```

[House Hearing, 109 Congress]
[From the U.S. Government Publishing Office]

 
                CFIUS REFORM:  H.R. 5337, THE REFORM OF 
             NATIONAL SECURITY REVIEWS OF FOREIGN DIRECT 
                            INVESTMENT ACT

                               HEARING

                             BEFORE THE

                  SUBCOMMITTEE ON COMMERCE, TRADE, 
                      AND CONSUMER PROTECTION

                               OF THE 

                      COMMITTEE ON ENERGY AND 
                              COMMERCE

                     HOUSE OF REPRESENTATIVES

                    ONE HUNDRED NINTH CONGRESS

                          SECOND SESSION

                          JULY 11, 2006

                        Serial No. 109-110

     Printed for the use of the Committee on Energy and Commerce

Available via the World Wide Web:  http://www.access.gpo.gov/congress/house

                    U.S. GOVERNMENT PRINTING OFFICE
30-216                      WASHINGTON : 2006
_____________________________________________________________________________
For sale by the Superintendent of Documents, U.S. Government Printing Office 
Internet: bookstore.gpo.gov  Phone: toll free (866) 512-1800; DC area (202) 
512-1800 Fax: (202) 512-2250  Mail: Stop  SSOP, Washington, DC 20402-0001

                   COMMITTEE ON ENERGY AND COMMERCE
                      JOE BARTON, Texas, Chairman
RALPH M. HALL, Texas                      JOHN D. DINGELL, Michigan
MICHAEL BILIRAKIS, Florida                  Ranking Member
  Vice Chairman                           HENRY A. WAXMAN, California
FRED UPTON, Michigan                      EDWARD J. MARKEY, Massachusetts
CLIFF STEARNS, Florida                    RICK BOUCHER, Virginia
PAUL E. GILLMOR, Ohio                     EDOLPHUS TOWNS, New York
NATHAN DEAL, Georgia                      FRANK PALLONE, JR., New Jersey
ED WHITFIELD, Kentucky                    SHERROD BROWN, Ohio
CHARLIE NORWOOD, Georgia                  BART GORDON, Tennessee
BARBARA CUBIN, Wyoming                    BOBBY L. RUSH, Illinois
JOHN SHIMKUS, Illinois                    ANNA G. ESHOO, California
HEATHER WILSON, New Mexico                BART STUPAK, Michigan
JOHN B. SHADEGG, Arizona                  ELIOT L. ENGEL, New York
CHARLES W. "CHIP" PICKERING,  Mississippi ALBERT R. WYNN, Maryland
  Vice Chairman                           GENE GREEN, Texas
VITO FOSSELLA, New York                   TED STRICKLAND, Ohio
ROY BLUNT, Missouri                       DIANA DEGETTE, Colorado
STEVE BUYER, Indiana                      LOIS CAPPS, California
GEORGE RADANOVICH, California             MIKE DOYLE, Pennsylvania
CHARLES F. BASS, New Hampshire            TOM ALLEN, Maine
JOSEPH R. PITTS, Pennsylvania             JIM DAVIS, Florida
MARY BONO, California                     JAN SCHAKOWSKY, Illinois
GREG WALDEN, Oregon                       HILDA L. SOLIS, California
LEE TERRY, Nebraska                       CHARLES A. GONZALEZ, Texas
MIKE FERGUSON, New Jersey                 JAY INSLEE, Washington
MIKE ROGERS, Michigan                     TAMMY BALDWIN, Wisconsin
C.L. "BUTCH" OTTER, Idaho                 MIKE ROSS, Arkansas                       
SUE MYRICK, North Carolina
JOHN SULLIVAN, Oklahoma
TIM MURPHY, Pennsylvania
MICHAEL C. BURGESS, Texas
MARSHA BLACKBURN, Tennessee

                       BUD ALBRIGHT, Staff Director
                      DAVID CAVICKE, General Counsel
        REID P. F. STUNTZ, Minority Staff Director and Chief Counsel

         SUBCOMMITTEE ON COMMERCE, TRADE, AND CONSUMER PROTECTION
                     CLIFF STEARNS, Florida, Chairman
FRED UPTON, Michigan                      JAN SCHAKOWSKY, Illinois
NATHAN DEAL, Georgia                        Ranking Member
BARBARA CUBIN, Wyoming                    MIKE ROSS, Arkansas
GEORGE RADANOVICH, California             EDWARD J. MARKEY, Massachusetts
CHARLES F. BASS, New Hampshire            EDOLPHUS TOWNS, New York
JOSEPH R. PITTS, Pennsylvania             SHERROD BROWN, Ohio
MARY BONO, California                     BOBBY L. RUSH, Illinois
LEE TERRY, Nebraska                       GENE GREEN, Texas
MIKE FERGUSON, New Jersey                 TED STRICKLAND, Ohio
MIKE ROGERS, Michigan                     DIANA DEGETTE, Colorado
C.L. "BUTCH" OTTER, Idaho                 JIM DAVIS, Florida
SUE MYRICK, North Carolina                CHARLES A. GONZALEZ, Texas
TIM MURPHY, Pennsylvania                  TAMMY BALDWIN, Wisconsin
MARSHA BLACKBURN, Tennessee               JOHN D. DINGELL, Michigan
JOE BARTON, Texas                           (EX OFFICIO)                            
  (EX OFFICIO)

                               CONTENTS

                                                                     Page
Testimony of:
        Castellani, John, President, Business Roundtable	      13
        Cohen, Calman J., President, Emergency Committee on 
                American Trade	                                      19
        Holtz-Eakin, Douglas, Director, Maurice R. Greenberg 
                Center for Geoeconomic Studies, Council on Foreign 
                Relations	                                      26
        Mulloy, Hon. Patrick A., Commissioner, United States-
                China Economic and Security Review Commission	      33

                 CFIUS REFORM:  H.R. 5337, THE REFORM OF 
               NATIONAL SECURITY REVIEWS OF FOREIGN DIRECT 
                              INVESTMENT ACT

                          TUESDAY, JULY 11, 2006

                         HOUSE OF REPRESENTATIVES,
                    COMMITTEE ON ENERGY AND COMMERCE,
                     SUBCOMMITTEE ON COMMERCE, TRADE, 
                         AND CONSUMER PROTECTION,
                                                        Washington, DC.

        The subcommittee met, pursuant to call, at 2:10 p.m., in Room 
2123 of the Rayburn House Office Building, Hon Cliff Stearns 
[Chairman] presiding.
        Members present:  Representatives Stearns, Terry, Rogers, 
Murphy, Blackburn, Barton [ex officio], Schakowsky, and Brown.
        Staff Present:  David Cavicke, General Counsel; Chris Leahy, 
Policy Coordinator; Will Carty, Professional Staff Member; Brian 
McCullough, Professional Staff Member; William Harvard, 
Legislative Clerk; Jonathan Cordone, Minority Counsel; Chris 
Treanor, Minority Staff Assistant, and Jonathan Brater, Minority 
Staff Assistant.
        MR. STEARNS.  Good afternoon.  Our consideration of 
H.R. 5737, the Reform of National Security Reviews of Foreign 
Direct Investment Act, is an opportunity for the committee to 
exercise its jurisdiction over a bill that has far reaching 
implications for the economic health and vitality of the United 
States' commerce, both domestic and international.  Foreign direct 
investment in the United States economy is an essential ingredient 
in the fuel that powers America's economic engine.  Such open 
investment policy has made the United States a favorite destination 
for foreign direct investment with over $115 billion dollars 
invested in 2004 supporting over 5 million American jobs found in 
every State of the Union.  Car manufacturing plants in Ohio, 
pharmaceutical research and development in New Jersey, or 
aircraft components production in my home State of Florida.  
        The United States is and will hopefully remain the benchmark 
for open, transparent investment policy that results in better 
products for consumers, more technological innovation, and a 
strong and vibrant job market.  Moreover, the byproducts of this 
free and open domestic treatment of foreign investment is that it 
has tremendous reciprocal benefits in the foreign markets that 
American companies invest, produce, and sell in.  This openness 
and transparency have enabled American companies to export 
those principles to the rest of the world, increase prosperity abroad, 
and in turn, encourage better acceptance and understanding of the 
American way of life.  
        The Committee on Foreign Investment in the United States or 
CFIUS, as it is commonly known, has operated for over 30 years 
as an interagency mechanism designed to flag foreign investment 
transactions in the United States that could affect our national 
security.  The possibility of a CFIUS review is always a 
consideration with a foreign investment transaction and companies 
generally apply for a review as a matter of good due intelligence.  
Preserving a balanced and transparent process is vital to enjoying 
this open cooperation in companies wishing to invest in the United 
States.  In practice, CFIUS has operated relatively well, not only 
empowering the committee to scrutinize foreign investments that 
could have security implications, but also by allowing it to be in a 
position to counsel companies on how to improve the structure of 
their transactions to better address national security concerns.  
        I do, however, believe that the balance that has been struck 
under the current process is capable of being fine-tuned.  So 
accordingly I would like to better understand why the bill 
designates a permanent chair and vice chair, and how that new 
statutory element will help maintain a balanced and collaborative 
review process.  Codifying a leadership structure that includes 
Homeland Security as vice chair clearly creates a broad security 
component rather than providing a general organizational 
leadership structure.  That has worked well over the years.  In 
addition, a leadership structure with an extremely broad security 
portfolio like the Department of Homeland Security could have the 
unintended effect of intimidating legitimate investors from 
investing their capital in the United States economy, thereby 
harming our prosperity in the long run.  
        I would also like to see the chairmanship function become 
more transparent and responsive, a proven and responsive way to 
generate substantive, collaborative input from all the departments 
and agencies that are involved.  With this in mind, I would like to 
hear the panel's thoughts about the ideas of periodically rotating or 
changing the leadership structure to better reflect the commercial 
nature of the transactions that are subject to scrutiny and review, as 
well as to, better balance those issues with the national security 
focus of the analysis.  I think there may be a better way to keep the 
interagency process balanced and as a result, further improve the 
functioning of the body as envisioned by the bill.  
        In closing, I think H.R. 5337 is a good bill that would benefit 
from some relatively minor improvements.  I am a cosponsor.  I 
support the bill to facilitate better Congressional oversight over the 
committee while preserving a balanced and transparent review 
process that would prohibit politicizing these important issues, 
principles which have served the United States economy and our 
world-class financial markets extremely well over the years.  
        And with that, I yield to the Ranking Member, Ms. 
Schakowsky.
        [Prepared statement of Hon. Cliff Stearns follows:]

PREPARED STATEMENT OF THE HON. CLIFF STEARNS, CHAIRMAN, 
SUBCOMMITTEE ON COMMERCE, TRADE, AND CONSUMER PROTECTION

        Good afternoon.  Our consideration today of HR 5337, the 
"Reform of National Security Reviews of Foreign Direct 
Investment Act" is an opportunity for the Committee to exercise its 
jurisdiction over a bill that has far reaching implications for the 
economic health and vitality of United States commerce, both 
domestic and international.  Foreign direct investment in the U.S. 
economy is an essential ingredient in the fuel that powers 
America's economic engine.  Such open investment policy has 
made the United States a favored destination for foreign direct 
investment with over $115 billion invested in 2004, supporting 
over 5 million American jobs found in every state of the union - 
car manufacturing plants in Ohio, pharmaceutical R&D in New 
Jersey, or aircraft component production in my home state of 
Florida.  The United States is and hopefully will remain the 
world's benchmark for open, transparent investment policy that 
results in better products for consumers, more technological 
innovation, and a strong and vibrant job market.  Moreover, the 
byproduct of this free and open domestic treatment of foreign 
investment is that it has tremendous reciprocal benefits in the 
foreign markets that American companies invest, produce, and sell 
in.  This openness and transparency has enabled American 
companies to export those principles to the rest of the world, 
increase prosperity abroad, and in turn, encourage better 
acceptance and understanding of the American way of life.  
        The Committee on Foreign Investment in the United States or 
"CFIUS", as it is more commonly known, has operated for over 
thirty years as an interagency mechanism designed to flag foreign 
investment transactions in the United States that could affect our 
national security.  The possibility of a CFIUS review is always a 
consideration with a foreign investment transaction, and companies 
generally apply for a review as a matter of good due diligence.  
Preserving a balanced and transparent CFIUS process is vital to 
enjoying this open cooperation from companies wishing to invest 
in the U.S. economy.  In practice, CFIUS has operated relatively 
well, not only empowering the CFIUS committee to scrutinize 
foreign investment that could have security implications, but also 
by allowing it to be in a position to counsel companies on how to 
improve the structure of their transactions to better address 
national security concerns.  
        I do, however, believe that the balance that has been struck 
under the current CFIUS process is capable of being fine tuned.  
Accordingly, I would like to better understand why the bill 
designates a permanent CFIUS chair and vice chair and how that 
new statutory element will help maintain a balanced and 
collaborative review process.  Codifying a leadership structure that 
includes Homeland Security as Vice Chair clearly creates a very 
strong and broad security component, rather providing a general 
organizational leadership structure - a structure that has worked 
well over the years.  In addition, a leadership structure with an 
extremely broad security portfolio like the Department of 
Homeland Security COULD have the unintended effect of 
intimidating legitimate investors from investing their capital in the 
United States economy; thereby harming our prosperity in the long 
run.  I'd also like to see the chairmanship function become more 
transparent and responsive - a proven and effective way to 
generate substantive collaborative input from all the departments 
and agencies involved.  With this in mind, I'd like to hear panel's 
thoughts about the idea of periodically rotating or changing the 
leadership structure to better reflect the commercial nature of the 
transactions subject to CFIUS scrutiny and review, as well as to 
better balance those issues with the national security focus of the 
analysis.  I think there may be a better way to keep the interagency 
process balanced, and as a result, further improve the functioning 
of CFIUS as envisioned by the bill.
        In closing, I think HR 5337 is a good bill that would benefit 
from some relatively minor improvements.  As a cosponsor, I 
support the bill's general approach to facilitate better congressional 
oversight of the CFIUS process while preserving a balance and 
transparent review process that avoid politicizing these important 
issues -- principles that have served the U.S. economy and our 
world class financial markets extremely well over the years. 
        Thank you.

        MS. SCHAKOWSKY.  Thank you, Chairman Stearns, for holding 
today's hearing on the Committee on Foreign Investment in the 
United States, CFIUS, and H.R. 5337, the reform of national 
security, the bill that we will be marking up tomorrow in the full 
committee.  I hope we can reach a bipartisan agreement on the bill.  
I know that we both agree that it is time to reform the Exon-Florio 
process, which determines what can be bought in the United States 
by foreign entities. 
        Because this has direct implications for our national and 
economic securities, I believe it is one of the most important issues 
that fall under the jurisdiction of the subcommittee.  For years, 
CFIUS, the interagency committee that was formed to protect the 
United States' economic well being and national security, has been 
making decisions about what foreign companies can buy up in the 
United States under a shroud of secrecy.  Under the guise of 
protecting the confidentiality of the potential investors, CFIUS has 
decided to keep Congress, including us, the committees with 
jurisdiction over it, in the dark about its decisions whether to 
investigate, approve, deny foreign entities including foreign 
governments purchasing within the United States.  I think we need 
to shift the focus of CFIUS back to the protection of America as it 
is related to foreign investment. 
        Under current law, CFIUS is only obliged to report to Congress 
every 4 years on the very narrow issue of whether any foreign 
government has a coordinated strategy to acquire U.S. companies 
that do research, development, or production of critical 
technologies, but it has been shirking even that limited 
responsibility since its first and only report in 1994.  
        Only because the press broke the story that CFIUS and the 
President approved the purchase of operations at six major U.S. 
ports by Dubai Ports World, owned by the United Arab Emirates, 
did the foreign investment approval process and problems with its 
reporting and transparency come to the forefront and center of our 
attention. 
        Although the Dubai Ports World deal was effectively ended on 
March 9th when the company said it would transfer its operation of 
American ports to its U.S. entity, I believe it is a telling example of 
why we need to insist upon a more open and informed process of 
approving foreign investment in the United States.  
        My opposition to this deal is not about the idea of an Arab 
country controlling American port operation.  My opposition is 
that President Bush would outsource the safety of American ports 
to any foreign country.  I believe that Americas' security is 
America's business.  The security of our ports is an inherent 
function of the United States government.  It is unacceptable, in 
my view anyway, that 5 years after 9/11, only 6 percent of cargo 
coming in to Americans ports is inspected and that we would 
further put our ports at risk by outsourcing their offices or that of 
any other critical infrastructure for that matter.  
        So I thank you again, Chairman Stearns, for holding this 
hearing, and I look forward to hearing from our witnesses.
        MR. STEARNS.  The gentlelady from Tennessee, Mrs. 
Blackburn.  
        MRS. BLACKBURN.  Thank you, Mr. Chairman.  I thank our 
witnesses and I thank the Chairman for the hearing today, and I am 
looking forward to this and to examining the legislation to reform 
the committee.  
        You know, I think that many of our constituents are very 
concerned about CFIUS and how it operates and many did not 
know that the committee existed until the Dubai Ports deal.  And 
then once they learned that the committee existed, they really 
didn't appreciate that many of the decisions, and much of the 
committee's work, is done without the consent or participation of 
Congress.  
        So the bill before us does take significant steps and takes those 
steps towards transparency, accountability, and oversight of 
foreign investments that may impact our national security by 
codifying CFIUS into law, mandating investigative semiannual 
reports to Congress.  H.R. 5337 will keep Congress as an informed 
participant in the process, and we are looking forward to that, and I 
am looking forward to hearing from each of you today.  
        I thank you for your time, for your participation.  
Mr. Chairman, I yield back.
        MR. STEARNS.  Thank the gentlelady.  The gentleman from 
Ohio.  
        MR. BROWN.  Thank you for inviting Commissioner Mulloy to 
testify.  I want to thank him especially for his work of the U.S.-
China Security and Economic Review Commission and his work 
in shaping CFIUS reform.  Thank you for that.  
        If the objective of CFIUS reform is national security, this bill 
as introduced falls well short of the mark.  First, the bill maintains 
the Treasury Secretary as the CFIUS Chairman, a job that so many 
of us as critics of the current CFIUS process believe should be 
filled by the Secretary of Commerce.  Foreign investment can 
provide good jobs for American workers and the Treasury 
Department's traditional role as cheerleader for foreign investment 
is entirely reasonable.  But that role, in this case, creates an 
unavoidable conflict of interest.  The Commerce Secretary has no 
such inherent conflict.  His role as coordinator of imports, exports, 
industrial security, and manufacturing gives the Commerce 
Secretary a better vantage point from which to evaluate the 
economic security issues raised by foreign acquisitions.  
