issues. But in a global economy, we have
concerns that a decade ago we wouldn't have had that those
things continue to work right as well.
So Mr. Evans, first I'd like to--I know as Secretary of
Commerce, you did so much work with financial institutions and
investors both here and foreign investment. What do you see is
the impact of this process if it gets too onerous, and where
would you give me a couple of guidelines that would be the
place we'd want to be careful not to go in terms of disclosing
too much information about an existing opportunity that's out
there, or how much time it takes to get that procedure
completed before you really begin to drive away the opportunity
for that investment to be made?
Mr. Evans. If you go too far with it, you clearly run the
risk of beginning to chill foreign investment coming into this
country. If you go--if you put up non-tariff barriers here in
this country, then other countries will begin to think about
their own non-tariff barriers. So all of a sudden, not only do
you have the free flow of capital and open market into the
United States, you begin to restrict opening up markets and
open markets and the free flow of capital for other investment
opportunities in other parts of the world for American
investors, you know, which is obviously a very big issue when
we think about here in America, we've got 5 percent of the
people, and 95 percent of the people live outside of the
borders of the United States.
So one of our major thrusts for Administration after
Administration in the past number of decades has been to open
up markets for our own foreign direct investment in other parts
of the world, so there winds up being some kind of quid pro
quo, you know. If you're going to really freeze your own
markets or put up trade barriers for our investors coming into
your country, we're going to do the same thing for your
investors coming into our country.
And so I think that's, you know, a very serious economic
consideration that you have to think through. I think there are
ways--my judgment is there are ways--to make reasonable kinds
of changes within the CFIUS process that I think will address
some of the concerns that Congress understandably has,
particularly in the area of notification, without threatening
the freezing of foreign investments coming into America.
But it's a big--you know, we've got to be careful, because
we're in a period that people are talking about are we going to
retreat within our own borders and be protectionists and
isolationists here in this country, or are we going to open
ourselves up and engage the global economy?
And so any signals that we send out there that no, we
really want to--you know, we're going to put up some barriers
and protect ourselves and isolate ourselves, I think that runs
the risk of doing some pretty serious damage to the long-term
growth of our economy. Our economy cannot grow at its full
potential if we put up barriers which will result in other
barriers to us going into other parts of the world.
Mr. Blunt. It seems to me also that there appears to be
some receptivity toward us looking at government-controlled
entities in a different way than we do entities that aren't
government-controlled. Do you have a response to that at all?
Mr. Evans. No, I don't. I really don't. I mean, maybe
there's some further scrutiny that's needed there, but I
don't--I'm not sure. We've got to be very careful.
First of all, I know a very small percentage of the foreign
ownership in this country right now is foreign governments.
It's 2 percent. So it's a very tiny piece of it. And if the
will of the Congress is maybe we need to look at that a little
closer, well, you know, I think that's something that we can--
that maybe one can think about. But I wouldn't be one that had
a lot of serious concern about that.
Can I make one other statement, though? I think my friend
here on my left, Paul, who was talking about Mack Truck--let me
tell you one of the other things you lose when you start
putting up these barriers. Volvo, who bought Mack Truck, they
have recognition as one of the safest manufacturers of
automobiles and vehicles in the world. I've been to their
plant. They've got a safety record that is second to none.
So that intellectual knowledge comes into our own country,
is part of Mack Truck. And all of a sudden, you know, Mack
trucks are maybe safer. They're built well, and everybody
thinks, ``Built like a Mack Truck.'' But, you know, you get the
advantage of having that intellectual capacity from other
countries, and all of a sudden, we have safer vehicles on the
road here in America because of that, which is one of the other
benefits of engaging in trade globally.
Mr. Blunt. Well, let's go to Mr. Vikner, then. I know you
are on the Global Management Team for Volvo, Mr. Vikner. Maybe
just your sense of the global perception of the United States
right now as a place to invest money? Whatever you're hearing
from people who have traditionally been investing about their
future plans? Any insight you can give us there?
Mr. Vikner. Well, the United States is certainly one of the
most important markets in the world. And I think any true
global player in the kind of equipment business that we are in
is becoming increasingly aware--you know, we are becoming
increasingly aware now that you have to be a player in all of
the major markets of the world in order to be competitive in
any of the one market of the world.
So in other words, with what's going on with technology
development, with the emissions issues, with regulations, it
isn't just a matter of whether a company like Mack can survive
without foreign investment. We frankly can't. You know, you
have to be part of a global manufacturer in order to be
competitive, even in our own market.
And one of my concerns is is that if we do not allow this
to continue to take place in many of the markets similar to the
truck business, not only will the United States miss out on
opportunities, but I think it will even weaken the companies
that are in this country if we cannot become part of a global
organization.
Technology is changing investments. And diesel engine
technology is costing billions and billions and billions of
dollars. And in order for us to be competitive even in the
United States, we have to be part of a global organization to
do that.
Mr. Blunt. Thank you. Mr. Tarullo, I know you've had a lot
of experience working with foreign companies. What kind of
burdens could we put here that would be the most onerous, the
things that we should be the most thoughtful about as we look
at this process? I think it goes without saying that the
process is going to change in some way. So how do we--what do
we really need to be thoughtful--most thoughtful about in terms
of not turning away these investments? Which, when we do that,
we reduce the value of American assets, American stockholders'
portfolios and pension plans and other things, and we don't
want to do that.
