[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
_____________________________________________________________________________
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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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