        A related problem with the bill is its additions to the CFIUS 
roster.  Let us start with the U.S. Trade Rep and the National 
Economic Council Director.  Comparing those guys as security 
watch dogs for international transaction to the fox guarding the hen 
house is a sleight to the fox.  They have no place as CFIUS 
members.  Neither does the OMB Director.  In practice, his role 
would simply be to give the White House a stronger hand in 
CFIUS deliberations.  Even worse is the bill's authorization for the 
President to add practically anyone who works in the West Wing 
to CFIUS.  
        IF the President wants these decisions made by a political 
insider, he should scrap CFIUS and make them himself.  If not, he 
and we should let this agency work without the internal 
Administration politics.  
        Mr. Chairman, in deference to my friend from Michigan and 
the time, I will just enter the rest of my statement in the record.  
Thank you for doing the hearing today. 
        [Prepared statement of Hon. Sherrod Brown follows:]

PREPARED STATEMENT OF THE HON. SHERROD BROWN, A 
REPRESENTATIVE IN CONGRESS FROM THE STATE OF OHIO

        Thank you, Mr. Chairman, for scheduling this important 
hearing on reforming the Committee on Foreign Investment in the 
United States.  And thanks, as well, for inviting Commissioner Pat 
Mulloy to testify.
        To call Commissioner Mulloy a CFIUS expert is to sell him 
short.  Not only has he worked as a member of the United States-
China Economic and Security Review Commission to shape the 
Commission's CFIUS reform recommendations.  But he also 
served as General Counsel to the Senate Banking Committee 
during the 1980s and participated in the negotiations resulting in 
the enactment of the 1988 Exon-Florio amendment that charged 
CFIUS with its current mission.
        Commissioner Mulloy, your unique perspective on CFIUS' 
past and your keen insights into its future challenges make you an 
exceptional witness.  I am pleased to welcome you to today's 
hearing.
        Mr. Chairman, I wish I could offer such an enthusiastic 
endorsement of HR 5337 - which is the subject of our hearing.  
But if the objective of CFIUS reform is national security, HR 5337 
as introduced falls well short of the mark.
        First, the bill maintains the Treasury Secretary as CFIUS 
Chairman - a job that I and other critics of the current CFIUS 
process believe should be filled by the Secretary of Commerce.
        Foreign investment can provide good jobs for American 
workers - and the Treasury Department's traditional role as 
cheerleader for foreign investment is entirely reasonable.  But that 
role creates an unavoidable conflict of interest.
        The Commerce Secretary has no such conflict.  And his role as 
coordinator of import, export, industrial security, and 
manufacturing give the Commerce Secretary a better vantage point 
from which to evaluate the economic security issues raised by 
foreign acquisitions.
        A related problem with the bill is its additions to the CFIUS 
roster.  Let's start with the U.S. Trade Representative and the 
National Economic Council Director.  Comparing those guys as 
security watchdogs for international transactions to the fox 
guarding the henhouse is a sleight to the fox.  They have no place 
as CFIUS members.
        Neither does the OMB Director.  In practice, his role would 
simply be to give the White House a stronger hand in CFIUS 
deliberations.  Even worse is the bill's authorization for the 
President to add practically anyone who works in the West Wing 
to CFIUS.
        If the President wants these decisions made by political 
insiders, he should just scrap CFIUS and make them himself.  If 
not, he - and we - should let the agencies work without the 
internal Administration politics.
        The bill also maintains current law's faith-based approach to 
covered transaction notifications.  Under the bill, CFIUS reviews, 
National Intelligence Director analyses, and reports to Congress 
are all in large part contingent on the parties to covered 
transactions notifying CFIUS that those transactions are 
happening.  But nowhere does the bill require those parties to make 
those notifications.
        Sure, it allows for CFIUS reviews after the fact.  But as anyone 
who's ever tried to put a genie back in the bottle can tell you, it's 
much easier not to let him out in the first place.  We ought to 
require that companies party to covered transactions notify CFIUS 
before the deal is done.
        And finally, the bill fails to expand the scope of CFIUS 
reviews to take into account changes in the economic world since 
1988.  The 1994 North American Free Trade Agreement and the 
trade deals that followed changed not only our economic policy, 
but also our security policy.
        These and similar trade deals have subjected our domestic laws 
- including homeland security laws - to arbitration by international 
tribunals whose mission is trade promotion, not security 
enhancement.
        China and the EU have already expressed concern about the 
effects of US homeland security policies on trade.  And the trade 
agreements we've signed give our trading partners - and even 
foreign companies - the right to sue us if homeland security rules 
cut into their bottom line.
        So unless we create a process for systematic security reviews 
of trade agreements - in addition to individual transactions - we 
may only be picking at the tip of the iceberg.  This bill offers an 
opportunity to create such a process, and I hope you will work with 
me to do so.
        I appreciate this beginning to a long-overdue effort to reform 
CFIUS.  And I look forward to working with you as the legislation 
advances.

        MR. STEARNS.  I thank you.  Mr. Rogers.  
        MR. ROGERS.  Very quickly.  To me it is very--
        MR. STEARNS.  We have 10 minutes.
        MR. ROGERS.  I understand.  I am looking forward to the 
testimony.  It is incredibly important in that we respect the free and 
fair trade of goods and services.  It is good for Americans, it is 
good for consumers, it is good for our economy, and we in 
Congress need to carefully balance the need for proper security 
actions and legitimate need for foreign investment in the United 
States.  What shocked me most about the most recent uproar was 
not asking the right questions or stopping, asking questions at the 
wrong time.  
        And I hope that we can get to the bottom of that.  I look 
forward to the testimony today, because this is incredibly 
important as we move forward.  The world has changed.  We need 
CFIUS to change with it, and I don't think it is quite there yet, but 
I think hopefully as a result of this hearing and this testimony, we 
can establish a dialogue to get where we need to get to when it 
comes to protecting Americans and protecting a world-wide 
investment, both from America to other countries and from other 
countries to here as well.  
        Thank you, Mr. Chairman.  I yield back.
        MR. STEARNS.  Thank you, gentlemen.  
        We have votes scheduled, and it turns out this vote's coming to 
the end, and then we have a 10-minute debate and we have some 
more votes.  So I suspect it will be about 30 minutes that we will 
temporarily adjourn the subcommittee, and then reconvene 
probably about 30 minutes.  So we will all return with that.  So 
with that, if you will be patient we will be back in about 30 
minutes.  
        [Recess.]
        MR. STEARNS.  The committee will come to order.  We 
welcome on the witness list John Castellani, President of the 
Business Roundtable; Mr. Calman J. Cohen, President, Emergency 
Committee on American Trade; Mr. Douglas Holtz-Eakin, 
Director, Maurice R. Greenberg Center for Geoeconomic Studies, 
Council on Foreign Relations; and the Honorable Patrick Mulloy, 
Commissioner, United States-China Economic and Security 
Review Commission.  
        And so I welcome all of you.  Joined with us is the Chairman 
of the full committee.
        CHAIRMAN BARTON.  Is it still in order to give an opening 
statement?
        MR. STEARNS.  You are in order.  Yes, sir.  
        CHAIRMAN BARTON.  I appreciate the courtesy of the other 
members.  I was, as they say, unavoidably detained on the floor in 
the conversation dealing with some committee issues tomorrow.  
I want to welcome our panelists here.  The Committee on 
Foreign Investment in the United States, which we know as 
CFIUS, was operated largely out of the public eye until very 
recently.  It is an interagency committee established to review 
transactions of foreign investment or purchases of an American 
company and determine if the proposed transaction has any effect 
on national security.  CFIUS used to be nearly anonymous, but the 
work performed by this group has attracted great attention in the 
past year, primarily because of the proposed transaction involving 
CNOOC, and more recently, involving the Dubai Ports World 
acquisition of numerous American ports.  These two different 
transactions raised concerns in the public regarding both the 
review process and the relevant disclosure of CFIUS decisions.  
        I want there to be more foreign investment in the United States, 
not less, but I do not want the kind that would threaten our national 
security.  CFIUS exists to make that distinction, and we need to 
know and the American people need to know that it is doing the 
job it was intended to do.  
        We should not automatically fear foreign investment in the 
United States.  Many of our most promising companies are able to 
pursue beneficial R&D precisely, because our country welcomes 
foreign investment.  Our high tech industries would not be world 
leaders if we had barred investment from overseas.  The venture 
capital industry that funds many start-up companies all over the 
United States could not thrive without a vibrant global economy 
where our goods and services are sold.  The money that is provided 
to the United States creates jobs in the United States, creates 
growth and opportunity in the United States.  And we should want 
more of it and not less.  Again, if it doesn't affect national security, 
we want to be sure that proposed investments will not harm our 
Nation.  If the highly publicized proposed transaction of CNOOC 
and the Dubai Ports demonstrated anything, it was that the process 
by which our Government has been sorting through these types of 
investments from bad to murky, is to say the least, in itself, bad 
and murky.  Congress and this committee need to be aware of the 
criteria used to evaluate the transactions.  We need to know which 
transaction should be subject to a more rigorous review.  I 
understand that there are differences in the interpretation to CFIUS 
review process as it applies to foreign government-controlled 
transactions.  In this regard, I think legislation is warranted to 
clarify any ambiguity under the current review process.  We need 
to ensure that some consistent criteria with appropriate discretion 
will improve the process without impairing our ability to attract 
significant and needed foreign investment.  
        H.R. 5337 would codify the creation and membership of 
CFIUS as well as address the criteria for transaction reviews.  
Whether it strikes the appropriate balance for mandatory review is 
an issue that we should discuss in this hearing.  
        The United States has long standing ties to traditional allies and 
trading partners.  We also have new and evolving relationships 
with other countries.  It would seem logical to me that not every 
foreign government-controlled transaction threatens national 
security, and not every one requires the same level of scrutiny.  
        While the bill establishes some new reporting requirements to 
Congress that I applaud, I am very troubled by the appointment of 
the Secretary of Homeland Security as the permanent vice chair of 
CFIUS.  It is not clear to me why the newest member of the CFIUS 
process is better suited to evaluate the nature of these transactions 
than another agency, such as Commerce that has been involved 
since the beginning of the process.  
        There may be an amendment on this issue in the markup that is 
currently scheduled to begin tomorrow.  
        As we move to mark up the bill in committee, I look forward to 
a discussion of these issues with the witnesses and with members 
on both sides of the aisle.  
        With that, Mr. Chairman, thank you for allowing me to give 
this opening statement.  I yield back the balance of my time.
        [Prepared statement of Hon. Joe Barton follows:]

PREPARED STATEMENT OF THE HON. JOE BARTON, CHAIRMAN, 
COMMITTEE ON ENERGY AND COMMERCE

        The Committee on Foreign Investment in the United States, 
better known as CFIUS (see-fee-us), has operated largely unknown 
to the American public until recently.  It is an inter-agency 
committee established to review transactions of foreign investment 
or purchases of American companies, and determine if the 
proposed transaction will affect national security.
        CFIUS used to be nearly anonymous, but the work performed 
by this once-obscure group has attracted great attention in the past 
year.  First, the proposed transaction involving CNOOC and more 
recently the proposed Dubai Ports World acquisition of numerous 
American ports has raised concerns regarding both the review 
process and the relevant disclosure of CFIUS decisions.
        I want more foreign investment in America, not less, but I do 
not want the kind that threatens our security.  CFIUS exists to 
make the distinction, and we need to know that it's doing a good 
job.
        We don't automatically fear foreign investors here in America.  
Many of our most promising companies are able to pursue 
beneficial research and development precisely because our country 
welcomes foreign investment.  Our high tech industries would not 
be world leaders if we had barred investment from abroad.  The 
venture capital industry that funds many start-up companies all 
over the United States could not thrive without a vibrant global 
marketplace where our goods and services are sold.  The money 
provided by foreign investors creates jobs, growth and opportunity 
here at home, and I want more of it, not less.
        I also want to be sure that proposed investments will not harm 
our nation.  If the highly publicized proposed transactions of 
CNOOC and Dubai Ports demonstrated anything, it was that the 
process by which our government sorts out good investment from 
bad is murky, to say the least.  Congress and this Committee need 
to be aware of the criteria used to evaluate the transactions and 
which transactions should be subject to more rigorous review.
        I understand that there are differences in the interpretation of 
the CFIUS review process as it applies to foreign government 
controlled transactions.  In this regard, I think legislation is 
warranted to clarify any ambiguities under the current review 
process.  We need to ensure that some consistent criteria with 
appropriate discretion will improve the process without impairing 
our ability to attract significant and needed foreign investment.
        H.R. 5337 codifies the creation and membership of CFIUS, as 
well as addresses the criteria for transaction reviews.  Whether it 
strikes the appropriate balance for mandatory reviews is an issue I 
look forward to discussing further.
        The United States has longstanding ties to traditional allies and 
trading partners, and we also have new and evolving relationships 
with other countries.  It seems logical to me that not every foreign 
government controlled transaction threatens our national security, 
and not every one requires the same level of scrutiny.
        While the bill also establishes some new reporting 
requirements to Congress that I applaud, I am troubled by the 
appointment of the Secretary of Homeland Security as the 
permanent Vice-Chair of CFIUS.  It is not clear to me why the 
newest member of the CFIUS process is better suited to evaluate 
the nature of these transactions than an agency, such as Commerce, 
that has been involved since the beginning.
        As we move to mark up the bill in Committee, I look forward 
to a discussion of these issues with the witnesses, and any 
suggestions they may have to improve the bill.
        Thank you, and I yield back.

        MR. STEARNS.  I thank the distinguished Chairman.  
        Mr. Terry?  No opening statement?  Mr. Murphy.  
        MR. MURPHY.  I will waive, too.  Thank you. 
        MR. STEARNS.  Thank you.  With that, we have introduced you 
and Mr. Castellani, you are welcome to begin.

STATEMENTS OF JOHN CASTELLANI, PRESIDENT, BUSINESS ROUNDTABLE; CALMAN J. 
COHEN, PRESIDENT, EMERGENCY COMMITTEE ON AMERICAN TRADE; DOUGLAS HOLTZ-EAKIN, 
DIRECTOR, MAURICE R. GREENBERG CENTER FOR GEOECONOMIC STUDIES, COUNCIL ON 
FOREIGN RELATIONS; AND THE HON. PATRICK MULLOY, COMMISSIONER, UNITED STATES-CHINA ECONOMIC AND SECURITY REVIEW COMMISSION  

        MR. CASTELLANI.  Thank you, Mr. Chairman.  Thank you for 
giving me the opportunity to testify before you today to discuss the 
Committee on Foreign Investment in the United States, CFIUS, 
and express our support for H.R. 5337, the National Security 
Foreign Investment Reform and Strength and Transparency Act of 
2006.  
        With your permission, I would like my written statement to be 
included in the record. 
        MR. STEARNS.  By unanimous consent so ordered.  
        MR. CASTELLANI.  As chief security officers of major U.S. 
companies, Business Roundtable members recognize the need to 
protect national security; in fact, protection of national security is 
paramount.  But we also know firsthand the critical importance of 
foreign investment.  As your committee considers the CFIUS 
legislation, we encourage you to recognize these are not 
incompatible goals, and the proposal to reform the process needs to 
be balanced and constructive so that they do not place unnecessary 
damaging and counterproductive restrictions on foreign 
investment. 
        I would like to focus my remarks today on three topics.  First, 
how important foreign investment is to the U.S. economy; second, 
the three central principles we believe should guide your thinking 
about the CFIUS process and the reform; and third, why we 
support this legislation.  
        Foreign investment in the U.S. is essential to continued 
viability of the American economy.  In 2004, investors invested 
more than $115 billion in the United States, providing U.S. 
companies and workers with important capital for expansion of 
U.S. production facilities, increased research and development 
spending, and other investments to help grow the U.S. economy.  
This data demonstrates that if foreign companies were to spend 
less in America as a result of perceptions that the U.S. no longer 
welcomes foreign investment, reduced investment would harm 
U.S. economic growth, choke innovation, and undermine our 
overall economic competitiveness in today's global economy, just 
as significantly losing foreign investment to our overseas 
competition would cost American workers good jobs.  
        Foreign companies with operations in the United States support 
5.3 million American jobs spread out over all 50 States.  Just like 
the foreign competitors, U.S. companies make significant 
investments in other countries in order to expand their markets and 
establish worldwide production and distribution networks in the 
ongoing struggle to maintain their international competitiveness.  
        U.S.-owned foreign assets total about $9 trillion, and while 90 
percent of U.S. companies' investments on an annual basis are 
made in the United States, the fact is we invest considerably more 
in foreign companies than they do in ours.  
        It is, therefore, important to recognize that burdensome or 
discriminatory barriers to foreign investors in the United States 
will jeopardize U.S. investment overseas by inviting retaliatory 
treatment against American investors.  Given the importance of the 
foreign investment to the U.S. economy, we believe the legislative 
process to reform CFIUS should be guided by three central 
principles.  First, national security should continue to be the 
principal focus of the foreign investment review process.  Second, 
the review process should continue to be objective, fair, and 
nonpolitical.  It should not create obstacles to investments that put 
a damper on legitimate business activities; and third, maintaining 
an open, fair, and nondiscriminatory environment for legitimate 
foreign investment is important for national interests.  
        Looking ahead after 18 years of operations, we understand why 
Congress sees a need to fine tune the CFIUS review process to 
restore the confidence of Congress and the American public.  
While we know the CFIUS process to be rigorous, there is room 
for improvement and that is why Business Roundtable supports the 
general consensus in Congress that the CFIUS process should be 
refined through measures that increase transparency, establish 
greater accountability, and above all, enhance national security, but 
do not stifle legitimate foreign investment in economic growth.  
        The CFIUS process in the House hass proceeded in a deliberate 
bipartisan manner that strikes an appropriate balance between 
safeguarding our national security and protecting job creating 
foreign investment.  We believe, along with many in the business 
community, that H.R. 5337 is generally consistent with the three 
principles that I have highlighted.  
        It keeps national security as a principal focus of the foreign 
investment review process and strengthens the national security 
tools used in that process, all without putting a damper on foreign 
investment that is critical to our economic growth and job creation.  
        H.R. 5337 also reforms the CFIUS process in an objective, 
fair-minded, nonpolitical matter without adding nonregulatory 
matters or delays that would curtail foreign investment that is 
critical to the U.S. economy.  
        Mr. Chairman, let me close by reiterating the real threats to the 
U.S. national security must be tackled with purpose and resolve.  
        No business deal is worth jeopardizing the safety of the 
American people.  But at the same time, challenges to U.S. 
economic success must be met with a similar commitment to 
global leadership in engaging in open markets that have 
contributed to increasing national and global prosperity.  
        Thank you for the opportunity to appear before the committee, 
and I look forward to your questions. 
        MR. STEARNS.  Thank you. 