Mr. Tarullo. Thank you, Congressman. It seems to me that
what you want to do is to give the maximum assurance to foreign
acquirers who are not going to raise national security problems
that they are not going to have their acquisitions delayed.
They are not going to have their acquisitions subject to a
politicized debate just because they're a foreign owner rather
than a domestic owner, but that instead, they are going to be
able to move forward.
And I think, in accordance with my principle that we all
want to focus the CFIUS resources on the acquisitions that
could raise real threats, the best thing the Congress, the
Administration can do is to make sure the resources are focused
there, and to the degree possible, allow other investors to
know that they're not going to have to wait 90 days because
they're acquiring an ice cream company somewhere, that they're
not going to have to think that this is another layer of review
no matter what issues are raised.
I think what you want to do is get to the point where a
small segment of foreign acquisitions is understood to need to
go through this process, but that most potential foreign
acquirers are told by their advisors and attorneys, ``You don't
have any problem with Exon-Florio. You'll be able to just go
ahead and do your Hart-Scott-Redino filing and make the
acquisition.''
Mr. Blunt. And you may have covered this in your testimony,
but in doing that, do we need to be particularly thoughtful if
we went that direction about how we define critical
infrastructure, and then how we define whether or not it takes
experience in the field or something running these facilities
other places? Or what would you--
Mr. Tarullo. Congressman, again, I think it is going to be
very hard--and this is true with so much legislation. It is
very difficult to write a standard which clearly embraces
everything you want to embrace without embracing a whole lot
more. And that is why there has to be this sense of back and
forth and trust between the Congress and whoever's
administering the law.
So it seems to me that ideally, the situation is one in
which the CFIUS agencies can make a judgment whether here, (A)
the critical infrastructure is genuinely critical and (B), the
fact of foreign ownership presents a real national security
risk, but not to get such a broad definition that these men and
women who work at the CFIUS agencies are spending hours and
hours and hours pursuing acquisitions where, in the end,
they're going to say, ``No, there are no real issues here at
all.'' Because every hour spent doing that is an hour not spent
looking at the troublesome cases or surveying the area to make
sure there hasn't been an acquisition that hasn't been
notified.
Mr. Blunt. Mr. Chairman, if I have the time for one last
question, I'd just like to ask our friend from Virginia. I know
you spend your time, obviously, on economic development. I
think it ought to be in Missouri if it can. You think it should
be in Virginia if it can. In all of those discussions you're
having all the time, what do we need to be thoughtful about
here so that we don't do the best possible economic development
plan for Canada?
Mr. Anderson. I think, Congressman, that several of the
points that have been made and I think I'd just like to
reinforce is as companies look, and as we have a kind of
dialogue today with companies who are looking at investing in
Virginia, the one thing they want to be assured of is that the
major benefit that they have, which is the access to our work
force and our work force's ability to integrate their
technologies and move them to the next level, isn't in any way
deterred.
The reason companies are investing in the United States is
because of our work force and the ability to move that capital
and that intellectual property into enhanced products. Anything
we do that deters from that will push people into other
markets, such as Canada and other places. Because at the end of
the day, our free flow of ideas, our free flow of management,
our free flow of intellectual property is what makes us
different and allows us to compete.
Mr. Blunt. Thank you, Mr. Anderson, and thank you, Mr.
Chairman.
The Chairman. The gentleman's time has expired. The
gentleman from New York. Mr. Crowley?
Mr. Crowley. Thank you, Mr. Chairman. Thank you to all of
the panelists. I, too, was not here for all of the testimony,
but I have your written testimony and I'll go through it.
I have two questions while I have you here, though, to both
Secretary Evans and to Professor Tarullo initially, and that is
in regard to the monitoring of the mitigation agreements that
are entered into by CFIUS with certain foreign investment
companies. The GAO has indicated that these agreements are
ofttimes entered into in a manner that makes it difficult, to
say the least, maybe, or at worst, unenforceable, that these
agreements are unenforceable the way in which they're written.
I was wondering if either one of you can give comment on the
issue and suggest remedies that we could look into in terms of
addressing it.
For example, should CFIUS have an annual review? Should
there be a mechanism for CFIUS to overturn a decision based on
failure to comply with the mitigation agreement? And if that's
the case, how would we go about implementing that?
Mr. Tarullo. Congressman, I had the same reaction you did
to the GAO report on this point. It is one of a number of areas
in which you need assurance, the American people need
assurance, and we may need some change. It seems to me that
without trying to micro-manage the process, what you should be
asking for is a system that monitors assurance agreements in a
systematic fashion. And that means having an agency, an
individual in that agency with clear responsibility. If
everybody has responsibility, nobody has responsibility. It
needs to be focused in a single office, and there needs to be a
system which is tracked by Treasury, as the chair of CFIUS, to
assure that they are getting regular reports from the agencies
that are assigned to do this monitoring.
