Harold Furchtgott-Roth, once an FCC commissioner, and now a consultant and New York Sun columnist, raises some issues (Blocking Foreign Investment, July 16):
...The national security challenges we face on foreign transactions are subtle. First, we want to block entities directly or indirectly aiding terrorist and criminal organizations. Second, we want to ensure that certain sensitive facilities remain accessible to our government as necessary. Third, we do not want unnecessarily to discourage foreign investment. Unfortunately, Cfius has not been effective in any of these areas, and codifying Cfius under the new law will do little to help.
I don't think the first part of the last sentence is true. For one thing, I don't think the process has created unreasonable costs for potential foreign investors yet. Furchtgott-Roth doesn't give any evidence to support the assertion in this column.
Indeed, the new law will likely expand the coverage of Cfius to more transactions that will be subject to governmental review. Worse, the process could become more bureaucratic, with written rules and unending appeals processes. Transactions that already wait months for antitrust and regulatory review may now be subject to additional months of Cfius review. For the overwhelming majority of foreign investments that we should be encouraging, the new law will do the opposite.
Part of the problem is the codification of Cfius itself. Detailed laws and rules can lead to transparent administrative processes and predictable legal appeals for entities that have equal standing before the law. For most governmental activities, transparency is helpful. But national security concerns inherently involve unequal opportunities among unequal parties. If our government wants to allow P&O but not Dubai Ports World to operate American ports, the less of a paper trail the better. The details of our national security review process are perhaps better left unspoken, certainly not written, and certainly not, as the new law would require, subject to frequent congressional oversight.
Under the bill, federal agencies would be required to reallocate more personnel and resources toward the new Cfius process and away from their current activities. Foreign investors would spend more money and time navigating the Cfius process for a wider range of acquisitions. A few investors may rationally decide that it is better to invest at lower cost outside America. Regrettably, the law titled the Foreign Investment and National Security Act of 2007 may do little to improve either.
- He may be right that more investments will be covered. The President is now required to consider additional issues - for example the security related impacts on critical infrastructure. This may lead to more reviews than were conducted in the past.
- I hope he is overstating the potential bureaucratic hurdles introduced by the reforms, especially the reference to additonal months of review in addition to antitrust and regulatory reviews. Congress paid a lot of attention to grandfathering in existing time limits for the review process - including explicit retention of the 30 period for initial review, and the 45 day time limit on investigations. Although the review phase can be longer, if firms withdraw and refile to avoid the investigation phase. But if CFIUS has to review more transactions, and the increased workload exceeds the capacity of its appropriations....
- The legislation does provide for distribution of an annual report to selected Congressmen. Some of the information in the report could have security implication - for example "The types of security arrangements and conditions the Committee has used to nitigate national security concerns about a transaction, including a discussion of the methods [used] to determine compliance with such arrangements and conditions." Presumably these are materials that would be removed from the unclassified version of the report the legislation authorizes for release to the public. On the up side, the new processes for passing information on to Congress should tend to reduce the potential for future Dubai Port World debacles. The statute
- I sympathize 100% with his concerns about increasing the costs of investing in America.
Minor revision July 21. non-substantive edit December 15, 2008.
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