        [The prepared statement of John Castellani follows:] 

PREPARED STATEMENT OF JOHN CASTELLANI, PRESIDENT, BUSINESS ROUNDTABLE

        Thank you for giving me the opportunity to appear before you 
today to discuss with you the Committee on Foreign Investment in 
the United States (CFIUS) and express our support for HR 5337, 
the "National Security Foreign Investment Reform and 
Strengthened Transparency Act of 2006."  I am here as President 
of the Business Roundtable, an association of chief executive 
officers of approximately 160 leading U.S. companies with over 
$4.5 trillion in annual revenues and more than 10 million 
employees.  
        As CEOs of major U.S. companies, Business Roundtable 
members know firsthand the critical importance of foreign 
investment, in particular foreign investment in the United States, 
which supports over 5 million American jobs.  The Business 
Roundtable also recognizes that protecting national security is 
paramount.  If an acquisition of a U.S. company would impair 
national security, the President should not hesitate to exercise his 
authority to block any such deal or insist on conditions that will 
adequately and effectively protect our national security.
        As your Committee considers the CFIUS legislation, we urge 
you to recognize that protecting national security and foreign 
investment are not incompatible goals, and that proposals to reform 
the CFIUS process need to be balanced and constructive so that 
they do not place unnecessary, damaging and counterproductive 
restrictions on foreign investment.  
        I would like to focus my remarks today on three topics: First, 
how important foreign investment is to the U.S. economy; second, 
the three central principles we believe should guide your thinking 
about the CFIUS process and its reform; and, third, why the 
Business Roundtable supports H.R. 5337.

FOREIGN INVESTMENT IN THE U.S. ECONOMY
        First, foreign investment in the United States is essential to the 
continued vitality of the American economy.  In 2004, foreign 
investors invested more than $115 billion in the United States, 
providing U.S. companies and workers with important capital for 
expansion of U.S. production facilities, increased R&D spending, 
and other investments to help grow the U.S. economy.  U.S. 
subsidiaries of foreign companies spent about $30 billion in R&D 
and accounted for 21 percent of total U.S. exports in 2003.  Nearly 
20 percent of U.S. manufacturing GDP is attributable to 
subsidiaries of foreign firms.  Indeed, the very presence of such 
companies in the United States sets into motion a multiplier effect 
that parcels out benefits-including tax revenue-throughout local 
and national economies felt by all Americans, including small 
businesses. 
        This data demonstrates that if foreign companies were to spend 
less in America as a result of perceptions that the United States no 
longer welcomes foreign investment, reduced investment would 
harm U.S. economic growth, choke innovation, and undermine our 
overall economic competitiveness in today's global economy.
        Just as significantly, losing foreign investment to our overseas 
competition would cost American workers good jobs.  Foreign 
companies with operations in the United States support nearly 5.3 
million American jobs spread throughout all 50 states.  Put 
differently, almost 5 percent of Americans working in the private 
sector are employed by foreign companies.  These U.S. workers 
receive compensation totaling $318 billion annually, with an 
average annual compensation of over $60,000 (which is over 34 
percent higher than compensation at all U.S. companies), and their 
ranks are growing rapidly.  Over 90 percent of these investments 
come from friendly countries belonging to the Organization for 
Economic Cooperation and Development and only 2 percent 
involve firms that own assets that are owned or controlled by 
foreign governments.  
        Besides putting good-paying American jobs at risk, restricting 
foreign investment in the United States would harm U.S. investors' 
stock portfolio.  For example, cell phone manufacturer Nokia may 
be headquartered in Helsinki, but 40 percent of its shares are 
owned in America.  Broad restrictions on ownership of U.S. assets 
would harm U.S. pensions, mutual funds, and investors through 
falling stock prices and lower investment returns.
        Foreign investment is also vital to the success of our capital 
markets, which provide the "seed corn" essential to the creation of 
new businesses, innovations, and ideas.  Our growing economy 
and robust capital markets attract more foreign investment than 
any other single country: from $185 billion in 1985 to more than 
$1.5 trillion today.  Shut off that spigot and our mighty economic 
engine will sputter.
        Just like foreign companies, numerous U.S. firms make 
significant foreign investments in other countries in order to 
expand their markets and establish worldwide production and 
distribution networks in the ongoing struggle to maintain their 
international competitiveness.  U.S.-owned foreign assets total 
about $9 trillion.  While nearly 90 percent of U.S. company 
investments on an annual basis are made in the United States, the 
fact is we invest considerably more in foreign countries than they 
do in ours.  Given the U.S. business community's global reach and 
increasing dependence on foreign markets and foreign earnings, 
U.S. companies rightly fear the prospect of confronting an anti-
investment, anti-U.S. business backlash in important markets 
outside the United States.
        It is therefore important to recognize that burdensome or 
discriminatory barriers to foreign investment in the United States 
will jeopardize U.S. investments overseas by inviting retaliatory 
treatment against American investors.  Already, some of our 
trading partners are now considering legislation to place new limits 
on foreign investment.  For example, Mexico is contemplating 
restrictions on foreign investment related to infrastructure projects.  
Other countries, including China, France, and India, have taken 
similar types of steps to restrict investment in a number of 
important sectors, and are prepared to use any restrictive U.S. 
legislation as a ready excuse to implement protectionist measures.
        In addition to causing harm to U.S. businesses and workers, as 
well as the overall American economy, any retaliatory measures to 
curtail U.S. ownership of "critical infrastructure" overseas would 
undermine U.S. national security by limiting our access to energy 
and critical mineral resources.  For example, the United States 
imports about 58 percent of its oil today (compared to 33 percent 
in 1973).  By 2020, that figure could jump to 70 percent.  Yet, U.S. 
proposals to restrict foreign ownership of "critical infrastructure" 
unrelated to national security provide a pretext for countries with 
strategic natural resources to impose their own restrictions on U.S. 
companies investing overseas.  

PRINCIPLES FOR CFIUS REFORM
        Given the importance of foreign investment to the U.S. 
economy, we believe the legislative process to reform CFIUS 
should be guided by three central principles: 
	 National security should continue to be the principal focus 
of the foreign investment review process.
	 The CFIUS process should continue to be objective and 
fair, and non-political; it should not create obstacles to 
investment that put a damper on legitimate business 
activities.  
	 Maintaining an open, fair, and non-discriminatory 
investment environment for legitimate foreign investment 
is important to the U.S. national interest.
I will briefly talk about each of these main principles and then 
conclude by discussing why HR 5337 is a tough, effective bill that 
is consistent with these ideas.

First, national security should continue to be the principal 
focus of the foreign investment review process.  
        At the outset, it is important to recognize there is no 
inconsistency between our national security and investment in the 
United States by overseas companies.  Foreign investment is an 
important contributor to a strong U.S. economy, which is vital to 
our security.  Our nation cannot be secure unless our economy 
continues to be strong and vibrant. In many instances, foreign 
investment helps modernize U.S. infrastructure needed to improve 
the international competitiveness of U.S.-based companies and 
their workers and to protect our national and homeland security.
        The existing national security factors in the CFIUS process are 
sufficiently broad enough to cover threats to American security 
that have evolved in recent years, and to continue to do so as 
technology and global politics change.  One of the strengths of the 
current law is its flexibility to adjust with the times: The Internet 
was barely known in 1988 when the law was written, but CFIUS 
now reviews most cross-border telecom transactions because the 
Internet backbone is part of critical communications infrastructure. 
        Attempts to redefine national security by, for example, 
identifying specific sectors or including economic factors would 
only have the unintended adverse consequence of discouraging 
legitimate foreign investment.  Such efforts are often misguided 
attempts at protectionism masquerading as national security policy.  
        Moreover, proposals that introduce political or economic 
considerations unrelated to national security into the CFIUS 
process would divert scarce government resources away from 
keeping America safe, the principal focus of the CFIUS process.  
Such measures would also provide competitors opportunities to 
interfere with transactions for reasons that have nothing to do with 
national security.

Second, the review process should continue to be objective and 
fair, and non-political; it should not create obstacles to 
investment that put a damper on legitimate business activities.  
        We understand that an improved relationship with the 
Executive Branch is needed to ensure that the Congress can 
effectively fulfill its responsibility to oversee the operation of the 
CFIUS process.  
        We also believe that the CFIUS process should be rigorous, 
thorough, and comprehensive in order to fully and properly protect 
national security.  However, if it is allowed to become unduly 
political or burdensome, the CFIUS process will deter foreign 
investors from making legitimate investments that are vital to the 
U.S. economy.  For example, establishing unprecedented 
Congressional reporting requirements on a case-by-case basis 
would be especially counterproductive because it invites 
politicization of the CFIUS process.  Such measures would 
introduce regulatory uncertainty that would chill foreign 
investment in the United States, diminish the value of U.S. assets, 
and adversely effect U.S. economic growth.
        At the same time, reform measures ought not to threaten the 
confidentiality of sensitive business proprietary information.  
Submission of all relevant information by companies to CFIUS 
allows it to conduct complete and timely reviews and 
investigations of transactions.  A system that does not guarantee 
confidential treatment of business proprietary information will 
undermine the entire process and risks the unintended consequence 
of discouraging companies from making investments in the United 
States.  

Third, maintaining an open, fair and non-discriminatory 
environment for legitimate 
foreign investment is important to the U.S. national interest.  
        As discussed above, foreign investors provide U.S. companies 
and workers with millions of quality jobs at high wages, important 
capital for expansion of U.S. production facilities, increased R&D 
spending, and other investments to help grow the U.S. economy.  
If the Congress were to adopt excessive changes to the CFIUS 
process, there is a significant risk that such changes would 
discourage legitimate foreign investment in the United States and 
encourage other countries to discriminate against U.S. companies 
investing overseas. 

H.R. 5337, "NATIONAL SECURITY FOREIGN INVESTMENT REFORM AND STRENGTHENED 
TRANSPARENCY ACT OF 2006" 
        Looking ahead, after eighteen years of operation, we 
understand why Congress sees a need to fine-tune the CFIUS 
review process to restore the confidence of Congress and the 
American public.  While we know the CFIUS process to be 
extremely rigorous, there is room for improvement.  That is why 
the Business Roundtable supports the general consensus in 
Congress that the CFIUS process should be refined through 
measures that increase transparency, establish greater 
accountability, and above all enhance national security, but do not 
stifle legitimate foreign investment and U.S. economic growth.
        The CFIUS reform process in the House has to date proceeded 
in a deliberative and bipartisan manner that strikes an appropriate 
balance between safeguarding our national security and protecting 
job-creating foreign investment.
        H.R. 5337 is generally consistent with the three general 
principles I have discussed today.  It keeps national security as the 
principal focus of the foreign investment review process without 
putting a damper on foreign investment that is critical to U.S. 
economic growth and job creation.  H.R. 5337 also reforms the 
CFIUS process in an objective, fair-minded, and non-political 
manner without adding unnecessary regulatory burdens that will 
curtail foreign investment that is critical to the U.S. economy.
        The bill takes a number of important steps to protect against 
foreign acquisitions that could threaten national security:
	 It ensures that foreign government owned investors will be 
required to go through an investigation.
	 It provides CFIUS with the ability to extend the 
investigation period if security issues are not resolved, 
while at the same time authorizing greater investigative 
authority.  
	 It strengthens transparency and achieves greater 
accountability by requiring CFIUS to collect and share 
more data, on an aggregate basis, through reports to the 
Congress, without creating burdensome notice and 
reporting requirements that would risk politicization of the 
process or leakage of business proprietary data. 
	 It retains needed flexibility by permitting CFIUS to 
negotiate mitigation agreements, but also requires 
improved monitoring of those agreements, and authorizes 
CFIUS to reconsider previously approved transactions if 
security agreements are materially breached.  
	 It creates a clear statutory role for the Director of 
National Intelligence to review proposed acquisitions and furnish 
relevant information and analysis.
These measures represent significant substantive and procedural 
enhancements to the existing national security review process.  
        Mr. Chairman, as the Committee participates in CFIUS reform, 
let me close by reiterating that real threats to U.S. national security 
must be tackled with purpose and resolve-no business deal is 
worth jeopardizing the safety of the American people.  But at the 
same time, challenges to U.S. economic success must be met with 
a similar commitment to global leadership and engagement in 
opening markets that has contributed to increasing national and 
global prosperity.  
        National security and open economic policies that promote 
growth go hand-in-hand.  Indeed, an important aspect of protecting 
national security is open economic policies, including investment 
policies, which can help generate wealth, ideas, and innovations to 
meet our national security requirements.  We look forward to 
continuing our work with Congress to reform the CFIUS process in 
ways that both strengthen national security and promote foreign 
investment. 
        Thank you for the opportunity to appear before the Committee.  
I look forward to your questions.

        MR. STEARNS.  Mr. Cohen.
        MR. COHEN.  Thank you, Mr. Chairman.  I welcome the 
opportunity to appear before you today to express support for 
H.R. 5337 on behalf of the Emergency Committee for American 
Trade, ECAT.  ECAT is an association of chief executives of 
major American companies with global operations who represent 
all principal sectors of the U.S. economy.  
        All too often, the recent debate over the effort to reform CFIUS 
foreign investment review process poses a false choice, the choice 
between preserving national security and welcoming foreign 
investment.  In fact, the United States national security is 
strengthened, as the Chairman has pointed out, by promoting a 
vibrant economy, and economic growth here at home and abroad, 
which, in turn, is fostered by foreign investment into the United 
States as well as U.S. investment abroad.  
        Foreign investment inflows into the United States are a major 
source of U.S. economic growth as is U.S. investment abroad.  
Continued foreign investment in the United States and its corollary 
U.S. investment abroad require policies that support and protect 
foreign investment.  CFIUS plays an important role in ensuring 
that the United States continues to welcome investment and its 
reform makes sense to ensure a credible objective and strong 
process focused on national security.  
        ECAT and several other major business associations have laid 
out a number of key principles that we believe need to be achieved 
through the CFIUS reform process, ensuring that the security 
review process is objective, focused on national security issues 
promoting the full use of sensitive and classified information while 
protecting confidentiality, operating on a case-by-case basis and 
remaining sufficiently flexible to cover new national security 
issues, operating in a timely manner and not serving as a substitute 
for other more targeted and effective tools to protect national 
security.  
        I would now like to turn to H.R. 5337.  Overall, it would 
establish a strong, firm framework for CFIUS to review, make 
decisions, and notify Congress on the national security 
implications of foreign investments in a way that emphasizes an 
objective, timely, and fact-based process that promotes national 
security objectives while promoting continuing support for 
investment here in the United States.  
        It would enhance the credibility of the review process by 
codifying and strengthening CFIUS, including intelligence 
reviews.  It would improve attracting insurance agreements and 
withdrawn agreements.  It would enhance the Congressional 
notification process and it would maintain an objective and time-
limited process, and it would ensure the confidentiality of 
proprietary information.  
        Improvements are possible in any piece of legislation, and 
ECAT very much welcomes the work by the Committee on 
Financial Services to improve several aspects of this legislation.  
At the same time, it is critical to avoid proposals that would 
undermine rather than enhance the national security review 
process.  
        In particular, efforts should continue to avoid proposals that 
would overwhelm the process by expanding its scope beyond 
national security, effectively downgrade the use of sensitive, 
classified, and business confidential information to per se 
judgments on mandatory tests, politicize the process, or chill 
foreign investment.  
        Congressman Stearns, Mr. Chairman, you had asked one 
question about the possibility of rotation of the chairmanship of 
CFIUS, and I did want to respond to that in my opening statement 
in the time remaining.  
        And it is to point out as we look at it, the chair of the CFIUS 
process serves basically a secretariat function.  And it is designed 
to allow each of the agencies that serves on the CFIUS committee 
to make individual contributions to the review process.  Indeed, 
one of the areas where perhaps we can go to what you were 
emphasizing, that is the role of particular agencies, is with 
assurance agreements and mitigation agreements, which are often 
entered into by the chair or the vice chair.  However, it is 
structured and can point to a particular member of the committee 
to follow a particular transaction making particular use of the 
expertise of that agency in the sense that that agency may best be 
able to follow a particular transaction.  
        We are basically agnostic with regards to the chairmanship.  
We think the chairmanship with Treasury has worked just fine.  
But again, I point out as we read it, it is basically a secretariat 
function as opposed to a function that actually decides the outcome 
of the review process.  
        With that comment, let me conclude my opening comments 
and say that I very much appreciate the opportunity to appear 
before the committee, and I look forward to your questions.  Thank 
you.
        MR. STEARNS.  Thank you. 
        [The prepared statement of Calman J. Cohen follows:] 

PREPARED STATEMENT OF CALMAN J. COHEN, PRESIDENT, 
EMERGENCY COMMITTEE O AMERICAN TRADE

 The United States' national security is strengthened by 
promoting a vibrant economy and economic growth here at 
home and abroad, which in turn are fostered by foreign 
investment into the United States, as well as U.S. 
investment abroad.  Foreign investment inflows into the 
United States are a major source of U.S. economic growth, 
as is U.S. investment abroad.  Continued foreign 
investment in the United States and its corollary, U.S. 
investment abroad, require policies that support and protect 
foreign investment.  
 CFIUS plays an important role in ensuring that the United 
States continues to welcome investment and its reform 
makes sense to ensure a credible, objective and strong 
process focused on national security.  ECAT and several 
other major business associations have laid out a number of 
key principles that need to be achieved through the CFIUS 
reform process.
 In particular, reform must ensure that limited CFIUS 
resources are directed at potential transactions that raise 
national security issues, rather than diverting resources to 
mandatory investigations, regardless of any national 
security nexus.   It must also consider potential changes to 
the U.S. national security review process in light of how 
such an altered process would impact U.S. investors abroad 
if similar changes were adopted by foreign governments.  
 Overall, H.R. 5337 would establish a strong framework for 
CFIUS to review, make decisions and notify Congress on 
the national security implications of foreign investments in 
a way that emphasizes an objective, timely and fact-based 
process that promotes national security objectives, while 
promoting continued support for investment here in the 
United States.
 Improvements are possible in a few areas, but efforts must 
be made to avoid proposals that would overwhelm the 
CFIUS process; effectively downgrade the use of sensitive, 
classified and business confidential through per se 
judgments, politicize the process or chill foreign 
investment.

        Mr. Chairman, Congresswoman Schakowsky, Members of the 
Committee, I welcome the opportunity to appear before you today 
to express support for H.R. 5337, the Reform of National Security 
Reviews of Foreign Direct Investments Act, of 2006, on behalf of 
the Emergency Committee for American Trade (ECAT).  ECAT is 
an association of the chief executives of major American 
companies with global operations who represent all principal 
sectors of the U.S. economy.   ECAT was founded more than three 
decades ago to promote economic growth through expansionary 
trade and investment policies.  Today, the annual sales of ECAT 
companies total nearly $2.4 trillion, and the companies employ 
approximately five and a half million persons.