You raise a second point as to whether the discovery of a
failure to comply should trigger some new review or
investigation. And I would say absolutely, at least on an
informal level. That is, if something has not been complied
with, then, at the very least, you need an inquiry, an
investigation, a report to the other people at CFIUS. How much
beyond that would probably depend on the seriousness of the
breach.
Mr. Crowley. Secretary Evans?
Mr. Evans. Yes, thanks. You know, I would associate myself
with those same comments. I think the one thing that I would
say is you do have to be very, very careful how it is
structured and how the annual review might be structured. You
don't want to put a company in the position of making what they
consider is a long-term investment with the uncertainty that
somebody may come along a year from now and take that away from
them. You've got to make sure that it's not in any way
politicized. You've got to make sure it stays within the
professional--the career professionals. You've got to make sure
that it's, you know, very, very clear language about what would
constitute some sort of violation.
Because if I'm going to invest shareholder capital in
something, and somebody tells me, ``Well, they're going to come
look at you every 15 minutes, or every year or something,'' I'd
say, ``Wait a minute. This is a 10-year commitment I'm
making.''
And so I want to know what it might be that would cause
somebody that I don't know, I've never met, maybe somebody new
next year, who might arbitrarily say, ``Sorry. You don't meet
the requirements.''
Mr. Crowley. But recognizing your reservation, you do
recognize as well that there is an issue here in terms of the
compliance, or that these ancillary agreements that are entered
into, or side agreements, are not necessarily--don't
necessarily have the teeth that one would expect it would have,
given the circumstances that called for the sidebar in the
first place. I mean, obviously, the reason why they called for
it is because somebody has put a red flag up and said, ``There
are some issues here that we need you to address on the side.
You're going to get the deal, but you need to have it
addressed.''
So your concern is that it's politicized in some way
outside of the CFIUS process. Is that what you're suggesting?
Mr. Evans. Yes. I associated my remarks with what the
professor said. I agree with him totally. You do have to have
some kind of follow-up. You can't just ignore it. ``Oh, yes.
Well, let's trust them and they'll be fine, and don't worry
about it.'' I mean, there has to be something, but it sure
better be clear.
Mr. Crowley. I appreciate that. Okay. This is to all the
panelists. And again, I know that I have limited time, but if
someone would comment on it. I'm eager to continue foreign
investment. I'm from New York City. I understand the
significance of it.
But I'm worried about the politics, as you are, Secretary
Evans, entering too deeply into the CFIUS process. This
Congress needs to be--I think Congress, this and others, needs
to be notified about the actions of CFIUS, and this
Administration, I believe, personally speaking, has been MIA
there. But I don't believe we should have any final say or veto
over the CFIUS process either.
How would you recommend we draft language to provide
Congress with the knowledge about the CFIUS process we need to
have careful oversight of without allowing us to get too bogged
down, as what was described, in the politics that really
shouldn't be on our plate?
Mr. Evans. Congressman, I think just--generally speaking, I
think that I agree that Congress has oversight responsibilities
of this. I agree they should be notified in a timely way. I
think you have to stay pretty narrow, though, as to how
Congress is notified or who is notified. I mean, I see
leadership being notified. I see chairmen of certain committees
being notified.
But the idea that you might notify every office up here on
the Hill would trouble me. Because as was determined 2 decades
ago when this was first--2-and-a-half decades ago when this was
first put in place, I think they recognized the importance, the
confidentiality of the information from a commercial
standpoint, from a national security standpoint. And I think--
again, I'm trying to put myself in the shoes of a CEO--if I've
got a transaction going through this process, and it's got
proprietary information on it, and somebody tells me that,
``You know what? They're going to tell everybody in Congress
exactly what's going on here,'' I'm going to worry a lot about
just the potential of that information getting out in the
public domain.
The Chairman. The gentleman's time has expired. The
gentleman from Illinois.
Mr. Manzullo. Thank you, Mr. Chairman. The Congressional
district that I represent has been a huge beneficiary of
foreign direct investigation. And FDI is aimed in large part on
manufacturing facilities. And as American companies have left,
the European companies have come back and recaptured the
factories that the grandfathers left Europe to come to the
United States to establish. And we have an Israeli company that
bought out Ingersoll, a cutting tool division. That's 600 jobs.
An Italian company bought Ingersoll, a machine tool division.
That's 300 jobs. A Japanese company saved the last sewing
machine company in the United States, Union Specialties.
And through our Congressional district, we found that the
Europeans and the Asians are very good Americans, because they
want to source American parts to put into the final product
that they make, because they realize it's important that people
have jobs in order to buy the products that they make.
And so we are very indebted to foreign direct investment,
and want to do everything possible in order to not only keep
it, but increase it.
My concern really is paired within an article in the New
York Times of February 24th that deals with state-owned
enterprises that don't have to show profit. They could come in
and muscle their way through, buy an industry just to gain
market share, and not have to worry about the rules of
capitalism, the rules of fair play that are attached to 99.9
percent of the rest of the companies of the world.
The article talks about the fact that this is the
acquisition price of DP. It also reflects the advantage that a
number of the fastest-growing companies enjoy their
government's deep pockets. DP World paid about 20 percent more
than analysts thought the company was worth. Publicly-traded
companies that were potential bidders were scared off long
before DP World's final offer. I think that's extremely scary,
especially with a Chinese state-owned enterprise.
