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[Senate Prints 110-25]
[From the U.S. Government Publishing Office]

110th Congress                                                  S. Prt.
1st Session                COMMITTEE PRINT                       110-25
_____________________________________________________________________
 
                     AN EVALUATION OF CFIUS REFORM
                       AFTER DP WORLD: BALANCING
                       OPEN INVESTMENT POLICY AND
                           NATIONAL SECURITY
                               __________

                          A Report to Members

                                 of the

                     COMMITTEE ON FOREIGN RELATIONS
                          UNITED STATES SENATE

                    Richard G. Lugar, Ranking Member

                       One Hundred Tenth Congress

                             First Session

                             June 20, 2007

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

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                     COMMITTEE ON FOREIGN RELATIONS

                JOSEPH R. BIDEN, Jr., Delaware, Chairman
CHRISTOPHER J. DODD, Connecticut     RICHARD G. LUGAR, Indiana
JOHN F. KERRY, Massachusetts         CHUCK HAGEL, Nebraska
RUSSELL D. FEINGOLD, Wisconsin       NORM COLEMAN, Minnesota
BARBARA BOXER, California            BOB CORKER, Tennessee
BILL NELSON, Florida                 JOHN E. SUNUNU, New Hampshire
BARACK OBAMA, Illinois               GEORGE V. VOINOVICH, Ohio
ROBERT MENENDEZ, New Jersey          LISA MURKOWSKI, Alaska
BENJAMIN L. CARDIN, Maryland         JIM DeMINT, South Carolina
ROBERT P. CASEY, Jr., Pennsylvania   JOHNNY ISAKSON, Georgia
JIM WEBB, Virginia                   DAVID VITTER, Louisiana
                   Antony J. Blinken, Staff Director
            Kenneth A. Myers, Jr., Republican Staff Director

                                  (ii)

                            C O N T E N T S

                              ----------                              

                                                                   Page
Letter of Transmittal............................................

                                                                      v

Overview.........................................................

                                                                      1

Committee on Foreign Investments in the United States (CFIUS)....

                                                                      1

Exon-Florio Amendment............................................

                                                                      2

Proposed DP World Acquisition of Peninsular and Oriental Steam 
  Navigation.....................................................

                                                                      2

Reform Legislation...............................................

                                                                      3

Subsequent Transactions..........................................

                                                                      5

United Kingdom...................................................

                                                                      5

United Arab Emirates.............................................

                                                                      6

Measures to Attract FDI..........................................

                                                                      8

Conclusions and Recommendations..................................

                                                                      9

                               APPENDIXES

Appendix A.--Business Community Statement on House Passage of 
  CFIUS Legislation..............................................

                                                                     11

Appendix B.--Insourcing Statistics...............................

                                                                     13

                                 (iii)

                         LETTER OF TRANSMITTAL

                              ----------                              

                                                     June 20, 2007.

Dear Colleagues:

    The committee recently sent Manisha Singh of the 
professional staff to the United Kingdom and the United Arab 
Emirates in order to evaluate the status of foreign direct 
investment after the failed Dubai Ports World (DP World) 
transaction last year and in light of subsequent reforms 
proposed in the process of the Committee on Foreign Investments 
in the United States (CFIUS). She met with key government 
officials and private sector participants to collect and 
evaluate information to analyze the effects of post DP World 
reform on potential foreign direct investment (FDI) flows into 
the United States.
    We are pleased to share with you her trip report, which we 
believe provides an effective explanation of CIFUS and its 
background. It also shares insightful details about current 
perceptions of potential investors abroad seeking to invest in 
the U.S. In addition, it describes measures that have been 
taken to counteract adverse effects occurring after DP World. 
The conclusion is a concise summary of the way we should 
proceed going forward. We look forward to continuing to work 
with you on these issues and welcome any comments you may have 
on this report.

                                          Richard G. Lugar,
                                                    Ranking Member.

