The President attempts to assuage security fears in its “fact sheet” about U.S. – UAE relationship posted on the website.  The UAE comes across as a treaured friend.  I learned  that the UAE donated $100 Million to help the victims of Hurricane Katrina. This myopic President has no national security concerns about the DP World deal.

The UAE provides outstanding support for the U.S. Navy at the ports of Jebel Ali — which is managed by DP World –and Fujairah and for the U.S. Air Force at al Dhafra Air Base (tankers and surveillance and reconnaissance aircraft).

Shine a flashlight on CFIUS, though, and interesting nuggets appear.  The assessment process under CFIUS (Committee on Foreign Investment in the United States) is what the Administration claims has been strictly followed.  The President assumes — and expects us to assume — that sufficiently protective law is already in place, and abiding by it eliminates risks.

If the regulations are weak, though, the protection disappears.  It’s all in the process.  

In his remarks, “Congressional Mandates Frustrated: The Treasury Department’s Administration of Exon-Florio and the CFIUS,” before the Washington International Trade Association, Nov. 9, 2005, Patrick A. Mulloy has contributed a critical assessment. Mr. Mulloy is on the United States-China Economic and Security Review Commission charged with advising Congress on national security issues in trade with China. He also teaches law in Washington, D. C., and was General Counsel to the Senate Banking Committee.(see

The pertinent background outlined by Mr. Mulloy includes:
 1.  CFIUS was created by President Ford in 1975, chaired by the Treasury Secretary. The issue then was the acquisition of technologies by OPEC countries acquiring American assets.  
  2. In 1988 the “Exon-Florio Provision” as amended was enacted as Title VII of the Defense Production Act.  This provision gave the President the authority to block takeovers by foreign purchasers if he finds

(1) credible evidence the foreign entity exercising control might take action that threatens national security, and (2) inadequate authority otherwise to protect the national security.

  3. The statute provides that the term “national security” be interpreted broadly.
  4. Shortly after it was passed President Reagan, in Executive Order 12661, ceded his new authority to block mergers for national security reasons to the CFIUS chair, Treasury Secretary James Baker.
   5.  It took the Treasury Department nearly 3 years to promulgate regulations.

Those regulations, not the Exon-Florio Provision, established the “voluntary system” of merger notification that has been criticized as inadequate by many.

  6. In 1992 the Senate Banking Committee’s Subcommittee on International Finance and Monetary Policy held a hearing.  Peter Mills, CAO of SEMATECH (a joint DOD/Industry consortium related to semiconductor products and national defense) testified that foreign acquisition continued of U.S. semiconductor equipment and materials suppliers.

…foreign interests have targeted key U.S. technologies and the present CFIUS law OR its implementation is ineffective in preventing these transactions.

   Mr. Mills urged that CFIUS chairmanship be switched to the Commerce Department.  In its 2004 Report to Congress, so did the United States – China Economic and Security Review Commission.

 It was not until 1993 that the law required an investigation where the acquirer is controlled by or acting on behalf of a foreign government, or “could result in control of a person engaged in interstate commerce in the U.S. that could affect the national security of the U.S.”

   Mr. Mulloy criticized Treasury for failure to implement its mandates. For one thing, it has submitted only one report to Congress, in 1994, although these reports are required every four years.  Therefore, the question of a coordinated strategy on the part of foreign governments to acquire U.S. technologies has gone unreported to CFIUS and Congress.
   Furthermore, Treasury found more ways to avoid its work. Examples reported by the GAO in its report submitted to Congress in September 2005 include:
 — a strict limit on “credible evidence”

the statutorily required 45 day investigation of foreign government purchases of U.S firms has been stymied by the Treasury’s insistence that any such investigations can be conducted only if during the 30 day initial review there is “credible evidence” that the foreign controlling interest may take action to threaten our national security… effectively [reading] the 45 day mandated investigation of foreign government acquisitions of U.S. companies right out of the statute.

   — a strict, rather than broad, interpretation by the Treasury Department, of what constitutes “national security,” to wit,

“export controlled technologies or items, classified contracts, or specific derogatory intelligence on the foreign company.”

Assistant Secretary for Export Administration Peter Lichtenbaum, addressed the Washington Foreign Law Society Oct. 18, 2005, on “National Security and U.S. Trade and Investment Policy.” (see

Currently the U.S. government does not identify or analyze all critical industries.  Rather, the government evaluates specific industries on request, often from the Armed Services.  …. Several years ago, Commerce studied several critical industries such as artificial intelligence, superconductivity, optoelectronic, advanced ceramics, and advanced composites.  However, this work was cut back due to concerns that the government should not engage in industrial policy.

 Mr. Lichtenbaum cited business privacy concerns for the reluctance of CFIUS to brief Congress extensively.  He said that Treasury, the chair, and
 other agencies which are members of CFIUS are willing to increase confidence in the CFIUS national security review by briefing congressional committees with jurisdiction over CFIUS, in closed session.  He insisted that Congress should not pass the currently proposed legislation which would involve it in further review to the point of blocking a transaction even if the President did not, after CFIUS review.

Mr. Mulloy further charged the Treasury Department with neglect of its responsibilities in the exchange rate area. Currency manipulation by China has enabled it to accumulate an immense amount of dollars. The deficit with China is now over $200 billion. More proposed acquisitions of American companies by Chinese companies are predicted.

We need a serious, functioning, CFIUS process that takes account of our national security interests to review such transactions before they are consummated.

It seems Treasury is guarding its turf against incursions by Commerce (and Congress) without regard for reality.  National security policy already encompasses “industrial policy.”  Don’t insult our intelligence, Mr. Snow.

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