And the question becomes should the CFIUS process reflect
some type of an economic determinism that state-owned
enterprises would use that thwart the ability of companies that
operate on a free enterprise system?
Secretary Evans, you've got that frown on your face.
Mr. Evans. No, no. I just say listen, I share your concern.
I think, you know, as I traveled the world and talked about
open-end trade, I always talked about a level playing field and
how important that is. We've all got to play by, basically, the
same rules. And that's what you're talking about, that state-
owned enterprises often have a competitive advantage, an unfair
advantage, because they don't have to worry about paying back
the money, or they've got a lot of advantages that the private
companies do not have.
I guess my question, Congressman, would be is this the
right place to deal with that?
Mr. Manzullo. I don't know. I'm raising it, because it's
obviously an issue of economic security.
Mr. Evans. I understand the issue totally, and I agree with
you that we've got to level the playing field. We've got to
look very hard at this. Are American companies competing with
state-owned enterprises that come in here to acquire assets? I
think that's something that needs to be addressed. It seems to
me that this process itself is more focused on national
security-related issues, and whether or not you introduce this
at a more level playing field economic issue into the process.
I just must admit to you I haven't thought through it.
Mr. Manzullo. I guess the broader issue would be the
definition of national security. For example, a foreign company
coming in a state-owned enterprise and buying a company that
produces a precious metal. Somewhere along the line, there
could be national security interests on it.
Mr. Evans. I wouldn't--you know, if it falls into the
definition of a national security-related issue, then I could
sure see how you would want to take a hard look at it.
Mr. Manzullo. Does anyone else want to comment on that?
Professor?
Mr. Tarullo. Thank you, Congressman. I agree with Secretary
Evans for an additional reason, which is my experience in the
Executive Branch that the more tasks you gave to a single
group, an interagency committee, or a review group, the less
likely it was they were going to do any of them well. And I
think--
Mr. Manzullo. Well, then, don't give them anything on that
theory.
Mr. Tarullo. Well, no. If you give them--
Mr. Manzullo. I mean, that's the bureaucrat's theory on how
to get away from doing anything.
Mr. Tarullo. No. If you give them a task, and you say,
``This is what we expect you to do. And we want you to focus in
on it, and we want you to expend your resources in an efficient
way,'' then I think you're more likely to get that result. And
here, I agree with both parts of what Secretary Evans said. I
agree both that it is probably not a good idea to get this into
the CFIUS committee, because it begins to diffuse their
consideration of things. And secondly, it is an issue that
deserves some attention, deserves some attention by the
Administration, by this committee.
Myself, I would think that we are probably at the stage
where we need to gather more information about how much is
going on, what are the case studies, what might we fear in the
future, as opposed to being ready to legislate.
But I don't mean at all to disagree with your
identification of an issue. It's just that my instinct is that
we're probably not ready to legislate. And even if we were, we
probably don't want to load on that kind of economic issue onto
a--
Mr. Manzullo. The reason I raise that is that perhaps
something could be done before they buy the field that we're
trying to level. It's just a thought.
The Chairman. The gentleman's time has expired. The
gentlelady from Illinois, Ms. Bean.
Ms. Bean. Thank you, Mr. Chairman. I'd like to ask the
panel--and thank you for being here today. There's a movement
to include critical infrastructure into the CFIUS decision-
making process. How would you go about defining this in a way
that would include non-traditional potential targets of
security threats without being overly broad?
Mr. Evans. All I would say is I would do it very carefully.
That's how I would do it. I think you've got to be very, very
careful not to expand it too broadly, back again to what the
professor said earlier. I mean, you've got a limited number of
resources that are going to kind of evaluate these cases. And
the broader you make it, all of a sudden, you have so many
cases that none of them are being handled in really a
thoughtful, thorough, comprehensive kind of way.
So I would be very, very careful as to how broad and how--I
mean, one can dream pretty broad if they want to. And myself,
if it's been operating for 26 years or so, or Exon-Florio has
been, and it seems like it's worked pretty well for 26 years.
Are there some things that need to be changed in a post-9/11
world? You bet. Expand it a little bit? Maybe so. But I would
be very, very careful not to reach too broadly.
Mr. Tarullo. If I may, Congresswoman. I have a slightly
different view, but not a radically different one. I think
there's a distinction between how broadly you define something
like critical infrastructure so that the CFIUS and the
President can get at it if they need to. They can get at that
deal, on the one hand. And, on the other hand, whether a broad
definition forces CFIUS to do a whole lot of work in a whole
lot of cases where it's not necessary.
I think it's perfectly okay for you to include in
legislation a definition that is broad enough so that when it's
necessary, the President can take action that he needs to take.
I just think what you don't want to do--and I know you're not
suggesting it. What you don't want to do is to define
infrastructure, and then say, ``And every time anyone is going
to purchase any infrastructure, we need to have a full-blown
investigation.''
Ms. Bean. Thank you. I yield back.
The Chairman. The gentlelady yields back. The gentleman
from California?
Mr. Sherman. Thank you, Mr. Chairman. This hearing grows
out of the failed trade policies of the United States. We have
such a huge trade deficit that we have to somehow pay the world
in a piece of ourselves. IOU's, or pieces of our
infrastructure, pieces of our companies, some $800 billion a
year.