Global Investment and U.S. National Security
        All too often, the recent debate over the effort to reform the 
foreign investment review process of the Committee on Foreign 
Investment in the United States (CFIUS) poses a false choice - the 
choice between preserving national security and welcoming 
foreign investment.  In fact, the United States' national security is 
strengthened by promoting a vibrant economy and economic 
growth here at home and abroad, which in turn are fostered by 
foreign investment into the United States, as well as U.S. 
investment abroad.  
        Foreign investment inflows into the United States are a major 
source of U.S. economic growth.  Foreign investment in the United 
States promotes U.S. exports, economic and employment 
opportunities and productivity.  Based on the most recent data 
from the Bureau of Economic Analysis, majority-owned U.S. 
affiliates of foreign companies with operations in the United States 
employed 5.4 million U.S. workers, accounting for nearly five 
percent of total U.S. employment in private industries. 
        U.S. foreign investment outflows are also critically important to 
supporting growth in the U.S. and global economies.  Over the past 
20 years, U.S. companies that invest abroad have:
	 exported more (accounting for one-half to three-quarters of 
all U.S. exports)
	 expended more on U.S. research and development and 
physical capital investments, and
	 paid their U.S. workers more
than companies not engaged globally.  Foreign affiliate sales of 
U.S. companies invested abroad amount to approximately $2 
trillion, which help to support jobs and business activities in the 
United States.  More than 70 percent of the profits earned by such 
affiliates are returned to the United States.  Moreover, U.S. 
investment abroad is essential to supporting access to natural 
resources, as well as the economic growth in foreign countries that 
is very important, albeit not sufficient, to support stability 
overseas.  In short, U.S. foreign investment is critical for 
supporting U.S. economic growth and a higher standard of living 
here in the United States and abroad.  
        Continued foreign investment in the United States and its 
corollary, U.S. investment abroad, require policies that support and 
protect foreign investment.  
	
Importance of a Strong, Credible, Objective and National-
Security-Focused Review Process
        CFIUS plays an important role in ensuring that the United 
States continues to welcome investment, and its reform makes 
sense to ensure a credible, objective and strong process focused on 
national security.  As enunciated by ECAT and several other 
leading business organizations in March 2006, there are a number 
of key principles to maintain in reforming and improving the 
CFIUS process, including ensuring that the national security 
review process is:
	 Objective, fact-based and analytically rigorous.  
	 Focused on national security issues.
	 Promoting the full use of sensitive and classified 
information, while protecting the confidential information 
of the parties from public disclosure.
	 Operating on a case-by-case basis and remaining 
sufficiently flexible to cover new national security issues as 
they arise.
	 Operating in a timely manner.
	 Not a substitute for other more targeted and effective tools 
to protect U.S. national security.  

        I would like to highlight two key issues.  The first is the need 
to ensure that limited CFIUS resources are directed at potential 
transactions that raise national security issues.  To do otherwise, 
could overwhelm the CFIUS process, diverting resources from the 
transactions that require the most attention.  Requiring mandatory 
investigations of certain types of transactions, regardless of any 
potential national security issues raised, simply does not guarantee 
greater protection for national security; in fact it may lead to the 
opposite result.
        The second is to consider potential changes to the U.S. national 
security review process in light of how such an altered process 
would impact U.S. investors abroad if similar changes were 
adopted by foreign governments.  Indeed, foreign governments are 
very closely monitoring Congressional action on CFIUS.  Changes 
that would politicize the process or move beyond a national-
security-focused review may encourage other countries to adopt 
similar provisions and deny U.S. companies access to key 
investment areas that are important for our economy, from 
resources to infrastructure to key service sectors.
        The full set of principles is appended to my testimony.  

H.R. 5337 Makes Important Reforms to Improve the CFIUS 
Process 
        ECAT believes that H.R. 5337 makes important improvements 
to the CFIUS process in ways that reflect the principles described 
above.  In particular, H.R. 5337 would:
	 Strengthen the CFIUS process and enhance its credibility 
by providing greater clarity to its role and operation.  
	 Improve the integrity of the process by ensuring 
intelligence and other information is fully considered.
	 Enhance the role of the Director of National Intelligence 
and the ability of CFIUS to review intelligence reports.
	 Improve CFIUS' oversight by requiring reviews and 
monitoring of mitigation and assurance agreements, as well 
as of transactions for which notice has been withdrawn, and 
reconsideration of transactions where there has been a 
breach of the mitigation agreement.
	 Ensure time-limited, fact-based and objective reviews of 
notified transactions.
	 Improve the protection of confidential and proprietary 
information.
	 Enhance the Congressional notification system.

        Overall, H.R. 5337 would establish a strong framework for 
CFIUS to review, make decisions and notify Congress on the 
national security implications of foreign investments.  ECAT 
welcomes the work of all of the bill's sponsors in carefully crafting 
this legislation in a way that emphasizes an objective, timely and 
fact-based process that promotes national security objectives, while 
promoting continued support for investment here in the United 
States.  In so doing, H.R. 5337 would support the open investment 
climate that the United States has long fostered and set a positive 
example for foreign governments that have or may institute their 
own investment reviews, which is important for U.S. companies 
that invest abroad to the benefit of the United States. 
        Improvements are always possible in any piece of legislation.  
To that end, ECAT welcomes the work done by the Committee on 
Financial Services to improve several aspects of this legislation 
and looks forward to working with you and your colleagues in the 
House and the Senate in support of the strongest possible 
legislation.  Areas where additional work could be beneficial 
include:  
	 Enhancing the case-by-case analysis, rather than requiring 
mandatory investigations for certain types of acquisitions.  
Alternatively, where investigations are mandated, it should 
be clarified that the investigation should begin immediately 
and not wait for a distinct review process. 
	 Avoiding transaction-by-transaction notifications that could 
lead to the potential politicization and undermining of the 
process.

        As Congress' review continues, ECAT is concerned by a 
variety of other CFIUS reform proposals that would set back, 
rather than advance, the reform effort represented by H.R. 5337.  
Therefore, ECAT urges that potential modifications to this 
legislation maintain the key improvements incorporated by the 
bill's sponsors and avoid proposals that would: 
	 Overwhelm the CFIUS process.  In particular, proposals 
that would drastically alter or expand the scope of 
mandatory CFIUS investigations, regardless of a national 
security nexus, should be avoided.  Subjecting significant 
numbers of transactions to review and investigation would 
not only waste valuable government resources, it would 
take away the valuable time of government agencies to 
focus on the actual transactions that have potential national 
security implications.  
	 Effectively downgrade the use of sensitive, classified and 
business confidential information in the review process 
through per se judgments based, for example, on 
nationality or the views of persons without sufficient access 
or ability to review such information. 
	 Politicize the process, which potentially would subject U.S. 
investors overseas to subjective, politicized investment 
review processes, resulting in the denial of U.S. 
investments that promote stability, economic growth and 
access to critical resources and infrastructure - harming 
thereby U.S. national security.
	 Chill foreign investment in the United States and deny, as a 
result, significant economic opportunities to Americans 
who benefit substantially from foreign investment in the 
United States.

Conclusion
        I welcome the opportunity to present the views of ECAT today 
with regard to the national security investment review process and, 
in particular, the reforms made by H.R. 5337.  I look forward to 
your questions.

                           BUSINESS ROUNDTABLE
                     COALITION OF SERVICE INDUSTRIES
                 EMERGENCY COMMITTEE FOR AMERICAN TRADE
                  NATIONAL ASSOCIATION OF MANUFACTURERS
                       NATIONAL FOREIGN TRADE COUNCIL
                ORGANIZATION FOR INTERNATIONAL INVESTMENT
                          U.S. CHAMBER OF COMMERCE
                 UNITED STATES COUNCIL FOR INTERNATIONAL 
                                 BUSINESS

                  PRINCIPLES TO GUIDE NATIONAL SECURITY 
                      REVIEWS OF FOREIGN INVESTMENT
                              March 13, 2006

        Presidential authority to review foreign acquisitions in the 
United States, authorized by section 721 of the Defense Production 
Act (the so-called Exon-Florio amendment), represents an 
extremely important tool to protect U.S. national security.  It 
provides wide authority to the President to investigate foreign 
acquisitions, authority delegated to the Committee on Foreign 
Investment in the United States (CFIUS), and to suspend or 
prohibit foreign acquisitions of U.S. companies where the foreign 
entity might take action that threatens U.S. national security.
        Numerous proposals have been made to modify the U.S. 
national security investment review process.  We recognize the 
desire of many in Congress to improve the process.  It is critical, 
however, that the strengths of the current process and other U.S. 
national security priorities not be undermined through hasty and 
ill-conceived reform efforts.  As the Administration and Congress 
consider proposals to reform the Exon-Florio structure, we urge 
that the following principles be used as a guidepost to evaluate all 
proposals.
        Principle 1:  It is appropriate for foreign investment in the 
United States that might affect U.S. national security to be 
subject to special review by the President and Executive Branch 
government agencies that are designated.  The current Executive 
Branch national security review process, chaired by Treasury, 
represents an appropriate mix of security, diplomatic, trade and 
investment agencies, which is critical to ensure that governmental 
officials with needed expertise can examine the potential 
implications of proposed acquisitions and require appropriate 
special conditions as needed.
        Principle 2:  The national security investment review process 
must be objective, fact-based and analytically rigorous.  These 
attributes are critical to ensure that national security interests are 
fully and properly protected - the ultimate purpose of the review 
process.  The review process must include advice of government 
agency experts in the relevant fields. Confidence in the national 
security investment review process will not be strengthened by 
proposals that undermine the objectivity of the current process.  
Furthermore, altering the basic objective process will encourage 
other countries to impose unjustified and unreasonable barriers to 
U.S. investments abroad - investments that support economic 
growth and access to resources and, in turn, U.S. national security.  
Such a result would harm U.S. economic and job growth and 
national security interests. 
        Principle 3:  The national security investment review process 
must be focused on national security issues.  "National security" 
is a broad and flexible term that places no limits on the 
examination of relevant transactions.  It may be counterproductive 
to redefine the scope of the investment review process, which 
actually could limit the issues that the U.S. government can 
review.   It may also encourage other countries to adopt similar 
provisions and deny U.S. companies access to key investment 
areas that are important for our economy, from resources to 
infrastructure to key service sectors. 
        Principle 4:  The national security investment review process 
must promote the full use of sensitive and classified information, 
including protecting the confidential information of the parties 
from public disclosure.  The ability of the U.S. government to 
review fully and make accurate assessments of the national 
security implications of foreign acquisitions requires in many, if 
not all, cases, reliance on sensitive, classified and confidential 
business information.  The ability of the U.S. government to 
continue to make the most effective use of such information must 
not be undermined by requiring public disclosure of sensitive, 
classified or confidential business information. 
        Principle 5:  The national security investment review process 
must operate on a case-by-case basis and be sufficiently flexible 
to cover new national security issues as they arise.  Given the 
complexity and changing nature of national security issues, it 
would be counterproductive to establish a process to promote 
uniform outcomes in all investigations and reviews.  Analyses 
should be focused on the facts of a particular transaction and not be 
focused on fitting transactions in a particular box with a pre-
determined outcome.  In the same way, it is also important for the 
President to maintain sufficient flexibility to deal with changing 
national security concerns. 
        Principle 6:  The national security investment review process 
must operate in a timely manner.   The United States is a major 
destination for foreign investment that is vital to promoting 
productivity, employment and growth in the United States.  Given 
that most foreign investments do not affect in any way U.S. 
national security interests, it is very strongly in the U.S. interest to 
continue to maintain a time-limited process whereby initial 
decisions can be made with further review available where 
warranted.  
        Principle 7:  The national security investment review process 
must not become a substitute for other more targeted and 
effective tools to protect U.S. national security.  While an 
important tool, the national security investment review process is 
by no means the only, or even primary, tool of the U.S. 
government in ensuring national security.  For example, the 
Department of Defense administers an extensive industrial security 
program designed specifically to protect assets critical to the U.S. 
defense infrastructure.   There are also specific programs already in 
place to protect the security of our ports.   The Coast Guard, U.S. 
Customs and Border Protection and other units of the U.S. 
Department of Homeland Security run security at our nation's 
ports and already require all companies, domestic or foreign, to 
abide by security and other regulations.  The U.S. Government 
should use the most effective tool to address specific national 
security concerns. 

        MR. STEARNS.  Mr. Holtz-Eakin.  
        MR. HOLTZ-EAKIN.  Thank you, Mr. Chairman, Ranking 
Member.  I appreciate the chance to be here to talk about the 
CFIUS process and reform in H.R. 5337.  In doing so, I do have a 
written statement I would like to submit for the record.  
        MR. STEARNS.  So ordered.
        MR. HOLTZ-EAKIN.  I want to make clear these views are my 
own.  The Council does not take a position on pending legislation.  
I really want to make just a couple of main points about H.R. 5337, 
which is a good bill, and certainly the best under consideration in 
Congress, in my view.  
        The first is to emphasize that the bill is consistent with the 
notion that national security and economic progress go hand in 
hand and are not at odds with one another.  Certainly business 
transactions require a secure environment in order to take place, 
and there are vivid examples of the contrary around the globe.  
And also, it is essential to have well functioning capital markets to 
do the kinds of investment risk sharing and otherwise promote 
economic growth that the United States has experienced.  
        The U.S. stands out among developed countries for its prowess 
in choosing economic investments that is the route to our superior 
productivity growth that as the result is a foundation of our ability 
to meet all of the national security needs in the future, the large 
military demands on our economy, as well as the private-sector 
and peacetime demands.  So those go hand in hand.  
        As a result, the second main point is that there are pitfalls in 
reforming the CFIUS process.  Among them would be an overly 
broad scope using definitions which were imprecise; economic 
security stands out, and automatic homeland security definition 
which includes critical infrastructure which are wasteful or overly 
intrusive.  These would have both brought security consequences.  
There would be time spent on reviews that were unnecessary.  And 
the possibility would increase that a genuine security chance would 
be missed, and it would appear to the other countries that the 
United States had invoked a procedure of investment screening, 
something that we have a long history of opposing in international 
transactions and that would open the door to retaliation by other 
countries with direct impacts on U.S. interests and damage to our 
overall economic performance. 
        Another pitfall that stands out would be politicalization of the 
reviews.  Keeping politics out, doing it in an open and fact-based 
fashion, focused on national security, I think, is imperative.  
        Those two points, notwithstanding, we do need something like 
CFIUS, and reform of CFIUS is necessary.  
        There will be those transactions, which, while financially 
advantageous, are not desirable from a security point of view.  It is 
important to have a process that identifies and carves those out in a 
targeted fashion and certainly the track record of CFIUS, while it 
might be superb on the substance, fails miserably on transparency 
on communication with the Congress, and as a result, the ability of 
Congress to properly exercise its oversight responsibilities.  
        I think it is also desirable to improve the continuity in the 
CFIUS process, in particular the expertise in tracking of mitigation 
agreements which might have been agreed to in the past.  So there 
is certainly an opening here for improvements on the part of the 
Congress in the CFIUS process.  
        I think this committee is to be commended for taking up the 
issue.  And I think the bill, as it stands, has much improved 
reporting and monitoring of the security agreements.  It has a clear 
designation of CFIUS, which I understand is an area of concern, 
but which does, in fact, make this more transparent to investors 
around the globe, which I think is desirable.  I think it also retains 
some desirable aspects to the process.  The voluntary nature of 
filings is important in keeping the workload appropriately 
balanced, and also the timelines remain tight and will not interfere 
with commercial transactions.  
        I also want to close in responding to the specific questions that 
were raised about the chairmanship and Homeland Security as the 
vice chair.  I would concur with Mr. Cohen in being relatively 
agnostic about the importance of the chairman designation, given 
that it is largely convening power in the way it actually functions, 
with the single caveat that the bill itself now requires sign-off by 
the chair and vice chair and that elevates the importance of who is 
the chair, and I think that is important to recognize.  
        Regarding Homeland Security, I think the bill has it right when 
it talks about Homeland Security and critical infrastructure when it 
emphasizes the national security implications of any transactions 
involving those.  National security should be the focus, not 
Homeland Security per se, and in designation of Homeland 
Security as the vice chair changes the focus, then I think that 
would be an undesirable move.  And I want to close with that.  
        Thank you for the opportunity for being here today. 
        [The prepared statement of Douglas Holtz-Eakin follows:] 

PREPARED STATEMENT OF DOUGLAS HOLTZ-EAKIN, DIRECTOR, 
MAURICE R. GREENBERG CENTER FOR GEOECONOMIC STUDIES, 
COUNCIL ON FOREIGN RELATIONS

        Chairman Sterns, Ranking Member Schakowsky, thank you for 
the opportunity to participate in this hearing on H.R. 5337, the 
"Reform of National Security Reviews of Foreign Direct 
Investments Act."   H.R. 5337 would establish in statute the 
Committee on Foreign Investment in the United States and 
establish procedures "to ensure national security while promoting 
foreign investment."  In my remarks, I want to make clear that I 
am speaking for myself; the Council on Foreign Relations is a non-
partisan think tank that does not take positions on issues.

The Economic and Global Power of the United States 
        Among developed economies, the United States has performed 
uniquely well in the past decade.  The key characteristic of this 
outstanding growth has been a post-1995 acceleration in U.S. 
productivity - that summary measure indicates the ability of an 
economy to produce the same goods more cheaply, generate a 
greater standard of living than in the past from the same people, 
factories, and equipment, and to use innovation to produce 
different and higher-quality goods than in the past.  In short, 
productivity is the single-best summary measure of the overall 
long-term performance of an economy and the United States stands 
out in recent years.
        One ingredient in this recipe for success has been openness to 
global trade in goods, services, and capital.  There is a growing 
body of economic research that documents the beneficial dynamics 
of open trade.  For example, those firms that are engaged in global 
markets are more productive than their domestically-oriented 
counterparts.
        An example of the dynamic benefits of open trade is in 
information technology hardware.  As noted, the United States 
experienced a surge in productivity growth after 1995 (and perhaps 
again recently).  A substantial factor was the increasing 
sophistication of IT hardware.  One version of this story credits 
clever engineers in the selfless pursuit of Moore's law.  But it is 
also the case that IT hardware is among the most global and 
competitive industries, and global markets reward entrepreneurial 
zeal as much as engineering skills.  Moreover, policy supported 
these dynamics.  The Declaration on Trade in Information 
Technology Products (ITA) from the 1996 Singapore Ministerial 
Conference was the foundation for reduced barriers to trade in IT 
hardware.
        A related strength of the United States is its sophisticated, 
deep, and specialized financial markets.  Financial markets are the 
central nervous system of a market economy, serving to collect and 
transmit important information, guide capital to its most productive 
use, and enhance the overall coordination of firms, households, and 
governments.  
