Senate panel OKs foreign investment overhaul but waters down some provisions amid pressure from Wall Street, the Bush administration and U.S. allies

Reuters
Senate panel OKs foreign investment overhaul
By Susan Cornwell

WASHINGTON (Reuters) - The U.S. Senate Banking Committee voted unanimously on Thursday to tighten rules on foreign takeovers of American companies but watered down some provisions amid pressure from Wall Street, the Bush administration and U.S. allies.

Trying to steer a middle path between national security and maintaining foreign investment, the committee's bill would require the U.S. government to spend an extra 45 days examining deals with state-owned companies for national security concerns.

The recent purchase of U.S. port facilities by state-owned Dubai Ports World caused an outcry in Congress.

The Senate bill would force the executive branch of government to notify Congress about pending acquisitions. It would also make the U.S. government take more time examining deals involving "critical" infrastructure, such as airports or bridges, even if the buyer is not state-owned.

But in a concession to Wall Street and corporate lobbyists, it mandates the delay for critical infrastructure contracts only if there is a demonstrated national security concern.

The panel acted the same day Treasury Secretary John Snow warned that foreign investment, which is linked to more than 5 million U.S. jobs, was threatened by legislation. "We need foreign investment in the United States, but it's being put in jeopardy now by legislation that is well-intended," he said.

The bill was drafted by Alabama Republican Richard Shelby, the panel's head. He rejected charges of economic nationalism.

"As critical as foreign investment is, our national security is paramount," Shelby told the committee.

The bill would require the executive branch to notify key lawmakers of proposed deals within 10 days of the start of a government review. It also requires state governors to be notified of deals that could have security implications.

But Shelby stopped short of proposing a congressional veto of deals.

The Senate banking panel approved the legislation, 20-0. However, it is unclear how quickly it will be taken up on the Senate floor, and the House has yet to start work on similar reforms. The chairman of the relevant House committee, Ohio Republican Rep. Mike Oxley, is skeptical of the need for changes.

Congress was in an uproar when it found out after the fact that the Bush administration had approved the Dubai Ports World purchase of terminal operations at major U.S. ports without consulting lawmakers or officials in the areas involved. Earlier this month the company agreed to unwind the contract.

The Senate legislation is in part a result of this outcry.

It revamps the rules under which the inter-agency panel of the executive branch, the Committee on Foreign Investment in the United States (CFIUS), reviews foreign acquisitions. Currently, CFIUS takes 30 days to examine a proposed deal, and can extend that period by an extra 45 days if needed.

The bill also would allow an interim step of a second 30-day review in some cases, and it sets up a ranking system that would be used for reviews, listing countries according to their ties to the United States and stance on arms control.

Some members of the business community expressed relief with the outcome.

The bill "goes a long way toward restoring confidence in the CFIUS process, while not raising undue burdens to foreign investment and its economic benefits to Americans" said Todd Malan, head of the Organization for International Investment.

But the Business Roundtable and other groups said it was still worried that the reporting requirements could "increase the risk of transactions becoming political."

David Manning, Britain's ambassador to Washington, warned that the United States risked losing its dominant economic position by adopting protectionist policies. Some 20 percent of foreign investment in the United States comes from Britain, according to the U.S. Treasury Department.