                                  (v)

                  AN EVALUATION OF CFIUS REFORM AFTER

                  DP WORLD: BALANCING OPEN INVESTMENT

                      POLICY AND NATIONAL SECURITY

                                Overview

    The U.S. has historically been an open market receptive to 
foreign direct investment (FDI). Post World War II, during the 
reconstruction of the economies of many countries, there were 
efforts to form organizations that would restore diplomacy. 
Additionally, nations sought measures to facilitate and enable 
international commerce. Over the last several decades, commerce 
has grown to become increasingly global in nature. One of the 
challenges that has arisen is the need allow foreign investment 
in the U.S., while still maintaining a close watch on how such 
investment affects national security. There have been various 
periods of specific concern over increasing foreign ownership 
in the U.S. The result was the creation of the Committee on 
Foreign Investments in the United States (CFIUS), an inter-
agency body designed to review foreign investment for national 
security purposes. A further result was adoption of the Exon-
Florio amendment to the Defense Production Act, legislation 
designed to give the President authority over business 
transactions that may adversely impact national security.

                Committee on Foreign Investments in the
                         United States (CFIUS)

    Concerns over increased FDI gained heightened significance 
during the 1970's resulting in the creation of CFIUS. It was 
established by an Executive Order of President Gerald Ford and 
originally consisted of the Secretaries of State, Treasury, 
Defense and Commerce, the United States Trade Representative, 
the Attorney General, the Chairman of the Council of Economic 
Advisers, and the Director of the Office of Management and 
Budget.\1\ The Secretary of the Treasury was to be the chair 
with the ability to invite representatives of other agencies to 
participate in the committee's functions. In 1993, President 
Bill Clinton expanded the committee's membership to include the 
Director of the Office of Management and Budget, the Director 
of the Office of Science and Technology Policy, the Assistant 
to the President for National Security Affairs and the 
Assistant to the President for Economic Policy.\2\
---------------------------------------------------------------------------
    \1\ Executive Order 11858, Foreign Investment in the United States, 
May 7, 1975, 40 F.E. 20263.
    \2\ Executive Order 12860, Adding Members to the Committee on 
Foreign Investment in the United States, September 3, 1993.
---------------------------------------------------------------------------
    CFIUS was tasked with ``. . . monitoring the impact of 
foreign direct investment in the United States, both direct and 
portfolio, and for coordinating the implementation of United 
States policy on such investment.'' \3\ In order to carry out 
its functions, CFIUS was to authorize preparation of analyses 
of foreign investment trends; guide foreign governments on 
their potential investments in the U.S.; review investments, 
which in its judgment affect U.S. national interests; consider 
new proposals for regulating foreign investment and set the 
views of the Executive Branch on the issue overall, as well as 
carry out the responsibilities of the relevant sections of the 
Defense Production Act. The Commerce Secretary was given 
responsibility for assimilating information on foreign direct 
investment flows into the U.S. including the evaluation of 
significant transactions. The committee was also to determine 
whether a transaction should be investigated and make such 
investigation if necessary. If an investigation were deemed 
necessary, it would commence no later than 30 days after 
receipt of notice of the transaction, and the investigation 
would be completed within 45 days of such determination. If the 
committee decided not to investigate a particular transaction 
and a member disagreed with this decision, the chair of the 
committee was to submit a report to the President discussing 
the differing views so that the President could decide. If all 
members were in agreement that no investigation was required, 
then the matter was concluded and the President was so 
notified. If the committee were unable to reach a unanimous 
decision, then the chair was to submit a report with the 
different views in order for the President to make a decision.
---------------------------------------------------------------------------
    \3\ Executive Order 11858, Section 1(b).
---------------------------------------------------------------------------