        One particular aspect of executing these functions is financing 
mergers and acquisitions (M&A).  These transactions generate 
economic value.  The bids by new owners raise the overall return 
to existing shareholders, generating additional capital market 
funds.  At the same time, new ownership can bid more as a result 
of replacing ineffective management, taking advantage of 
beneficial complementarities ("synergies") with their existing 
business model, or otherwise raising the productivity of the 
purchased firms' capital, technologies, and labor skills.  In short, 
the new firm is more productive than the old - in this way, mergers 
and acquisitions are one manifestation of the role of competitive 
financial markets in efficiently allocating national capital.  
        As capital markets have become global in scope, so has M&A 
(along with "greenfield" investments by U.S. firms abroad and 
overseas investors in the United States).  Currently, U.S. 
subsidiaries of companies based outside the United States have 
over 5 million employees and pay compensation of over $300 
billion each year, or about $60,000 per employee.  The vast bulk of 
these investments have come from countries belonging to the 
Organization for Economic Cooperation and Development 
(OECD, over 90 percent) and a small minority is undertaken by 
firms with government control (2 percent).  
        In short, a strong economy is part of national security and 
open, global capital markets are a cornerstone of our strong 
economic future.  Nevertheless, despite the fact that few cross-
border transactions show risk of affecting security directly and few 
are undertaken by firms with government control, those situations 
do arise (and have arisen) in which security considerations 
overwhelm the financial desirability of a particular transaction.  
Thus, to meet overall objectives, it is essential to pair policies that 
support well-functioning, open capital markets with specific carve-
outs for transactions that pose a security threat.  

Reform of CFIUS
        The topic of today's hearing is reform of the Committee on 
Foreign Investment in the United States (CFIUS) and the process 
by which it accomplishes these needed carve-outs.  As the 
Congress considers revisions to the CFIUS process, it is important 
to recognize that the current system has served the United States 
very well.  To date, CFIUS has to a great extent simultaneously 
supported national security and economic growth.  Thus, there 
would appear to be little merit in a wholesale rethinking of the 
CFIUS process.  Nevertheless, some improvements are possible; 
by what criteria should proposed changes be judged?
        A Targeted Process.  First, CFIUS should be a targeted process 
to identify those transactions that generate a legitimate national 
security concern without excessive and wasteful scrutiny of routine 
transactions.  
        An important aspect of achieving this objective is preserving 
the voluntary nature of CFIUS filings.  At present, participants to 
transactions have excellent incentives to seek CFIUS clearance: a 
safe harbor from future security scrutiny, mitigation or divestiture.  
This system avoids wasteful reviews of routine transactions and 
targets CFIUS efforts on achieving satisfactory reviews and 
investigations of problematic transactions.  H.R. 5337 preserves 
this system.
        Predictability.  Second, the CFIUS process should be 
predictable.  That is, it would be transparent to market participants 
which transactions would merit scrutiny and review and how the 
security impact of the transaction would be evaluated. 
        H.R. 5337 makes some improvements to the CFIUS process in 
this regard.  It clarifies the "rules of the road" by making clear that 
if a transaction involves a foreign-government controlled firm, the 
transaction must be subjected to the investigation process.  In 
addition, an investigation period may be extended by two-thirds 
vote of CFIUS, requires the signature of the Chair and Vice-Chair 
on decisions, and provides support for CFIUS by other agencies.  
        The transparency of the process is improved by designating in 
statute CFIUS member agencies and improving the nature and 
regularity of reporting to Congress.  One issue that arises in this 
regard is the organization of CFIUS in H.R. 5337, particularly the 
designation of Treasury as the Chair and Homeland Security as the 
Vice-Chair.  
        With regard to the former, the contention is sometimes made 
that a "security" agency should lead CFIUS; a reciprocal concern 
being that with Treasury as the Chair the process may have a 
commercial bias at the expense of national security.  This concern 
strikes me as misplaced.  Treasury is a member of the National 
Security Council, takes a lead role in the battle against terrorism, 
and otherwise has functions that mirror those of traditional security 
agencies.  Moreover, in practice the role of the CFIUS Chair has 
largely been organizational and not operational.  To the extent that 
Congress chose not to designate Treasury as Chair, it may be 
desirable to rotate the convening power among selected agencies.  
This strikes me as having a small cost in transparency, but one that 
Congress may deem to be acceptable.
        H.R. 5337 also designates Homeland Security to be the Vice-
Chair of CFIUS, which raises the larger issue of the role of 
homeland security in national security reviews.  A danger is setting 
a standard for national security that is either overly broad or 
indistinct.  For example, drawing into the standard "critical 
infrastructure" as embodied in homeland security objectives could 
potentially include all transactions in the food supply chain.  
Similarly, definitions that include "economic security" are too 
broad and likely to generate uncertainty regarding investments.  
H.R. 5337 requires CFIUS to consider whether a transaction has a 
security-related impact on critical infrastructure, a specification 
that retains the correct focus - a security-related impact, not 
critical infrastructure per se.
        Put differently, I believe that homeland security should be seen 
as an integral part of the traditional focus on national security and 
not as a separate, new, or elevated consideration.  From this 
perspective, the Department of Homeland Security has operational 
roles that contribute to national security.  The Congress may wish 
to consider whether those roles are sufficiently broad and 
important to designate Homeland Security as the standing Vice-
Chair of CFIUS.
        Confidentiality.  A third criterion is that process would provide 
a high degree of confidentiality to secure proprietary business 
information and national security considerations.  H.R. 5337 seeks 
an appropriate balance between the duty for congressional 
oversight and the importance of confidentiality and streamlined 
transactions.  
        Flexibility.  Fourth, the process should be flexible, providing 
arrangements that permit means to augment security or otherwise 
satisfy these criteria as part of the transaction itself.  H.R. 5337 
retains such flexibility by permitting CFIUS to negotiate mitigation 
agreements flexibly with firms involved in a covered transaction.  
The bill also makes improvements that may serve to build 
expertise and continuity of staff in this important area, by 
establishing tracking compliance with mitigation agreements that 
will accumulate knowledge of successful and unsuccessful 
approaches and by directing $10 million to CFIUS in the next few 
years.  This may prove crucial as press reports indicate that the 
fraction of Treasury time and personnel devoted to the CFIUS 
process has risen dramatically recently.
        Timeliness. The final criterion is that the CFIUS process should 
be as timely as possible. Many observers have expressed support 
for the current timetables, particularly the ability to coordinate with 
(Hart-Scott-Rodino) anti-trust reviews.  H.R. 5337 retains the 30-
day review period, but also properly draws into the CFIUS process 
information from the Director of National Intelligence.  It also 
mandates a 45-day investigation for all foreign-government 
controlled transactions, regardless of whether a genuine security 
risk is present.  These features may require more time, but it is 
desirable to keep mandated extensions to the existing timetables a 
limited as possible.

Larger Issues
        Looking past narrow evaluation of H.R. 5337, the topic of 
CFIUS reform legislation raises the potential for concern.  Over 
time, administrations of both political parties have helped to 
establish a global rules-based system for open investment and free 
trade.  This approach has supported U.S. economic success.  This 
success is put at risk if new procedures are unclear, viewed as 
overly politicized or unnecessarily discriminate against foreign 
investment.  Procedures of this sort would in themselves worsen 
the favorable investment climate.  An even more problematic 
outcome would occur if other countries chose policies that 
provided reciprocal discriminatory treatment against U.S. firms.  
        In this regard, three areas merit attention.  First, it is useful to 
retain a targeted and clear definition of those transactions covered 
by CFIUS, and to focus on operational control of new technologies 
or sensitive locations.  As noted earlier, definitions that include 
more vague references to "economic security" or those that include 
an overly-inclusive concept of "critical infrastructure" would likely 
be detrimental.
        Second, it is useful to keep review and investigation times to 
the minimum necessary to determine the evidence of a genuine 
national security threat.
        Third, it is important to avoid introducing overt political 
considerations into the process.  Indeed, a threshold consideration 
is the degree to which it is desirable to legislate aspects of the 
policy at all.  CFIUS has been successful in part because it was 
appropriately an administrative procedure.  The greater the extent 
of legislated review, report, or decision-making, the greater the 
possibility of detrimental consequences.  H.R. 5337 contains 
detailed reporting requirements on both specific covered 
transactions and CFIUS reviews in general.  While not troubling, a 
further extension of these provisions raises concerns over 
politicization and confidentiality.
        Any lingering perception of politically-driven reviews raises 
the danger that other countries will use recent events in the United 
States as pretext for protectionist rules draped in the guise of 
national security.  For example, press reports indicate that China 
will tighten screening of deals and impose new curbs on foreign 
acquisitions - setting up a ministry-level committee to review 
controlling stakes in strategic industries including steel and the 
manufacturing of equipment for shipbuilding and power 
generation.  Any broader, global trend of this type would directly 
hurt U.S. investments abroad.

Conclusion
        Mr. Chairman, as CFIUS reform is considered by Congress, it 
is important to recognize that it is possible to provide open global 
markets, strong economic growth, and national security.  For the 
most part, these go hand in hand.  For example, the Congressional 
Budget Office projects that over the next decade and one-half, 
current defense plans will require spending an average of $500 
billion (adjusted for inflation), a peak increase of roughly 20 
percent over current levels (adjusted for inflation) and above the 
peak of Cold War spending.  Despite this rise, these plans would 
result in defense spending constituting less than 2.5 percent of 
Gross Domestic Product, well below the postwar peak of 9.5 
percent in 1968.   A key aspect of national security is an economy 
that grows strongly enough to continue to meet the resource 
demands in the private sector, social objectives, and our military 
and other national security needs.
        In those narrow areas where potential tradeoffs between 
economic growth and national security arise, a transparent, 
targeted, disciplined, and confidential process to augment 
economic transactions with security dimensions will serve the 
United States well.
        Thank you for the opportunity to appear before the 
Subcommittee.  I look forward to your questions.

        MR. STEARNS.  Mr. Mulloy.  Welcome.
        MR. MULLOY.  Mr. Chairman--
        MR. STEARNS.  You just need to turn your mic on.
        MR. MULLOY.  Chairman Stearns, Ranking Member 
Schakowsky, I appreciate being invited here to testify.  
        My name is Patrick Mulloy, and I am a member of the U.S.-
China Economic and Security Review Commission, and have been 
since the Commission was created by the Congress in the year 
2000.  
        I also teach international trade law and public international law 
as an adjunct professor at George Mason Law School and at 
Catholic University Law School, and I also serve as the 
Washington representative of the Alfred P. Sloan Foundation.  
        During the period of 1987 and 1988, when the Congress was 
considering the Exon-Florio law, I served as General Counsel of 
the Senate Banking Committee that was involved in every step of 
the process in which we put that provision into the law.  I also was 
very much involved in crafting the 1992 changes that were put into 
the law in 1992 requiring mandatory investigations when there is a 
government-owned foreign corporation, making the purchase and 
also putting the intelligence requirement that you have to have 
these intelligence studies done as to who is buying what and what 
patterns of acquisitions are being made in this country by foreign 
governments. 
        I want to note, Mr. Chairman, that while a member of the 
U.S.-China Economic and Security Review Commission, I am not 
testifying on behalf of the Commission.  I have put into my 
testimony recommendations that the Commission has made 
unanimously in its 2004 report, and by a vote of 11-1, in its 2005 
report about how we should reform the CFIUS.  
        Let me make some general points right off the bat. 
The Founding Fathers, in Article 1, section 8 of the 
Constitution, gave the Congress the power to regulate foreign 
commerce and foreign investment.  Not the executive branch.  In 
Exon-Florio, the Congress gave the executive branch some of its 
authority and then wanted to be able to do oversight of how that 
authority was being carried out.  The Treasury Department, in my 
view, and the way it has chaired the CFIUS, has not provided any 
criteria as to how this grant of authority from the Congress is being 
used.  
        Secondly, foreign acquisitions are the other side of your current 
account deficit.  When we are running massive trade deficits, and 
this year our trade deficit current account will be about $900 
billion, when you have that happening, foreigners have a lot of 
dollars.  They can buy your goods which you are not doing or they 
can buy our assets.  They are coming and they are buying our 
assets.  That is some part of the foreign investment issue.  Warren 
Buffett has said we are like the rich family living on the hill selling 
off parts of our estate to support a lifestyle we are no longer 
earning.  
        That is part of the foreign investment.  We are selling off assets 
to support a lifestyle we are no longer earning.  
        Now, the issue is what do you favor in foreign investment.  I 
don't think that is the real issue.  The real issue is everything in the 
country is up for sale.  I think Congress, when it passed 
Exon-Florio, said no, everything in the country is not up for sale, 
and they established a process by which you could review who is 
buying what in this country.  What we have to understand, too, is 
that other governments, particularly Asian governments, the 
Chinese government, the Japanese government, Korean 
governments, they are much more involved with their companies 
in directing as to what are important technologies for their 
companies to build for their future prosperity.  Dr. Allan Bromley, 
President Bush's first Science Adviser, warned policymakers in 
1991, quote, "Our technology base can be nibbled from us through 
a coherent plan of purchasing entrepreneurial countries."  In 1992, 
we in the Banking Committee, under Senators Sarbanes and 
Connie Mack of Florida, did some hearings to oversee how 
Treasury was handling the Exon-Florio responsibilities.  The head 
of SemiTech, which was the joint government industry consortium, 
made sure that we had some leadership ability in semiconductors 
because they are so important to the national security.  
        Mr. Peter Mills of SemiTech, said "Foreign interests have 
targeted key U.S. technologies and the present CFIUS process or 
its implementation is ineffective in preventing such transaction."  
Mr. Mills also said you have to be aware of the "cumulative effect 
of multiple foreign purchases of U.S. companies."  That is exactly 
why we put into the law in 1992 the idea that the intelligence 
communities should be getting information to understand patterns 
of acquisitions in this country.  
        The Treasury Department did one such report and despite 
mandating the law to do these every 4 years, they were never done 
it again, leaving you and leaving policymakers blind as to these 
patterns of acquisitions.  
        In my testimony, I explain how the Treasury Department has 
mismanaged the CFIUS process.  First, Treasury opposed the 
enactment of Exon-Florio in 1988.  They were going to veto the 
whole trade bill over it, and we worked out a compromise.  They 
did not want the Commerce Department chairing the CFIUS as this 
committee originally reported it.  You guys and the Senate 
Commerce Committee both had commerce chairing the CFIUS 
process.  The Treasury Department opposed that and got the 
Congress to be neutral in the law it passed.  And then they got the 
executive order putting the chairmanship in the Treasury 
Department.  
        They have also ignored specific statutory mandates that the 
Congress put into law in 1992.  And they were caught clear in the 
Dubai Ports deal.  That should have been--it was a 
government-owned corporation.  It should have been reviewed and 
it wasn't.  And that revealed, and I think Chairman Barton spoke 
about the CNOOC.  This committee, I think, passed legislation to 
prevent CNOOC from taking over Unocal.  I think that suggested 
that you guys had no confidence in how the executive branch was 
carrying out its CFIUS responsibilities.  
        Now, very specific recommendations on H.R. 5337, but if I 
could just take the time now, Mr. Chairman, to make one point.  I 
point out that CFIUS reviews are effectively completed before the 
parties to the transaction even file for the review.  This is, let me 
quote, there has been a practice that has developed whereby in the 
words of one knowledgeable private-sector lawyer, and this was in 
a George Mason University Law School publication, this lawyer 
had laid out how this process really works.  She said "in the vast 
majority of cases, the parties reach an agreement with the 
interested agency before notice is filed with the CFIUS committee.  
Before you even start the 30-day clock, they have already worked 
this out, and that is just a cover."  So what that means is that the 
Congress doesn't get any reporting on the criteria and the 
judgments that are being made as to how our national security is 
being protected.  
        I want to note, Mr. Chairman, that I have no claims on any of 
this.  I am speaking only from my experience, and as a matter of 
public interest, and I think this needs a thorough scrubbing.  I have 
made very specific recommendations in my full testimony.  I ask 
that be included.  
        MR. STEARNS.  By unanimous consent.  So ordered. 
        [The prepared statement of Hon. Patrick A. Mulloy follows:] 

PREPARED STATEMENT OF THE HON. PATRICK A. MULLOY, 
COMMISSIONER, UNITED STATES-CHINA ECONOMICS AND 
SECURITY REVIEW COMMISSION

Introduction
        Mr. Chairman, Ranking Member Schakowsky, and Members 
of the Committee, thank you for providing me with this 
opportunity to speak before you today on this crucial issue. 
        My name is Patrick Mulloy and I have been a member of the 
twelve member bipartisan, bicameral United States-China 
Economic and Security Review Commission since it was 
established by the Congress in the year 2000.  The Commission's 
charge from the Congress is, among other things, to examine the 
"national security implications of the bilateral trade and economic 
relationship between the United States and the People's Republic 
of China".  I also teach International Trade Law and Public 
International Law as an Adjunct Professor at the Law Schools of 
Catholic University and George Mason University and serve as the 
Washington representative of the Alfred P. Sloan Foundation.
	During the period of 1987-1988, when the Exon-Florio 
Provision was being considered by the Congress, I served as the 
Senate Banking Committee's General Counsel and was directly 
involved in the negotiations which led to its enactment.  
	I should note that, while a member of the U.S. China Economic 
and Security Review Commission, I am not testifying on its behalf 
and the views I present will be my own.  I will, however, set forth 
the two recommendations the Commission adopted unanimously in 
its 2004 Report on the Exon-Florio/CFIUS matter which is the 
subject of today's hearing, and the four recommendations it 
adopted in its 2005 report by a vote of eleven to one.

CFIUS Established in 1975	
        The Committee on Foreign Investment in the United States 
(CFIUS) was not established by the Exon-Florio Provision in the 
Omnibus Trade Bill of 1988.  The CFIUS, rather, was established 
some years earlier on May, 1975 by President Ford in Executive 
Order 11858.  That order, which created CFIUS and made the 
Secretary of the Treasury its Chairman, charged the Committee to 
"have the primary continuing responsibility within the Executive 
Branch for monitoring the impact of foreign investment in the 
United States, both direct and portfolio, and for coordinating the 
implementation of United States policy in such investment."
	While the Treasury Secretary was given the Chairmanship of 
CFIUS, the Executive Order also gave the Department of 
Commerce a key role, charging it, among other things, to submit 
"appropriate reports, analyses, data and recommendations relating 
to foreign investment in the United States, including 
recommendations as to how information on foreign investment can 
be kept current."