It also grows out of our failure to do anything to fight
for shipping jobs. We have turned over to the rest of the world
all the jobs available in shipping, even though a huge portion
of that shipping is bringing goods to the United States,
usually coming here as a result of our failed trade policies.
And, of course, with losing controlling of shipping, we've now
given away our ports.
I think we owe a special debt of gratitude to the UAE
taking this to the ultimate extreme, and having a country with
very questionable security and very questionable policies when
it comes to terror actually try to control our ports directly.
And by putting this to the extreme, it's shown a spotlight on
the overall failures.
Now, among the problems with the UAE, the fact that this is
a country that's had telethons on its television where its
president rallies its people to contribute to Hamas and other
terrorist groups. I'd like to know whether this was taken into
account by anyone when they looked at this UAE purchase. I
realize we don't have the Administration before us here, but
perhaps one of you gentlemen has some insight into how CFIUS
made the most infamous of its decisions in its history.
Mr. Evans. Congressman, I guess all I would say is I
think--to that question is I think the Congress was very wise
26 years ago when they designed this as a confidential process,
which means just that. It's confidential.
Mr. Sherman. Well, are the criteria confidential?
Mr. Evans. Well, what they considered, or what they
discussed, or what was talked about within the review of this,
over 200 professionals that deal with this within the
Administration, I just don't have knowledge to what--
Mr. Sherman. You can wrap language like ``200
professionals'' around it if you want to candy-coat it, but
this is one of the stupidest decisions made by an
Administration that has some other examples. But this one took
the cake.
So you don't know whether the criteria for making the
decision would include whether the host country of the company,
or in this case, the owners of the company, had supported
terrorism. We just don't know whether that's one of the
criteria that--
Mr. Evans. I'm not in the process, no, Congressman. Sorry.
Mr. Sherman. Well, you're right to point out that it is
Congress's obligation. And for us not to have specified in
statute that a country's record in fighting terrorism would be
a very important factor, especially when we're looking, as in
the UAE case, not in it being the host country, but it being
the owner of the company, the ultimate owner and the supporter
of terrorism is the same entity. And for that not to be a
statutorily required consideration shows a failure of us to
realize how blind and almost deliberately obtuse the
Administration could be. And given their capacity for that, we
ought to fix it. I yield back.
The Chairman. The gentleman yields back. The gentlelady
from Florida?
Ms. Wasserman-Schultz. Thank you, Mr. Chairman. I guess
what I'd like to get a sense from you on is do you feel that
there are significant differences in the incentives of foreign
governments and their investment versus foreign companies? And
in terms of those incentives, are those differences significant
enough to warrant a separate process, perhaps, for review, one
that might preclude foreign governments from, say, owning port
terminals or other critical infrastructure?
And I know you were just expressing concern about how you
define critical infrastructure. But it seems to me that there
is quite a bit of difference between foreign investment and
foreign government investment in terms of ownership and
management of critical--or involvement in critical
infrastructure. So if you could address that.
Mr. Tarullo. Sure, I'll try. A couple of things,
Congressman. First, I think that as I said earlier, the larger
issue of the potential distortion of economic costs that
government-owned enterprises has is an important thing for the
committee to consider and for the Administration to consider as
a matter of economic policy going forward. That's number one.
Number two, I do think that there is a class of cases
involving foreign government ownership that would set off, or
should set off, a kind of alarm bell that wouldn't be set off
purely because it was a foreign company.
Just an example from the past, there is certainly a
possibility that industrial espionage efforts are made easier
when you have a foreign government entity that has
relationships with other parts of its government. I don't know
that that--I don't think that's true in every case by a long
shot. And as I said earlier, I think we're just getting to the
point where we're seeing a trajectory now of potentially wider
foreign government company acquisitions in the United States.
So my present view would be that I would hope CFIUS is
considering that sort of issue. And I know, at least when I was
in the government, that the espionage issue was something that
people worried about. I would hope they're considering that and
other kinds of issues now.
And getting back both to your concern and Congressman
Sherman's concern, there is every--you have every right and
responsibility in the world to ask the Administration to
explain to you what its criteria for decisions are, what kinds
of things affect their decisionmaking. Asking for--I know
you're not doing this, but asking for business proprietary
information, that's a whole different issue. But asking them to
come up two or three or four times a year and say, ``Here are
the kinds of cases affecting homeland security we've had, here
are the sorts of issues that have been raised, here are the
kinds of things we've taken into account, and here's why we've
made the kinds of decisions that we have,''--if GAO can do it,
and they do in their reports, I don't quite understand why the
Administration can't do it.
Ms. Wasserman-Schultz. It would seem to me that even if you
didn't reform significantly the CFIUS process, that when it
came to foreign government investment, that you could adapt the
process for a greater degree of scrutiny with foreign
government-owned--
Mr. Tarullo. I would hope and expect that the people in
CFIUS have enough acquired expertise and experience that when a
particular kind of foreign government investment, for example,
comes along, it sets off another set of questions that they
ask. And for that matter, there are going to be other classes
of acquisitions, even by non-governmental foreign corporations
based on history, experience, and the like that set off those
kinds of questions.