                         Exon-Florio Amendment

    In 1988, rising public concerns about increased foreign 
direct investment from Japan resulted in passage of the Exon-
Florio provision. Exon-Florio granted the President authority 
to investigate transactions in order to determine the effects 
on national security. Its guidelines are similar to those set 
forth in the President Johnson's Executive Order. An 
investigation is to be commenced within 30 days of notification 
and completed within 45 days of determination of the need to 
investigate. Based on the findings of these investigations, the 
President has the authority to suspend or prohibit transactions 
in the interest of national security. The President can 
exercise this authority if there are findings of credible 
evidence that a foreign entity taking control could impair 
national security, and relevant existing law does not provide 
for national security.\4\
---------------------------------------------------------------------------
    \4\ Section 721 of Pub. L. 100-418, 102 Stat. 1107, made permanent 
law by section 8 of Pub. L. 102-99, 105 Stat. 487 (50 U.S.C. App. 2170) 
and amended by section 837 of the National Defense Authorization Act 
for Fiscal Year 1993, Pub. L. 102-484, 106 Stat. 2315, 2463.
---------------------------------------------------------------------------

              Proposed DP World Acquisition of Peninsular
                 and Oriental Steam Navigation Company

    In mid-October 2005, DP World, a United Arab Emirates 
government controlled company, was in the process of acquiring 
Peninsular and Oriental Steam Navigation Company (P&O), a 
private British company. P&O managed six ports in the United 
States: New York, Miami, Newark, Philadelphia, New Orleans and 
Baltimore. Upon consummation of the transaction, management 
responsibilities for these six ports would have shifted to DP 
World. Due to this portion of the transaction, DP World 
notified and sought clearance from CFIUS.
    Although there is no requirement that purchasers seek CFIUS 
approval, many do so because CFIUS can require complete 
unwinding if it later determines that a transaction is a threat 
to national security. Congress amended the Exon-Florio statue 
in 1992 to require that CFIUS investigate transactions where: 
(1) the acquirer is controlled by or acting on behalf of a 
foreign government; and (2) the acquisition results in control 
over interstate commerce that could affect national security. 
The DP World transaction met these criteria. The Department of 
Treasury, chair of CFIUS, notified DP World that its 
acquisition had cleared. CFIUS grants such clearance under the 
authority of the President.
    Reports indicate that subsequently, a Florida company which 
had joint ventures with P&O became concerned when it learned of 
the acquisition. The company alerted members of Congress, who 
in turn took the story to the media. At this point, questions 
arose as to whether the President or senior White House staff 
were aware of the deal. This was significant since CFIUS is 
viewed to be carrying out the policies of the President. In 
February 2006, DP World postponed the final acquisition of the 
U.S. ports part of the deal in order for Congress to conduct a 
review. During this time, several members of Congress 
introduced legislation blocking the transaction or calling for 
CFIUS reform. The President threatened to veto any bill 
blocking the transaction. On March 8, House Appropriations 
voted to impair the acquisition.\5\ The following day, DP World 
divested management of the U.S. ports to a U.S. entity.
---------------------------------------------------------------------------
    \5\ The House Appropriations Committee voted 62-2 to include an 
amendment in an emergency supplemental bill.
---------------------------------------------------------------------------

                           Reform Legislation

                             109th congress

    In the wake of the DP World transaction, the House and the 
Senate both passed legislation significantly reforming CFIUS 
and Congressional notification requirements.\6\ The 109th 
Congress concluded with no conference convened on the measures. 
The move to reform CFIUS has been overwhelming. Although the 
goal is to enhance national security, it has generated 
significant concern in the global community that it will also 
have a chilling effect on the desire of foreign companies to 
invest in the U.S. The Federal Government currently does not 
undertake any significant affirmative steps to attract foreign 
investment. There are concerns that the detrimental effect of 
DP World combined with the lack of any active measures could 
lead to declines in foreign investment.
---------------------------------------------------------------------------
    \6\ The House passed H.R. 5337 and Senate passed S. 3549 on July 
26, 2006.
---------------------------------------------------------------------------