	In 1975, there were concerns about the fact that, because of the 
establishment of OPEC and the spike in oil prices in the 1972-1975 
period, many oil producing countries suddenly had substantial 
amounts of money to buy assets in this country and CFIUS was 
established to help monitor such acquisitions.  I had occasion, 
when I served as an attorney in the Antitrust Division of the Justice 
Department, to attend some meetings of CFIUS in the 1981-1982 
period.  One matter in particular I remember is when the Kuwait 
Petroleum Company wanted to buy the Santa Fe International 
Company. This raised concerns within the Executive Branch 
because apparently Santa Fe had some technologies that U.S. 
authorities did not want transferred in such a merger.  Since the 
President then lacked the authority given to him by the Exon-
Florio Provision in 1988, the Antitrust Division was asked to hold 
up the merger on antitrust grounds. This was done and I believe an 
acceptable solution was negotiated by which the Santa Fe 
Company sold off to a third party some technologies which our 
government did not want transferred to the Kuwait Petroleum 
Company.

Enactment of the Exon-Florio Provision
        In 1987 the leadership of the Congress, troubled by our 
nation's rising trade deficit, decided to craft an Omnibus Trade Bill 
and charged each relevant Committee in the House and Senate to 
craft different portions of such a bill.  Senator Proxmire, then 
Chairman of the Banking Committee, asked the International 
Finance Subcommittee, led by Senators Sarbanes and Heinz, to 
develop the Banking Committee portions of such a bill.  Chairman 
Proxmire asked me as his General Counsel to work closely on the 
process and to keep him informed of developments.  I thus worked 
closely with Senator Sarbanes and was personally involved in the 
development of all facets of the Banking Committee's 
contributions to the Omnibus Bill.
	The Banking Committee on May 19, 1987 marked up and 
ordered to be reported S.1409, the United States Trade 
Enhancement Act of 1987, which dealt with export controls, trade 
promotion, exchange rates, third world debt, the Foreign Corrupt 
Practices Act and better access for U.S. financial institutions to 
foreign markets.  The Committee Report stated: 

        "The cumulative trade deficits of over $500 billion, built up by 
the U.S. since 1982, have made this country the world's largest 
debtor nation and underscore the need of our economy to 
compete internationally."

	The bill reported by the Banking Committee did not have any 
provision giving the President the authority to block certain 
takeovers of U.S. companies by foreign purchasers.  The so-called 
Exon-Florio provision, which contained that authority, appeared in 
the bills reported by the Commerce Committee in the Senate, on 
which Senator Exon served, and the Energy and Commerce 
Committee in the House, where Congressman Florio served.  After 
the Senate Commerce Committee reported the provision, the 
Banking Committee appealed to the Parliamentarian that the 
investment matters covered by its provisions were properly within 
Banking Committee jurisdiction.  The Parliamentarian ruled in 
favor of the Banking Committee and thus the Banking Committee 
took the lead on the provision. It worked very closely with Senator 
Exon and his staff in doing so.
	The various portions of the Omnibus Trade Bill, reported by 
each Senate Committee, were merged into one bill, each Title of 
which was considered sequentially on the Senate floor during the 
summer of 1987.  The House followed a similar procedure and in 
fact passed its bill, H.R. 3, first. This was because the trade bill 
was considered a revenue measure on which the House had to act 
first.  The Senate at the conclusion of its work took up H.R. 3, 
substituted the text of the Senate bill, and asked for a conference 
with the House.  Senate conferees, appointed to deal with the 
Exon-Florio Provision were Senators Sarbanes, Dixon and Heinz 
of the Banking Committee, along with Senators Exon and Danforth 
of the Commerce Committee.
	 Section 905 of the House bill provided that the Secretary of 
Commerce should "determine the effects on national security, 
essential commerce, and economic welfare of mergers, 
acquisitions, joint ventures, licensing and takeovers by or with 
foreign companies which involve U.S. companies engaged in 
interstate commerce."   It also charged the Secretary of Commerce 
(not the Treasury Secretary) to determine whether such takeovers 
would "threaten to impair national security and essential 
commerce."  If such a determination were made by the Secretary 
of Commerce the President would block the transaction unless the 
President determined there was no threat to "national security and 
essential Commerce."  The Senate provision was quite similar and 
said the criterion to block a takeover was "national security or 
essential commerce that relates to national security".
	The Department of the Treasury, then headed by Secretary 
Baker, led the Executive Branch opposition to enactment of the 
Exon-Florio merger review authority. Some contend that both 
protection of its jurisdiction over investment policy and 
championing an open investment policy led to Treasury's 
opposition. Regardless of the reason, the Administration put the 
item on its "veto list" and threatened to veto the whole Omnibus 
Trade bill if the provision stayed in the bill.  At that point I was 
directly involved in negotiations with Treasury officials with the 
objective of making the provision acceptable to the 
Administration.  I advised the Senators for whom I worked what I 
had seen regarding the Kuwait Petroleum Company/Santa Fe 
merger and said it was my belief that the President needed the 
authority given to him by the Exon-Florio Provision. Our Senators 
charged us in our staff negotiations to keep the provision but to try 
to get an agreement acceptable to the Administration.	
        The Treasury was adamant that the term "essential commerce" 
had to come out of the bill because it was not clear what that 
entailed. Conferees agreed to delete those words but added 
language to the statute and the Conference Report stating that the 
term "national security" was not to be narrowly interpreted. To 
make this absolutely clear the statute itself was revised to read:

        "The President or the President's designee may, taking into 
account the requirements of national security, consider among 
other factors
        (1)	domestic production needed for projected national 
defense requirements;
        (2)	the capability and capacity of domestic industries to 
meet national defense requirements, including the 
availability of human resources, products, technology, 
materials and other supplies and services; and
        (3)	the control of domestic industries and commercial 
activities by foreign citizens as it affects the capability 
and capacity of the United States to meet the 
requirements of national security"

A decision also was made to put the provision into law under Title 
VII of the Defense Production Act.  This was done to indicate that 
the Exon-Florio Provision should be interpreted as dealing with the 
broad industrial base issues addressed by that statute rather than 
the narrower national security controls associated with export 
control matters.  The Conference Report on the provision states:

        "The standard of review in the section is "national security".  
The Conferees recognize that the term "national security" is 
not a defined term in the Defense Production Act.  The term 
"national security" is intended to be interpreted broadly 
without limitation to particular industries."

        On August 23, 1988 the Exon-Florio Provision, as modified in the 
Conference, became law as Title VII of the Defense Production 
Act. 

Treasury Charged to Lead New Merger-Review Authority
        On December 27, 1988 President Reagan issued Executive 
Order 12661.  That order amended Executive Order 11858 which 
established the Committee on Foreign Investment in the United 
States and effectively put the President's new authority to review 
and block mergers for national security reasons into the hands of 
the Treasury-chaired CFIUS.  So the Executive Department that 
most strongly opposed the blocking authority ended up chairing 
the Committee charged to implement its provisions. I think that has 
led to the concerns in Congress and elsewhere about the provision 
not being implemented as Congress intended.
	Because it now had the lead for implementing the statute, the 
Treasury Department also took the lead in the notice and comment 
rule-making that developed the regulations under which it would 
be administered. It took the Treasury Department 
almost three years until November 21, 1991 to promulgate the final 
regulations. (56 F.R. 58774-01 (1991)).  Those regulations, not the 
Exon-Florio Provision, established the voluntary system of merger 
and acquisition notification that has been criticized as inadequate 
by many.

1992 Oversight Hearing by Banking Committee
        On June 4, 1992 the Senate Banking Committee's 
Subcommittee on International Finance and Monetary Policy, 
under the leadership of its Chairman, Senator Sarbanes, and 
Ranking Member Mack, held an oversight hearing on the 
implementation of the Exon-Florio Provision.  In opening that 
hearing Senator Sarbanes stated:

        "Of particular interest this morning are the criteria for review 
of Exon-Florio cases that have been developed by the 
Interagency Committee on Foreign Investment in the United 
States, which has been charged by the President with 
responsibility for implementing the statutory provision."

        In his opening statement Senator Mack, who also served on the 
Armed Services Committee, stated:

        "My interest this morning is to better understand how the 
Administration determines the U.S. national security interest 
through the CFIUS process". 

        He then referred to a matter that was then of public concern: the 
acquisition of the Missile Division of the LTV Aerospace and 
Defense Company by Thomson-CSF, a French firm controlled by 
the French Government.  Senator Mack said, "We don't want any 
foreign government to own major U.S. defense contractors."
        In his opening statement, Senator Riegle, the Chairman of the 
full Banking Committee, in his opening statement said:

        "The Administration examines takeovers on an isolated basis 
and is missing the cumulative impact such takeovers are 
having on our technology base.  The President's science 
advisor, Dr. Alan Bromley, has voiced concerns about this 
matter.  He warned policymakers that 'our technology base can 
be nibbled from under us through a coherent plan of 
purchasing entrepreneurial companies'."

        Mr. Peter Mills, the first Chief Administrative Officer of 
SEMATECH, also testified at that June 1992 hearing.   
SEMATECH was a joint DOD/Industry consortium that was 
established in the 1980's to ensure our nation maintained the 
ability to make advanced semiconductor products deemed essential 
to our national defense needs. In that hearing Mr. Mills voiced his 
concerns and frustration about the failure of CFIUS to prevent 
foreign interests from buying U.S. semiconductor equipment and 
materials suppliers.  He told the Committee:

        ".foreign interests have targeted key U.S. technologies and 
the present CFIUS law or its implementation is ineffective in 
preventing these transactions". [Emphasis added]
He also voiced concerns that CFIUS was not considering the 
cumulative effect of multiple foreign purchases of U.S. companies 
and urged that the Chairmanship of CFIUS be moved from the 
Treasury Department to the Commerce Department.

1992 Amendments to Exon-Florio
	Subsequent to that hearing the Congress in 1992 enacted two 
key changes to Section 721 of the Defense Production Act.  First, it 
put into the law a new provision requiring CFIUS to move beyond 
the basic 30-day review period and conduct a 45-day investigation 
in any instance in which an entity controlled by or acting on behalf 
of a foreign government is seeking to acquire of a U.S. entity.  It 
also inserted a provision requiring the President and such agencies 
as the President designates to report to Congress in 1993 and each 
four years thereafter whether any foreign government has a 
coordinated strategy to acquire U.S. companies involved in 
research development or production of critical technologies.  
Congress also to the statute added additional criteria that it for 
consideration during reviews of foreign takeovers.

The Treasury Department Has Failed To Implement 
Congressional Mandates
	In 1994 the Administration submitted to the Congress its first 
report under the required quadrennial report statutory provision of 
the DPA.  It has never submitted another.  The 1994 Report stated 
on page 13:

        "Despite examples of government involvement, the working 
groups did not find credible evidence demonstrating a 
coordinated strategy on the part of foreign governments to 
acquire U.S. companies with critical technologies.  The 
absence of credible evidence demonstrating a coordinated 
strategy, nevertheless, should not be viewed as conclusive 
proof that a coordinated strategy does not exist."

        The Report then went on to say:
	
        "In some cases, however, foreign governments give indirect 
assistance and guidance to domestic firms acquiring U.S. 
companies.  The main methods of government involvement 
include:
	 extending tax credits to promote foreign M & A activity
	 exercising controlling government interest in major firms 
to influence foreign M & A activity, and 
	 identifying technologies that are critical to national 
economic development, and thus prime targets for 
acquisition through M & A's."

        After submitting this one report, the Treasury Department, 
which is charged by Executive Order to implement the 
requirements of Section 721 of the DPA in which the quadrennial 
report mandate is placed, has ignored this requirement of law, and 
no more reports on this most important matter have been submitted 
to the Congress as required by law. This means neither the CFIUS 
nor the Congress has the background information Congress wanted 
both of them to have concerning patterns in takeovers and their 
cumulative effect.
        The Government Accountability Office (GAO) in its 
September 2005 report on the implementation of Exon-Florio, 
notes that 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 (page 3). This means the Treasury 
has effectively read the 45-day mandated investigation of foreign 
government acquisitions of U.S. companies right out of the statute.  
This is exactly the point on which the Treasury's ineffective 
implementation of Exon-Florio was made so absolutely clear 
earlier this year in the Dubai Ports transaction.
        In addition, GAO on page 3 of its September 2005 Report to 
this Committee points out that the Treasury Department as Chair of 
CFIUS has "narrowly defined what constitutes a threat to national 
security."  The GAO tells us Treasury has "limited the definition to 
export controlled technologies or items, classified contracts, or 
specific derogatory intelligence on the foreign company." This 
does not reflect the statutory criteria Congress mandated.  On page 
13 of its report, GAO told us that the Treasury insists that Defense 
Department concerns about foreign acquisitions of integrated 
circuits essential to national defense is an industrial policy concern 
and not a "national security" concern. This flies in the face of the 
statute and legislative history of the Exon-Florio provision of law 
that was deliberately placed in the Defense Production Act to 
indicate Congress did want defense industrial base issues 
considered in Exon-Florio reviews.

The CFIUS Process Needs to be Reformed
        I believe a review of the record demonstrates that the Treasury 
Department opposed the enactment of the Exon-Florio Provision 
and has sought to stymie its effectiveness ever since it was enacted.  
It is in a position to do this as it chairs and staffs the Interagency 
Committee that the President charged to implement the statute. The 
agency is so wedded to its open investment policy that it leans over 
backwards to protect that interest over legitimate national security 
concerns.  Awareness of this fact is one reason many Members of 
Congress had no confidence that the Executive Branch would 
adequately review the 2005 proposed purchase of Unocal the 
Chinese National Overseas Oil Company (CNOOC).  The Dubai 
Ports fiasco made the need for reform of the CFIUS process even 
clearer to all informed observers.
        The China Commission, on which I serve, in its 2004 Report to 
Congress unanimously recommended:
        (1)	that Congress explicitly provide in statute that the term 
"national security" in the Exon-Florio provision 
includes "national economic security"
        (2)	that  the chairmanship of CFIUS be transferred from 
the Treasury Department to the Commerce Department.

        In its 2005 Report the Commission by an eleven to one vote 
recommended:
        (1)	the Exon-Florio provision be amended to require 
CFIUS to provide Congress notice of each proposed 
transaction CFIUS is requested to approve.  In addition, 
CFIUS should be required to report to Congress on the 
disposition of each case it considered.
        (2)	the Exon-Florio provision should be amended to 
specifically require CFIUS to consider economic 
security as well as national security in making 
decisions.
        (3)	Congress urge the President to transfer the 
chairmanship of CFIUS from the Treasury department 
to another of its member agencies.
        (4)	Congress should amend the Exon-Florio provision to 
require post-transaction reviews of CFIUS filings that 
have received full investigations, and that the results of 
these reviews be provided to Congress.

       Under the Constitution, the Congress has the authority to 
regulate Interstate and Foreign Commerce.  Our nation is facing 
new challenges as we find ourselves in a globalized economy 
where other countries have clear national strategies on how to 
compete and raise the standard of living of their people and their 
national power.  We must take such matters into account when 
administering our open investment policy and ensure we not 
sacrifice technologies and industries important to our national 
defense by taking an ideological approach on open investment. 
China over the last ten years has run massive and ever increasing 
trade surpluses with this country. This year alone our bi-lateral 
deficit with China will be well over $200 billion. Its Government 
has acquired almost one trillion dollars by forcing companies 
earning dollars to turn them in for yuan.  Since China does not buy 
very many U.S. made goods in comparison with what we buy from 
China, it can use these dollars earned through trade surpluses to 
buy important U. S. assets and it is now starting to do so.
        Part of the reason we have run these massive trade deficits with 
China is because that country has for a number of years been 
engaged in currency manipulation to keep the yuan undervalued 
against the dollar. This subsidizes Chinese exports here, makes our 
goods more expensive there, and gives our companies incentives to 
move operations to China. The 1988 trade bill gave the Treasury 
Secretary major responsibilities in the exchange rate area. The 
Treasury is charged to identify currency manipulators and to 
persuade them, by bilateral negotiations and efforts in the IMF, to 
halt such practices that are deleterious to the international trading 
system and unfair to American companies and workers. As this 
Committee is well aware the Treasury has failed to carry out its 
responsibilities in that area as well. Its failure there has contributed 
to Chinese trade surpluses and has helped China accumulate vast 
amounts of U.S. dollars.  We will thus soon see a lot more 
proposed takeovers of American companies by Chinese 
companies. We need a serious, functioning, CFIUS process that 
takes account of our national security interests.

My Views on H.R. 5337
	Let me now offer some specific comments on H.R. 5337, the 
bill to reform the CFIUS/Exon-Florio process that was 
unanimously reported out of the Financial Services Committee on 
June 22, 2006.  The bill, while it does not remove the Treasury 
from chairing the CFIUS process as I and the China Commission 
had previously recommended, does make major improvements in 
the present law and process.  I will not focus my testimony on all 
the good things this bill does to ensure greater transparency and 
Congressional oversight to the process, but rather will focus on 
some matters where I believe improvements to the bill can be 
made.
	First - While H.R. 5337 in its definition of "covered 
transactions" does apply its provisions to all foreign purchases of 
U.S. companies, it does not require that the Government receive 
notice of all such purchases.  I believe the Government should 
have some means of gathering information on every purchase by a 
foreign person of a U.S. company even if that transaction is not 
filed for review by CFIUS.  I make this point to ensure that our 
intelligence agencies get information on all purchases of U.S. 
companies so they can analyze the cumulative impact of various 
acquisitions of key technologies and examine patterns of foreign 
acquisitions.  Having such analyses from the intelligence agencies 
can help ensure that our technology base will not, as Dr. Alan 
Bromley, the first President Bush's science advisor, warned, "be 
nibbled from under us through a coherent plan of purchasing 
entrepreneurial companies."  Section 4(b) of H.R. 5337, which is 
entitled "Analysis by Director of National Intelligence," assumes 
that information on every transaction is available to the 
intelligence communities.  That provision charges the Director to 
"expeditiously carry out a thorough analysis of any covered 
transaction" - not just transactions that are filed for review.  The 
Director of National Intelligence cannot carry out this mandate 
unless information on all foreign purchases of U.S. companies is 
made available to the intelligence agencies.
	Second - I believe the test for moving from a 30-day 
investigation to 45-day national security investigation is too strict.  
The bill provides that CFIUS should move from a 30-day review to 
a 45-day investigation if the review "results in a determination that 
the transaction threatens to impair the national security and that 
threat has not been mitigated during or prior to the review of a 
covered transaction."  I believe the provision should be modified 
by substituting "could threaten" for "threatens."  Otherwise the test 
for commencing an investigation the same test for blocking a 
transaction after the conclusion of an investigation.  
	Third - I am concerned that many times CFIUS reviews are 
effectively completed before the parties to a transaction even start 
the CFIUS process by filing a written notice of the transaction to 
the Chairperson of the CFIUS Committee.  This is because a 
practice has developed whereby, in the words of one 
knowledgeable private sector lawyer, "in the vast majority of cases 
the parties reach an agreement with the interested agencies before 
notice is filed with the CFIUS Committee."   This has the effect of 
making the statutory time frame almost meaningless.  It also makes 
the CFIUS process totally non-transparent and makes it very 
difficult for Congress to conduct effective oversight of the process.  