Mr. Evans. I would not--you know, what I would say is I
certainly would not want any foreign entity of any sort to have
in their hands any information that would threaten the national
security of this country. And so I don't care if it's a private
company or a foreign government. I don't want any information
that threatens the national security of this country getting
into their hands.
Now, having said that, I do recognize that foreign
governments are--they're political is what they are. And
they're not accountable to shareholders to create value. You
know, they're political organizations. And so, you know, should
that be thought about as it's going through the process? Well,
yes, it probably should.
But I think the criteria is, you know, we don't want any
information getting into the hands of any foreign company or
government that would threaten the national security of the
country.
Ms. Wasserman-Schultz. But see, that's why I don't
understand why the alarm bells weren't set off with the
Administration when it came to the DPW deal. Because, you know,
we're talking about a foreign government-owned corporation that
would have leased, owned, and operated these port terminals in
major ports, and have intimate knowledge of our port security.
And so if that's not potentially compromising national
security, I don't know what is.
And I realize my time has expired, Mr. Chairman. But in
closing, if any of the panelists could just address whether you
think we need to change the law to do what Mr. Tarullo
described, or whether that's something that we could trust
would be done internally.
Mr. Evans. Well, I think it's--you know, look, I don't
think I've got enough, really, of the facts to make a
recommendation to you. I'm sorry, Congresswoman. I understand
your concern. It is political. Whether or not you need to have
a separate kind of criteria for foreign-owned government
acquisition and just foreign company, I'm not prepared to make
a recommendation to you. Sorry.
The Chairman. The gentlelady's time has expired. Let me--
Professor Tarullo, you talk about trying to define--within the
CFIUS process, to define the real threats. And hindsight really
is 20/20 in this business. But if you look at the facts of the
Dubai Ports issue, not looking back, but looking at the process
and the way it went through, here was a port--first of all,
there was a lot of misinformation out there that somehow this
foreign government was going to control the port. And that was
put forth by a lot of partisan folks who didn't really know the
facts.
Secondly, that the CFIUS process had worked extremely well
on a number of fronts. And part of the strength of the CFIUS
process is that you don't have a bunch of politicians sitting
around making those kinds of decisions.
So it comes down to--well, let me ask you this. Does it
appear to you on the surface that there was--that the CFIUS
process broke down in this particular case?
Mr. Tarullo. Mr. Chairman, I honestly don't feel I have
enough information to answer that question. I do know that the
process of the Administration communicating with this
committee, its counterpart on the other side of the Hill, and
the American people broke down rather badly. And I do get the
impression, based on the widespread view in Washington that
senior Treasury and Administration and White House people were
not even informed that this was happening, I get a sense that
there was an internal breakdown in exercising judgment and
oversight. But I feel as though I really don't have enough
facts to make a decision on the merits, as it were.
And of course, that is the problem that you all face. If
you're not getting enough information in an appropriate form to
reassure you that the right kinds of things are being taken
into account and the right kinds of decisions made, then it
leads to the situation we have today.
The Chairman. Let me ask the panel, there are proposals out
there, for example, that would identify critical
infrastructure. The chairman of the Armed Services Committee,
for example, is looking at legislation that would apply a
rather broad definition to critical infrastructure as it
relates to foreign investment.
How would we--if we wanted to, how would we go about trying
to define what is really critical infrastructure, or indeed,
what is not critical infrastructure? Is the auto industry in
Ohio, Honda of America, that employs 60,000 Ohioans, is that a
critical infrastructure? I would suspect that if you ask the
auto industry, they would say they're part of the critical
infrastructure. And if you ask my constituents who drive those
automobiles, they'd say, ``Yes, that's part of the critical
infrastructure.''
If we get into this definition game, I don't know where we
end up. I have some fears of where we're going to end up, which
would basically include virtually everything under that
critical infrastructure, and would essentially have a dampening
effect, if not a totally negative effect, on foreign investment
in the first place. I'd appreciate, Mr. Secretary, your
comments.
Mr. Evans. Well, Mr. Chairman, I just agree with you. I
don't know where it goes. And I think you really run the risk
of sending a very, very chilling message to potential investors
around the world. Because I don't know where--is it the food
chain? Is it those who build the highways? Is it automobile
companies? Is it banks? Is it--I mean, you can go a lot of
places that cover the lion's share of this economy and somehow
tie it back to critical infrastructure. Or economic security.
I've heard people even talk about well, just if it, you know,
affects the economic security of this country, you know, then
it may fall into that category.
So I just think it's something you're going to have to be
very, very careful with. Because if it gets defined too
broadly, too large, then all of that's just going to have a
chilling effect of foreign--or it's looking for places to send
capital.
Look, it's all about a free flow of capital, open markets,
and creating a friendly environment for that capital to come
here to America and create jobs. And if you start sending the
message out there that, ``Well, we're not sure how much we want
your capital to invest in contractors that build highways, or
food manufacturers, or automobile companies.'' I mean, you
know, it sends a very strong protectionist, isolationist
message to those outside of America, in my judgment.
The Chairman. Thank you. Mr. Vikner, I would assume if you
would ask the folks that build those excellent Mack trucks if
they're part of the critical infrastructure, I would guess it
would be about 100 percent; would it not?
Mr. Vikner. I would guess so, yes. I think the trucking
industry is certainly a very, very important part of the
economic fabric of this country.
The Chairman. Mr. Anderson, in Virginia, can you identify
any major manufacturers or any major companies that would not
be part of the critical infrastructure?
Mr. Anderson. Not if you're employed by them.
The Chairman. Very good. You wouldn't want to tell the
Governor that, ``You have some components that are not part of
the critical infrastructure,'' would you?
Mr. Anderson. No, sir.
The Chairman. Professor, do you have a take on that?
Mr. Tarullo. Only this, Mr. Chairman, that as I said a few
moments ago, I think it's important to draw a distinction
between giving CFIUS and the President the power to act where
necessary, and throwing the net so broadly where they have to
act, that you're creating all the problems that I think your
questions bring out. I think we absolutely want to be assured
that the President, where necessary, can take action that will
protect things like our cyber infrastructure, things like the
payment system in the United States. Obviously, things like the
ports. That's come up already. But I think you can do that
without forcing everybody to say, ``Any time you buy anything,
you're engaged in the critical infrastructure.''
You know, if you recall, Congressman, what happened 18
years ago with Exon-Florio. Initially, the first few years,
there were perhaps 4- or 500 filings, notifications a year,
because no one was quite sure what it meant. And then CFIUS
went to work, and by 1994/1995, during the period where I was
in government, the filings had declined to about 50 or 60 a
year. And the reason was that people understood that yes, these
are the sorts of issues that are raised.
And I would think with critical infrastructure, the same
thing could happen. Initially, yes, you may have some
uncertainty. But if people are doing their job, and they're
honing in on what really matters, then you can avoid the parade
of horribles of everything being critical infrastructure and
everybody filing, while still making sure that CFIUS is doing
what this Congress wants it to do, which is to protect the
Nation's critical infrastructure.
The Chairman. But it would be our role, actually, to define
critical infrastructure. If we allow bureaucrats to define
critical infrastructure, we really--it seems to me we haven't
done our jobs, have we?
Mr. Tarullo. Well, as with all legislating, it's--you know,
as a law professor, this is what we do every day as we try to
hone in on the problems in legislating, and then administering
under that legislation. Because one wants to write a standard
or write a law broad enough to potentially capture all the
conduct you may want to prevent or punish, but at the same
time, you recognize that by drawing it that way, you may pull
in a lot of other things as well. That's when we rely on the
discretion of the people who administer the law, whether it's
courts or police officers or administrative agencies.
And here, I think what we should be looking for is to
define critical infrastructure broadly enough so they can take
action, not to define it so that they have to start an
investigation every time something is arguably included, but to
say, ``Look, we want you focused on the critical infrastructure
of this country. We want you to do an investigation where you
see a real national security threat.'' And then we do have to
have an iterative process that helps people understand what in
particular circumstances is or is not critical.
So I don't think you're at all abdicating your
responsibility by having a fairly general definition. And so
long as that definition doesn't do anything more than empower
the President, that it doesn't require all the kinds of things
that Secretary Evans worries about, then I think you're okay.
The Chairman. Well, Professor, the first thing that I would
do if I was to introduce a bill under Title I would be to apply
the Hippocratic Oath to every congressman and senator.
Mr. Tarullo. That's your province, Mr. Chairman. That's not
my province.
The Chairman. I understand. And by the way, the Hill's
Angels defeated the Georgetown law faculty, the Hoya Lawyas, in
basketball once again.
Mr. Tarullo. I was out of town, Mr. Chairman. Had I been
there, the outcome, I'm sure, would have been different.
The Chairman. Well, I wasn't available that night either,
and I can make the same argument.
Mr. Tarullo. So we both might have fouled out.
The Chairman. That was a live pair. Let me--
Mr. Crowley. Mr. Chairman, would you yield for just a
moment?
The Chairman. Oh, the gentleman from New York.
Mr. Crowley. Was that the Hippocratic Oath or the Hypocrite
Oath?
The Chairman. I beg your pardon.
Mr. Crowley. I'm sorry.
The Chairman. The Banking Committee, our counterpart in the
other body, which we can now call the Senate, by the way, has
passed legislation dealing with the CFIUS process. I'm
wondering if any of you gentlemen have had an opportunity to
take a look at that and critique the approach that the Banking
Committee has taken. Do we have any volunteers? I know it
happened rather quickly, but I just wondered if there was any--
Mr. Evans. Yes, why not? I guess an observation that I
would make, Mr. Chairman, is kind of an extended time line. And
not only extended time line, it seems like to me a time line
that would push many more of the cases into the investigation
phase, as opposed to cutting that off earlier. Some of that
would be because of the expanded definition of critical
infrastructure.
But I just--you know, if you take the time line and you
move it from 90 days to 115 days, then certainly, that has some
sort of chilling effect on the investment. I don't know how
much, but some. And I think if you also make the requirement
such that more of the cases will move into this 45-day
investigation period, then I believe that that has some
chilling effect on the process as well.