Substantive discussions between the CFIUS agencies and the 
parties to a proposed transaction should not take place until after 
the written notice is filed that formally initiates the review process.
	Fourth - I support the idea of putting the membership of 
CFIUS into law.  I would not however, as H.R. 5337, section 3, 
does, include the "Chairman of the Council of Economic 
Advisors," the "Director of the Office of Management and 
Budget," or "any other designee of the President" in the CFIUS 
membership.  I do not believe the Council or OMB bring much 
national security expertise to the process.  They do bring, in my 
experience, an ideological commitment to not interfering with 
market transactions.  I also think you do not need the open-ended 
"any other designee" as that could pave the way for political 
operatives rather than professional appointees to gain a role in 
making judgments on important national security matters.  

Conclusion
	Thank you very much for inviting me to this hearing.  I have no 
clients other than the public interest on this issue and have never 
been paid by any company or any other party to advise it on 
CFIUS matters.  I am happy to answer any questions.

        MR. STEARNS.  I will start the questions of my colleagues.  
Mr. Mulloy, would you say CFIUS, the bill we have now, will 
improve over existing law?  
        MR. MULLOY.  Yes.  In my testimony, I noted that while the 
bill does not remove Treasury from chairing the process, I do think 
it makes many improvements in existing law. 
        MR. STEARNS.  And you still would want the Department of 
Commerce to chair it rather than Treasury?
        MR. MULLOY.  I think it should be in Congress. 
        MR. STEARNS.  Okay.  As you pointed out that the history of 
this, basically I guess under Gerald Ford, by Executive order, was 
done in 1975, and then in 1988, or you said 1989 the Senator Exon 
and Florio passed this.  But what I hear from you is that Congress 
has acceded its responsibility to the executive branch, and that is 
not good.  And so this bill would be a step forward of us going 
back and under the Constitution doing our responsibility.
        MR. MULLOY.  I agree.  I think this is a vast improvement over 
present law.  There are four changes in the present law that I have 
recommended in my testimony, Mr. Chairman. 
        MR. STEARNS.  Mr. Cohen, I think a lot of us who believe in 
free trade also have some concern about foreign companies owning 
not just sectors in the aerospace industry or semiconductor 
industry, but in areas that systematically could undermine our 
national security.  
        Do you think the way foreign companies apply today under the 
CFIUS review, isn't it voluntary?
        MR. COHEN.  It is indeed.
        MR. STEARNS.  So what happens if they don't apply?  Does the 
deal automatically not go through or can it go through even if they 
don't apply.
        MR. COHEN.  It is a very important question that you ask.  It 
could go through. 
        MR. STEARNS.  Without even them volunteering to?
        MR. COHEN.  But the important point to make is that the 
Government has the power to overturn a transaction. 
        MR. STEARNS.  And who is that government?
        MR. COHEN.  The United States Government, 
        MR. STEARNS.  The executive branch catches it.
        MR. COHEN.  Indeed.  And again it also applies to a transaction 
that is reviewed and is not blocked by the Government and then the 
Government subsequently learns that information that was 
provided was false.  In a material way, it can overturn --
        MR. STEARNS.  Okay. 
        MR. COHEN. --a transaction. 
        MR. STEARNS.  Do you think when you go to review a 
consideration of a foreign investment, that it is true that we should 
take into account Mr. Mallory's comment about this, it is an 
economic issue that could affect national security rather than just 
national security issues?  In other words, is there some tie-in that 
we could lose our economic advantage and they could take over?  
It is not just national security we are talking about here.  We are 
talking about economic advantage.  Is that a component or not?  
        MR. COHEN.  I would have to say national security is the 
broadest concept that we possibly could use as the test for review 
of investment in the United States.  It includes virtually every 
argument and economic security, homeland security, energy 
security, and I think there is a real danger if the legislation moves 
in the direction away from the pure focus on national security.  
Because every time we emphasize one particular area, we send the 
message that other areas are not equally important.  
        And I believe that restricts rather than expands the scope of 
CFIUS.  And therefore, I would say that there is no need to begin 
to specify subsets of areas of national security that need attention.  
I believe all is included.  The other thing I would say with regard 
to this broader issue of economic security, we are beginning, in 
part, from different approaches.  I would say that my friend, 
Mr. Mulloy, that we believe that economic security is, in part, 
promoted by foreign investment in the United States and foreign 
investment abroad.  Nothing should be approved in the United 
States that is a threat to U.S. national security.  However, we are a 
stronger country with a stronger economy, better able to defend 
ourselves and of the resources to defend ourselves because we 
have such a strong economy, which is, in part, generated by 
foreign investment in the United States.
        MR. STEARNS.  Mr. Mulloy, have you ever had an incident 
related to national security involving a foreign-owned company 
operating in the U.S. since this was passed under Gerald Ford and 
then when it passed under the Florio-Exon, was there ever an 
incident related to national security involving a foreign-owned 
company operating in the U.S.?  Yes or no.  
        MR. MULLOY.  Yes.  
        MR. STEARNS.  Yes, there was.  
        MR. MULLOY.  Let me just tell you how many of us knew that 
all of these foreign governments were owning Dubai-type port 
facilities in the United States before the Dubai transaction.  
        MR. STEARNS.  No one knew.  
        MR. MULLOY.  No one knew, right.  And these were 
government-owned corporations.  No one knew.  I think if people 
had known at the time the transactions were going through we 
might have said hold it, is this a good idea?  
        MR. STEARNS.  In fact, after Dubai came out, we found out 
Dubai was already in the United States, right?  
        MR. MULLOY.  May I make one more point, Chairman Stearns?  
Section 4(b) of the bill before you charges the Director of National 
Intelligence to, quote, "expeditiously carry out a thorough analysis 
of any covered transaction."  The bill defines covered transaction 
as "any purchase of an American company by a foreign company."  
But the problem is, you only find out about it if it is noticed.  There 
are probably 6,000 transactions that have taken place since 
Exon-Florio had passed.  You have notice of about 1,800, so there 
are about 4,200 you have no idea who purchased what.  There has 
been no reporting on it.  
        MR. STEARNS.  Do you think some national security has been 
breached because of those 4,200?  You personally.  
        MR. MULLOY.  I personally think, Mr. Chairman, in these days 
with global economic competition directed by foreign governments 
we ought to have information whether--
        MR. STEARNS.  You can't substantively say today because 
these 4,200 were never scrutinized that we have a problem.  Do 
you personally think we have a problem?  
        MR. MULLOY.  I personally think that some of these port deals 
which were never reviewed--
        MR. STEARNS.  You think they affect our national security?  
        MR. MULLOY.  I have concerns, yes, Mr. Chairman.  
        MR. STEARNS.  Do you think this bill would correct this?  
        MR. MULLOY.  I think this bill goes a long way to correcting 
some of the points, but I have some clear recommendations in my 
testimony for improving the bill.  
        MR. STEARNS.  Okay.  We will do a second round here, but my 
time has expired.  
        Ms. Schakowsky.  
        MS. SCHAKOWSKY.  Thank you, Mr. Chairman.  I would like to 
continue with you, Mr. Mulloy, and I appreciate your knowledge 
and your history with this issue, which I think is very enlightening 
in our discussion right now.  In your testimony that you made to 
the Senate Banking Committee, and you state your agreement with 
Senator Shelby, who said that not everything in America is for 
sale, and Senator Sarbanes, who said that the foreign investment 
screening, quote, "process was broken, leaving the country 
vulnerable to foreign threats," unquote.  
        You have certainly talked about the ports, but can you give us 
examples of what you think should not be put on the auction block, 
other things that you think should not be for sale?  
        MR. MULLOY.  Well, let me just pause at one, for example.  
Say that the technology to make Google or that Google has, what if 
some foreign company, foreign country saw the technology like 
that when it was being developed by guys that didn't have a lot of 
money and decided that would be a good one for someone to come 
in here and buy.  Would that be good or bad, do you think, for our 
own long-term economic strength and national security?  
        I think that is the kind of thing that is going on in this country.  
I think key technologies that are important to our industrial 
strength are being picked off by foreign governments.  That 1994 
study that was done, the one that was supposed to be done every 4 
years and was only done once, that pointed out that the other 
governments do have strategies to buy up key technologies in this 
country and that the governments help their companies target what 
technologies they want to buy.  I didn't say that.  That is in the 
1994 report.  
        So this is not just a market game that is being played out there 
by private companies.  A lot of these other governments are much 
more involved in this process than our Government is.  
        MS. SCHAKOWSKY.  Now, I would like to give you an 
opportunity.  You mentioned actually two I think through the 
Q&A.  You mentioned the issue of covered transactions, I think, 
and then the other recommendation that you met, the idea that 
these reviews are effectively completed before the parties.  Did 
you want to put on the record?  You had four, so there were two 
others.  
        MR. MULLOY.  I have in my prepared testimony--
        MS. SCHAKOWSKY.  Do you want to say what those are briefly?  
        MR. MULLOY.  I would be happy to do that if you want at this 
point.  
        MS. SCHAKOWSKY.  You only had four in particular, right?  
        MR. MULLOY.  I only had four in particular.  I don't think 
Treasury should be chairing this process.  That is a key one.  
H.R. 5337, in its definition of covered transaction, does apply its 
provision to all foreign purchases.  
        MS. SCHAKOWSKY.  I think you kind of went over that one.  
        MR. MULLOY.  Yeah.  So you don't know what you don't 
know.  
        Second, the bill provides that in order to move from the 30-day 
to the 45-day national security investigation, that you have to have 
a determination that the transaction to be investigated threatens to 
impair the national security.  That is the test that you use at the end 
of the 45-day investigation to decide whether to block it.  It seems 
to me that should be "could threaten" rather than "threatens," 
otherwise you have to prove your point before you even begin the 
investigation.  
        The third, I say that the CFIUS reviews are all being done 
through this process before they even file, and that you ought to 
find a way to correct that.  
        MS. SCHAKOWSKY.  Right.  You mentioned that one.  
        MR. MULLOY.  Finally, the members of the CFIUS, I point out 
that I didn't think--and I have been in these when I was an 
Assistant Secretary, International Trade in the Commerce 
Department during the last 3 years of the Clinton Administration.  I 
have been in these interagency meetings.  My judgment is the 
Council of Economic Advisors and the Office of Management and 
Budget don't necessarily bring a lot of national security expertise.  
They do bring kind of an ideological commitment to let markets 
work and that isn't--there are other people in the process who can 
make those points.  Otherwise you load up too many people in the 
White House.  
        Secondly, in the bill it provides that the President can name any 
other designee that he wants.  I am not so sure that that is a good 
idea.  I am not so sure you need political people from the White 
House in either party.
        MS. SCHAKOWSKY.  The point that Mr. Brown made in his 
opening remarks.  
        MR. MULLOY.  Yes.  I think that is a good point.  You 
shouldn't allow that to happen.  You ought to list the people you 
want involved.  This is your authority.  You should list it and tell 
the executive branch how you want it conducted.
        MS. SCHAKOWSKY.  Thank you.  
        MR. MULLOY.  Thank you.  
        MR. STEARNS.  Mr. Terry.  
        MR. TERRY.  Thank you, Mr. Chairman.  I am almost 
embarrassed to ask some of my questions because they are going 
to be fairly simplistic.  To start off with, I am having a hard time 
grasping the term used here, the term "national security."  And I 
think just a discussion between Mr. Mulloy or the answers by 
Mr. Mulloy and Mr. Cohen demonstrate that it seems to be a term 
of art, in essence, and maybe it has special meanings or meaning to 
CFIUS, but to me it is so broad that it can encompass anything.  
        Is there a specific definition of "national security" that already 
exists and/or does this Blunt bill in any way change or alter that 
definition of "national security"?  And I will throw that out to 
anybody.  
        MR. COHEN.  Mr. Terry, I will take the first stab at it.  I don't, 
as I argued before, think you would want to see, I would argue, a 
definition of "national security."  That is the strength of the term.  
It is all encompassing.  It gives government the ability in this 
particular legislation to block an investment that they believe needs 
to be blocked.  And if you start defining it, I think it makes the 
concept and your ability to take action more limited, and therefore, 
it is not in our best interest, and many pieces of legislation, many 
international agreements provide governments with what is called 
a "national security exception," and it is used in statecraft and I 
think it is appropriate that it remain in this bill, and I think it is a 
good idea to keep it.
        MR. TERRY.  Mr. Mulloy, would you agree that the definition 
needs to be flexible and broad?  
        MR. MULLOY.  I agree with that, but I do think you should 
know that the Congress, when it passed Exon-Florio and it 
amended it in 1992, put down some criteria for the executive 
branch to use in judgment of what national security is.  And the 
law states, domestic production needed for projected national 
defense requirement, the capability and capacity of domestic 
industry to meet national defense requirements, the control of 
domestic industries and commercial activities by foreign citizens 
that affects the capacity of the United States to meet its national 
defense requirements, and then it talked about the potential effects 
on international technological leadership of the United States.  
        So the Congress put these criteria into the law.  And in the 
report that Congress put it into the law in 1988, here is what the 
Congress said in the conference report.  The standard of the 
review in this section is national security.  The conferees recognize 
that the term "national security" is not a defined term in the 
Defense Production Act, where this law resides.  The term 
"national security" is intended to be interpreted broadly without 
limitation to particular industries.  This was the guidance that 
Congress gave to the executive branch.  
        Now, you read what the GAO says, and you will see the GAO 
criticizes the executive branch for narrowing the definition to 
almost things that you would put export controls on.  In other 
words, if there were some high-tech item that you want to put an 
export control on, that is the way the executive branch is 
interpreting these charges by the Congress, and I think they are 
misreading the law and not carrying out the duties that the 
Congress gave to them.  And then they go through all these 
processes of working out the whole deal before it is even filed.  
Now, why did they do that?  Because once it goes under the 
national security review, the 45-day investigation, they do all these 
in the first 30 days.  There is no reporting them to the Congress.  
Once you get into the 45-day investigation, then they have to 
report what they are doing and how they decided it.  So they don't 
want to do that.  So they work out all these deals in the first part, in 
the 30-day review.  That is what is going on here.  
        MR. TERRY.  Well, I want to follow up on that question, and 
Mr. Castellani?  
        MR. CASTELLANI.  Castellani.
        MR. TERRY.  Appreciate that.  If we continue to broaden this 
definition of "national security," especially under what Mr. Mulloy 
is suggesting, it seems like we can incorporate just about 
everything that may be owned by a Middle Eastern country or 
China or--I mean, name off any country.  Can we broaden this to 
the point where it becomes counterproductive to encourage foreign 
investment in this country?  
        MR. CASTELLANI.  Indeed we can.  I do not believe, and I may 
be mistaken, I do not believe H.R. 5337 changes the definition in 
the criteria of national security that currently applies.  I think you 
have to think of it from two perspectives.  One is having enough 
flexibility, as Mr. Cohen said, to be able to broadly apply it to 
protect the national interest but, secondly, to have it remain broad 
so as to be able to be flexible for new technologies.  
        For example, 30 years ago, one would not have said that 
Internet technologies were critical to national security.  Now they 
are absolutely critical to national security.  They did not exist.  
Now they do exist.  On the other extreme, we have to be careful 
that we don't waste both the national focus, national assets as well 
as de-erode an environment for investment that we are requiring 
national security reviews of the acquisitions of Ben & Jerry's ice 
cream because it happened to have been acquired by a 
foreign-owned country or company.
        MR. TERRY.  But they could still poison the ice cream.  I am 
serious.  If a country is inherently dangerous, I think anything they 
purchase could risk our national security.  
        MR. CASTELLANI.  Well, I think the flexibility of the definition 
allows the members of CFIUS to make that determination and that 
is what that process is intended for, and the process will serve we 
believe under this law, will serve the country and the national 
security well.  
        MR. TERRY.  Your discussion there in my clip I think goes to 
part of my confusion about the term "national security" here.  Does 
it evolve around a particular country and their history or does it 
focus on the business that is being purchased?  
        MR. CASTELLANI.  Well, I think the answer is yes.  
        MR. TERRY.  Okay.  
        MR. CASTELLANI.  It involves around all of the circumstances 
that may affect the inherent safety of the American people and to 
the inherent national security.  Whether it is the technology or 
interest that is being acquired, whether it is the nature of the 
domicile of the inquirer or whether it is any aspect this could 
provide the flexibility for the committee to be able to take into 
account all aspects to determine whether or not national security--
        MR. TERRY.  Okay, Mr. Cohen.  And Mr. Holtz-Eakin after 
that.  
        MR. COHEN.  I just wanted to add that I think your question 
points out the importance of the reviews being done on a 
case-by-case basis rather than trying to make a decision on a 
particular transaction by fitting it into some kind of category, a 
particular nation, for example, or a particular concern with a 
particular sector.  For example, some are suggesting we want a 
provision that specifically applies to energy security.  Well, if we 
are going to do that, we are going to be giving some of our trading 
partners a roadmap to preventing the very investments we were 
making in energy facilities overseas, energy resources overseas 
that are important for our national security.  
So I would not argue that we would want to see these types of 
specific references, such as to energy security, in legislation 
because we are basically going to see something then applied to us 
overseas that is not going to be in our interest.  
        MR. TERRY.  Mr. Holtz.  
        MR. HOLTZ-EAKIN.  I guess we would all agree you do not 
want to enhance the ability of our enemies to harm us, nor hinder 
our ability to harm our enemies, and that is the heart of looking at 
these things.  It is not ownership per se, and your example is a 
sufficiently motivating evil foreign entity could poison Ben & 
Jerry's ice cream now.  The question is how is the transaction--
        MR. TERRY.  This side isn't particularly worried about the 
outcome of that.  
        MR. HOLTZ-EAKIN.  The question is how does a transaction 
change that and that is why I think a case-by-case review of the 
transactions is so important.  How does the transaction change the 
exposure that we face.  That is the key issue, not ownership or by 
whom, but what happens with the transaction.  And it is not black 
and white.  There is often a discussion of these as if it is all or 
nothing.  In fact, the transactions are reviewed and often involve a 
mitigation agreement, a security agreement that says, yeah, this is 
fine except--and we make sure that, for example, wiretaps are 
handled by American citizens and we put in place additional 
safeguards to make sure that the economic transaction can proceed 
without impairing the national security.  It is not an either/or.  
        MR. STEARNS.  I thank the gentleman.  Mr. Murphy.  
        MR. MURPHY.  Thank you, Mr. Chairman.  I thank the panel.  