And I don't know the language specifically, but I think it
also--one other aspect I'm concerned about is the requirement
of the secretaries to sign/certify every case. I think there
may be some level the deputy can designate it, and another
level the secretary can designate it to the deputy. Or that's
what we'd like to see anyway. If you're requiring the Secretary
to sign every case, then, you know, I'm not sure you're running
into more kind of obstacles of slowing down the process.
I know when I was involved in it, I knew what was going on.
And I had an active discussion with the deputy as the process
proceeded, but he certainly had my authority to sign off on it.
The Chairman. But that was--that procedure, though, was
really unique to Commerce in that case. Each department has
different culture and procedures. That's correct, right?
Mr. Evans. Well, I don't know how unique it was. I mean,
certainly, we had a very--you know, we had a partnership
relationship, and so I knew what was going on all the time. I
mean--
The Chairman. But there was nothing structured.
Mr. Evans. Nothing structured.
The Chairman. Right. Professor, do you have any comment on
that, on the general question on the Senate bill?
Mr. Tarullo. Not in general, Congressman. I think there are
some things in there that probably raise some questions, and
some other things, such as tracking and withdrawn
notifications, that are probably a good idea.
The Chairman. Let me yield to my friend from New York,
because we've got to close down.
Mr. Crowley. Yes. Mr. Chairman, thank you for the moment.
Professor, could you comment on the ranking that is offered in
the Senate bill in terms of ranking countries in numerical? And
as well, if you could, former Secretary Evans, respond to my
question in regards to notification of Congress without over-
politicizing, how would you recommend that, if you can answer
that as well?
Mr. Tarullo. With respect to the country groupings,
Congressman, again, this is probably coming more from my
instinct as someone who used to be in the White House than as
someone outside right now. But my reaction is, frankly, the
following. That it better be the case that CFIUS members have
something of a predisposition based on the country from which
the investment is coming, a predisposition in the following
sense, a predisposition that this is a country which should
raise particular kinds of concerns because of things going on
in that country.
How productive it is formally to go through a process of
putting people in categories, and then you say, ``Well,
jeepers, has this country changed? Do we need to now change the
category?'' I'm a little bit more skeptical about the utility
of that. It strikes me as the sort of thing, frankly, where if
trust in the Administration has really fallen, you might be--
you know, people have an instinct to push them in that
direction. But I would hope that you could have a process
whereby that was more an informal part of what they did.
With respect to Congressional notification, as you can tell
from my written testimony and from what I've said here today, I
do think that Congress and the American people need to have a
better sense of how the Administration is approaching its
implementation of Exon-Florio, that as I said earlier, if GAO
can do it, they can do it too.
On pending cases, as Congressman Frank said at the
beginning of the hearing, at some level, I'm not sure how much
Congress should want. I don't know that Congress should want a
notification made to CFIUS and immediately reported to the
Congress.
Again, it seems to me that the better outcome, if you could
achieve it--if you could achieve it, and I don't know if you
can. But the better outcome would be that the Administration,
whoever's in the White House, the Administration exercises its
judgment to know when it needs to consult with, to mention, to
notify Congress of something of a decision, for example, that
they're about to make.
But regularizing it, having every notification come up
here, that does seem to me to put you in a position that,
number one, you may not want to be in collectively, and, number
two, to raise much greater prospects of the information getting
out and being used for commercial purposes or to politicize
things, with the chilling effect that Secretary Evans referred
to.
So again, I can't say with confidence how much you should
require, how much you should rely on the Administration. But I
think what one really wants to bear in mind is we don't want to
politicize the process, and we don't want to get to the point
where every CFIUS notification is becoming a public issue.
That's not where any of us wants to be.
The Chairman. The gentleman's time has expired. The
gentlelady, briefly.
Mrs. Maloney. Yes. Although there is a concern about having
a definition of what is infrastructure, there is no question or
debate that selling 20 ports was infrastructure. And I want to
be associated with Mr. Manzullo on the other side of the aisle,
his comments on foreign-owned government subsidizing,
outbidding, and really, American companies not being able to
compete against them in that respect.
So the other item that many people have raised today is
judgment, of making the proper decision. And my question to
you, since this is a security issue, should we include on the
CFIUS panel the director of national intelligence?
The President reorganized our government in response to 9/
11 for the first time in 47 years, since 1947. And I certainly
supported his efforts in reorganizing the intelligence system,
which many people feel was the problem that led to 9/11. And
why shouldn't we--shouldn't we have someone from the
intelligence community whose job it is as our national security
be part of this review panel? And I'd like to hear your
comments on that.
Mr. Tarullo. Not a problem from my point of view.
Mr. Evans. Yes. I mean, I don't think I have--I don't know
all the facts, but I don't think I have a problem with that
either. I mean, you know, certainly, it gets back to the
Congressman's question about ranking of countries, and do you
want to rank them in some kind of way. What you want to have
about them is intelligence and what's going on in those
countries. And so it seems like to me that somebody from the
intelligence community should be sitting at the table.
The Chairman. The Chair wants to thank all of the panelists
today. It's been an excellent discussion of give and take. With
that, the committee stands adjourned.
[Whereupon, at 12:59 p.m., the subcommittee was adjourned.]
A P P E N D I X
April 27, 2006
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