An issue that most Americans had no idea existed, the CFIUS, 
until the things came about with the Dubai ports deal which 
certainly brings some important issues to light.  Many of you have 
talked about the issue of foreign investments being a vital part of 
our economy.  I know in the Pittsburgh economy we have a 
number of companies that wouldn't be there without foreign 
investments.  Links, it's a German chemical company; Nova 
Chemical, Canadian company; Bayer, German company; Sony 
Corporation makes flat screen TVs, not the ones in this room 
unfortunately but makes them; and GlaxoSmithKline, a British 
company, and Westinghouse Electric recently was purchased by 
Toshiba.  And things like the purchase of Westinghouse were ones 
under review.  But I want to ask this in terms of--we do not want to 
upset those investments which help create a lot of jobs in America, 
but this is all part of this balance that when we have the conditions 
that exist in this country and other countries, their businesses feel 
they can invest in our Nation.  I understand the balance that we all 
must take, that we are not going to somehow turn off these foreign 
investments and then in turn hurt a lot of American jobs and a lot 
of those great investments, but it comes down to this then, what 
lesson have we learned from the Dubai ports deal that is going to 
help us to protect that national security in the first place.  Then I 
feel compelled to follow up on Mr. Terry's questions because I 
looked through this, I am still not sure how we define "national 
security" in this whole process where CFIUS or any other 
organization can look carefully at this, or is this under the category 
I don't know what this is but I know it when I see it?  Whoever 
wants to answer that.  
        MR. CASTELLANI.  Let me take a stab at it.  In fact, the 
definition of "national security" is implicit in how CFIUS is 
constructed, because it does include those elements of Defense, of 
Commerce, of Treasury, of all of the elements of Homeland 
Security, all of the elements and the jurisdictions that are brought 
to bear.  Those are the pods, if you will, of concern, that are 
brought to bear on the specific transaction, and whether or not with 
the perspective of all of those expertise, all of that perspective the 
transaction violates national security and the definition of "national 
security" by any of those perspectives.  And so by constructing the 
committee in and of itself you are indeed in part defining "national 
security."  
        Second aspect and the second part of the question you asked is 
have we learned anything, and the answer is clearly yes.  One of 
the things we have learned, if nothing else, from the Dubai Ports 
World potential acquisition is that the appropriate amount of 
transparency and notification is absolutely essential to these 
processes because I would say that the surprise in and of itself was 
as damaging to this process as the underlying facts because we 
took a long time to get back to the facts about who actually is 
responsible for security at our ports.  But I think the biggest lesson 
we learned is transparency and operating in a process and proper 
notification, which this bill does bring forward.  
        MR. MULLOY.  Congressman Murphy.  
        MR. MURPHY.  Yes, Mr. Mulloy.  
        MR. MULLOY.  In the bill passed by Congress itself, Congress 
tells the President some of the factors that they want taken into 
account.  In other words, this wasn't just nebulous.  They said, and 
they list them, and they are listed in the factors under (f) of the 
current law, which is not changed by the bill.  So these factors 
remain in the law.  And why do you put those factors in?  Because 
if the Congress is going to be able to do effective oversight, it has 
to understand the charge it gave to the executive branch, and then 
it has to get reporting from the executive branch how these duties 
are being carried out, and one of the key problems that was 
revealed by the Dubai ports was the executive branch was not 
following the law.  Secondly, there was not the reporting that is 
needed for the Congress to be able to do effective oversight.  I 
think the current bill that is before the committee makes some 
good improvements in the reporting by the executive branch.  
        MR. COHEN.  On the factors, if I could just add, Congressman 
Murphy, if you look at the factors that were included, I think one 
of the most important factors is what is called the "A" factor, 
which is such other factors as the President or the President's 
designee may determine to be appropriate generally or in 
connection with a specific review of investigation.  And that is 
what I think all of us or many of us were trying to refer to, that you 
don't want a limited list that cannot cover, as Mr. Castellani has 
pointed out, new developments that were not included as factors 
from one through seven and as a matter of fact, if you take a look 
at this bill, the committee has expanded the number of factors from 
current law.  
        MR. MURPHY.  Given that, was that what was in there before--
let me see whose testimony this was.  This was in Mr. Holtz's 
testimony with regard to the current 30-day review period and the 
45-day investigation period, is that sufficient time then?  I am 
interested in the panel's thoughts in that.  You seem to think that 
H.R. 5337 retains those periods.  Do we need to expand that if we 
are really fulfilling the communication, the security issues we 
have?  
        MR. COHEN.  I think one of the things the bill successfully 
does, Congressman, is ensures that early on information is 
provided by the Intelligence Community, and that is one of the 
emphases of this particular bill that the information be provided to 
the entire membership of CFIUS with regard to a potential 
transaction, and they have up to 30 days to provide that 
information.  I would say that a right balance is struck.  You have 
the 30-day review period because that is where most of the cases 
will go before that is reviewed, and you really don't want to have a 
chilling effect on foreign investment in the United States.  The 
only ones that should be moved to the investigatory stage are ones 
where there is a threat to U.S. national security.  So we think the 
right balance is struck with the 30 and the 45 days with a potential 
for an expansion of the investigatory period if more information 
needs to be put together.  
        MR. MURPHY.  Mr. Holtz, do you agree with that?  
        MR. HOLTZ-EAKIN.  It has an additional advantage in that it 
coincides pretty closely with the timelines for the antitrust 
investigations so that coordination I think that is an advantage on 
the whole.  
        I think the other comment which the whole Dubai Ports 
episode brought out was the general lack of transparency in 
reporting.  What has to be recognized is this is not a one-shot 
operation but, by having better reporting and better transparency, 
Congress can see in action what constitutes national security, see 
in action those things which progress from review to investigation 
and, by doing its oversight, tailor the process going forward.  So 
the bill makes great improvements in the ability of the process to 
be fine-tuned by the Congress going forward.  
        MR. MURPHY.  I think that is the key word here, that we get the 
information here when we need it.  
        MR. HOLTZ-EAKIN.  You couldn't possibly have guessed 
before.  So I think that is pretty important.  And then to close this 
issue of the timelines, I disagree with Mr. Mulloy in what is going 
on in the 30-day.  I think the fact that there is a heads up about 
potential transactions that companies--and remember, either party 
to the transaction can notify CFIUS, so if the company being 
acquired feels that they are doing something that has a genuine 
national security component, they can alert the committee, giving 
an early heads up, and taking more time than the statutory 30 days 
can't be a bad thing, and so I would disagree with the way that is 
playing out.  
        MR. MURPHY.  Mr. Mulloy, do you want to close the 
comment?  
        MR. MULLOY.  I do want to point out that the bill crafted by 
Chairman Shelby does extend the initial period from 30, I think, to 
say 60 days or it combines it all into a larger 75-day period 
because of the fact that they found out that so many of these 
transactions are being resolved before you even start the 30-day 
clock.  So the deals are all being done before they even file.  
        Mr. Kimmitt testified before the Senate Banking Committee 
last March and he said this, this is after the Dubai Ports deals.  He 
says, "in some cases CFIUS members negotiate security 
agreements before the filing is made."  In other words, they 
even do the security agreement and then there is no reporting to 
you guys what is being done and I think that is wrong.  I think they 
could give the heads up that we are coming in with a transaction, 
get clarifications about the dates and what information is needed, 
but you start the time clock when you file and then you start your 
subsequent negotiations so that there is a clear record of the 
decisions being made that can be reported to the Congress and the 
criteria that were used.  
        MR. MURPHY.  Thank you, Mr. Mulloy.  Mr. Chairman, I 
would hope these are issues that we can get in our committee 
report of this to find out not only how the timing works but to 
make sure of the transparency in what information we do get so we 
can conduct the proper reviews for national security.  
        MR. STEARNS.  I thank my colleague.  I think we will go 
another round if the gentlemen want to stay.  I am going to have a 
couple of questions.  After listening to you folks, I just realize, 
obviously under the Constitution, Congress has a responsibility for 
oversight, but whether Congress will do that or not I don't know, 
and whether we have an interest and whether we have the ability to 
do it, I don't know.  So my question is to Mr. Holtz-Eakin.  
Shouldn't we take all of these countries and try to bring some 
quantitative measure to this, have somebody separate from 
Congress or the executive branch, rate all of these companies in 
terms of the threat to the United States' national security?  So once 
we quantify it, then CFIUS would have the ability to use some 
quantitative information to rank these and to scrutinize these deals 
involving these governments and these companies because I hear 
Members of Congress ask, "What is this definition of national 
security?"  I mean if we are asking this question, it just seems like 
we need to somehow bring some measure of mathematics here, 
and that is my question for you.  
        MR. HOLTZ-EAKIN.  Well, I guess I have three responses.  
Response number one is that artificial precision by putting things 
in a numerical scale doesn't buy you anything.  In the end, what 
you need is to evaluate whether the transaction enhances or 
impairs.  
        MR. STEARNS.  So if a country like China, a communist 
country, is going to own the port in Long Beach and we rank it as 
possible high security risk, that wouldn't mean anything because 
we have maybe a port in Shanghai or something like that; is that 
what you are saying?  
        MR. HOLTZ-EAKIN.  No.  Giving it a five versus a three versus 
a two when we know what China is I think brings nothing to the 
process.  
        MR. STEARNS.  No relevancy.  
        MR. HOLTZ-EAKIN.  Publishing it, making it public and 
codifying it I think would be a bad idea.  The information belongs 
in the process certainly. 
        MR. STEARNS.  Why would publicizing it be a bad idea?  
        MR. HOLTZ-EAKIN.  It would be an invitation for retaliation.  
The United States is an open democracy with reliance on private 
markets that is not uniformly admired so we could have people 
say, well, that is bad stuff, we will just close off our markets to 
American companies.  That is the kind of thing that I think--
        MR. STEARNS.  So you want to keep those actions under 
wraps?  
        MR. HOLTZ-EAKIN.  Certainly.  
        MR. STEARNS.  So that there is no retaliation by other 
countries.  
        MR. HOLTZ-EAKIN.  I think the focus should be on the security 
implications to the transactions.  And again it is not ownership per 
se.  It is not the piece of the geography on the globe from which 
their economic sources flowed.  It is how does this merger and 
acquisition affect our safety.  
        MR. STEARNS.  You said there were three points.  Did you get 
all three in?  
        MR. HOLTZ-EAKIN.  I think so.  
        MR. STEARNS.  Mr. Castellani, how many ports in Hong Kong 
does the United States operate?  Do you know?  
        MR. CASTELLANI.  I don't believe it operates any.  
        MR. STEARNS.  Okay.  And as I understand it here in the United 
States my staff has told me one-third of the ports are operated by 
foreign countries.  Is that true?  
        MR. CASTELLANI.  Oh, I would say if that is the number, it is 
probably a number on the basis of the number of ports but not on 
the total tonnage.  If it was total tonnage, it would be a higher 
percentage.  
        MR. STEARNS.  So one-third of the ports in the United States 
are already owned by foreign companies.  In your opinion, is that 
good or bad?  Does it matter whether that is 50 percent or whether 
it is 100 percent?  Let's say that I said to you, is there anything 
wrong with foreign governments operating our ports?  
        MR. CASTELLANI.  I think from our perspective the answer is 
there is nothing inherently wrong with foreign companies owning 
anything in the United States unless it is a threat to national 
security.  And this is one--
        MR. STEARNS.  You wouldn't even make the argument, as 
some people on the panel said, sometimes they work it 
incrementally so they can harbor economic advantage by doing it 
systemically and things like that?  
        MR. CASTELLANI.  Well, I think there are two issues with that.  
One is there is an implication that we wouldn't recognize that as a 
threat to national security, and in fact part of this process is to 
evaluate that.  The second is an implication that from U.S. 
industries' prospective, U.S. businesses' perspective, we are just 
helpless victims in a world where the rest of the world is buying 
our assets.  We purchase more of the world's assets than the world 
purchases of our assets.  And in fact, we are as U.S. businesses, 
U.S. concerns, we are out around the world buying technologies, 
buying capabilities, buying services that enhance our economic 
strength and our economic competitiveness and we want to 
continue to do that.  
        MR. STEARNS.  So in your mind you are thinking it is really not 
relevant who owns what port, who operates in what port, if it is a 
foreign country or not?  
        MR. CASTELLANI.  Provided national security is protected.  
        MR. STEARNS.  And that is the prime reason in your 
estimation?  
        MR. CASTELLANI.  Absolutely.  
        MR. STEARNS.  Okay.  My time has expired.  
        MS. SCHAKOWSKY.  Mr. Mulloy, you wanted to respond?  
        MR. MULLOY.  I just wanted to say this to the Chairman.  I 
agree with the point you are at.  The Senate bill does say that you 
should make some distinctions between the countries who are 
coming to make the purchases.  Particularly when they are 
government-owned corporations that are doing the purchasing.  
And let me make the point.  Remember last year this committee 
got very concerned about CNOOC buying Unocal, and I think you 
passed legislation to prevent that, and you were criticized and 
everybody was saying this was just a normal commercial 
transaction.  
        There was an article in the Washington Post last July 20.  
Listen to this.  William Blair & Company was the largest 
American investor in CNOOC, and they announced in this article 
July 20, 2005, they said they were selling their CNOOC stock.  
They said CNOOC had made decisions in the best interest of 
shareholders in the past, but the effort to buy Unocal appeared to 
be based on government policy, not business reasons.  
        You have to understand that other governments are much more 
intertwined with their business community.  There are certain 
critical technologies that people understand are important for your 
economic strength going forward, and everybody wants to have the 
leadership in those technologies.  And we ought to know, our 
intelligence communities ought to be able to help identify those 
and then identify the cumulative effect of patterns of acquisitions 
of those activities by foreign--particularly if they are foreign 
government-controlled corporations.  I think that is very much 
needed in this whole process.  
        MR. COHEN.  Mr. Chairman, may I just comment, or 
Congresswoman?  I apologize.  
        MS. SCHAKOWSKY.  Yes.  
        MR. COHEN.  I would say there is a real danger in trying to do 
too many investigations and then missing the objective that the 
legislation has, and that is if we start expanding the investigatory 
period of the review, the review process and the investigatory 
process, we are not going to focus on those transactions that are a 
real threat to U.S. national security, and my fear is that if we have--
        MS. SCHAKOWSKY.  Not be some screen through which 
everything has to go?  
        MR. COHEN.  I would argue the other way, Congresswoman, 
that the best way to have a successful CFIUS process is to do the 
reviews on a case-by-case basis and get the information from the 
intelligence community, get the information from the State 
Department that goes to the issue of a threat to the United States 
and have that taken into account with a transaction.  My fear 
otherwise is you are going to be using resources that should be 
focused on the few transactions, and hopefully they are a few, that 
are a real threat, and moving away from that, trying to do too 
much.  
        MS. SCHAKOWSKY.  Mr. Castellani, you said in your statement 
that the United States may experience a backlash if we limit 
foreign investment in critical infrastructure unrelated to national 
security.  So what critical infrastructure is okay to put up for sale 
or, to put it the other way, what would not be?  Is there anything 
that would not be?  
        MR. CASTELLANI.  As I said before, the things that this process 
is designed to define are those things that should not be.  
        MS. SCHAKOWSKY.  It sounded from what you said before that 
the Dubai Ports deal would not have necessarily met your criteria.  
        MR. CASTELLANI.  And in fact I want to make sure I didn't 
mis-answer the Chairman's question because you said owned the 
ports.  
        MR. STEARNS.  Yeah.  I meant operated.  
        MR. CASTELLANI.  Ports are in fact actually owned by U.S. 
entities such as port authorities or our cities.  Again the issue from 
our perspective isn't where the ownership lies.  The issue is 
whether or not national security is jeopardized by that ownership, 
by that particular company, its origin, its operations, its history, 
that asset.  It is the only blanket statement I can make.  
        MS. SCHAKOWSKY.  What about Dubai?  There certainly are 
those that have argued articulately that the Dubai deal should have 
been fine.  
        MR. CASTELLANI.  The thing that bothered me just personally 
about the Dubai Ports deal, which was mishandled by just about--
        MS. SCHAKOWSKY.  Aside from the mishandling.  
        MR. CASTELLANI.  Okay.  Other than the mishandling is we 
lost focus on who is actually responsible for security at our ports?  
And the people who are responsible for security at our ports are 
customs officials, the Coast Guard and the border security, and that 
is the issue, the paramount issue in terms of port security, which is 
very important to the members of the Business Roundtable as 
opposed to who operates those ports and who owns those operating 
companies.  And so I think many Members of Congress, including 
yourself in your opening statement, focused on the fact that the real 
issue is how secure are our ports, not who owns, the people who 
operate--
        MS. SCHAKOWSKY.  Right.  I am concerned that in light of the 
fact that only 6 percent of the cargo right now is inspected that in 
fact who operates the port could be of great concern to the United 
States.  
        Let me ask you another thing.  You stated that the CFIUS 
process should include a Congressional--you do not think that it 
should include a Congressional reporting requirement on a 
case-to-case basis, but you support the sharing of aggregated 
information that is not associated with any one investment.  But 
what it seems to me is that what you are saying is that you support 
sharing with Congress only information that is not particularly 
useful or helpful to us to determine if a foreign investment is in the 
best interest of our country.  
        MR. CASTELLANI.  Again, I respectfully disagree.  Our position 
is that you should share enough information to ensure for Congress 
to be able to ensure that the process is working as Congress had 
intended in enacting the law, but not so much so as to discourage 
the kind of investment that our economy benefits from.  And this is 
proprietary information related to a specific deal, a specific 
circumstance that may, in fact, give an advantage or may cause 
something desirable not to occur, give an advantage to a 
competitor or another suitor, or cause something not to occur 
should it be released.  
        MS. SCHAKOWSKY.  How can we do oversight if it is only on 
an aggregated basis?  
        MR. CASTELLANI.  Well, I think the data--
        MS. SCHAKOWSKY.  We have just figured out whether you 
agree with our conclusions or not on the whole Dubai issue.  
        MR. CASTELLANI.  We think the data, the way the bill has laid 
it out, would provide that, information that would be sufficient.  
        MS. SCHAKOWSKY.  Thank you.  
        MR. STEARNS.  I thank my colleague and also I want to thank 
the panel for waiting while we went to vote.  We are concluding 
the hearing.  I think I hear from all of you, you support for the bill, 
and as you all know, we are going to mark up this bill in the full 
committee tomorrow, and we will take some of your comments to 
heart here.  And I would feel that after the discussion we have had, 
the Congress has responsibility and we must exercise it and 
hopefully we will do that tomorrow in the markup of this bill.  
        So with that, the subcommittee is adjourned.  
        [Whereupon, at 4:40 p.m., the subcommittee was adjourned.] 

  See The Long-Term Implications of Current Defense Plans and Alternatives: Summary Update for 
Fiscal Year 2006, Congressional Budget Office, 2005.
  Committee on Foreign Investment:  The Critical Infrastructure Protection Program.  Published by 
the George Mason University Law School on February 2006.   See page 26.

```