                             110th congress

    House of Representatives. During this Congress, the House 
has passed H.R. 556, the National Security Foreign Investment 
Reform and Strengthened Transparency Act of 2007, which has 
been sent to the Senate for consideration. This legislation 
directs the President, through CFIUS, upon written notification 
of a covered transaction, to identify any potential effects on 
national security. A ``covered transaction'' is defined as any 
``merger, acquisition, or takeover by or with any foreign 
person which could result in foreign control of any person 
engaged in interstate commerce in the United States.'' \7\ It 
specifies that any party to the transaction, the President, the 
committee or anyone acting on behalf of the committee can 
determine to put the transaction forward for a review. Any 
review which results in a finding that (1) there is a threat to 
national security which has not been mitigated or (2) there is 
a foreign government controlled transaction, is subject to 
further investigation. Additionally, if a roll call vote of the 
committee results in any one member objecting to the 
transaction or the Director of National Intelligence identifies 
particular concerns that could not be mitigated, then the 
transaction is also subject to further review. It provides 
statutory authority establishing CFIUS, comprised of the 
Secretaries of Treasury, Homeland Security, Commerce, Defense, 
State and Energy, the Attorney General, the Chairman of the 
Council of Economic Advisers, the United States Trade 
Representative, the Director of the Office of Management and 
Budget, the Director of the National Economic Council, the 
Director of the Office of Science and Technology Policy, the 
President's Assistant for National Security Affairs and any 
other designee of the President. There are also several 
provisions regarding increased oversight by Congress. Within 5 
days after completion of an investigation, reports are to be 
sent to the Majority and Minority Leaders of the Senate, and 
the Speaker and Minority Leader of the House. Additionally, 
there are requirements for the committee to provide briefings 
if requested by members of Congress and further studies and 
reports required on the functioning of the CFIUS process. \8\
---------------------------------------------------------------------------
    \7\ H.R. 556, Sec. 2. (a)(3).
    \8\ H.R. 556.

    Senate. The Banking Committee has reported the Foreign 
Investment and National Security Act of 2007 to the full Senate 
for consideration. The Senate bill is significantly similar to 
the House passed bill. It is therefore likely that should this 
bill pass the full Senate and proceed to conference with the 
House bill, differences will not be difficult to resolve and 
the final legislation sent to the President will meet with 
approval of both chambers. The Senate bill provides for 
statutory establishment of CFIUS. It also enhances the role of 
the Director of National Intelligence in the committee. It 
further requires that in addition to Treasury, a lead agency be 
designated for each transaction which will be tasked with 
oversight of any mitigation agreements and follow-up for 
compliance with such agreements. It provides for an exception 
to the requirement that a state-owned agency automatically go 
through the investigation process if designated officials 
determine that there is no impairment to national security. In 
addition, it expands the list of criteria to be considered by 
CFIUS when conducting reviews. Similar to the House passed 
bill, it provides for reports to be submitted to Congress and 
additional reporting and oversight on the functioning of the 
CFIUS process overall.\9\
---------------------------------------------------------------------------
    \9\ S. 1610.
---------------------------------------------------------------------------

                        Subsequent Transactions

    Currently, no reform legislation has reached the stage of 
passage by both chambers and signature of the President. 
However, there have been impacts on the CFIUS process in 
transactions since DP World. Two such transactions merit 
attention as a part of this analysis. The first is Nokia 
Corp.'s acquisition of Siemens AG. Neither company is based in 
the U.S., however, Siemens supplies equipment to various 
branches of the U.S. government and has provided services in 
the area of airport security.\10\ Because of this, the 
transaction fell into CFIUS review and a mitigation agreement 
was required to address U.S. national security issues. This 
prompted concerns in the international business community about 
the reach of U.S. CFIUS review since a condition was imposed on 
a transaction between two European headquartered companies. The 
CFIUS position is that although neither was based in the U.S., 
their conduct of business did affect U.S. national 
security.\11\ The second is the acquisition of the U.S. company 
Lucent Technologies by French company Alcatel. This transaction 
generated interest due to the inclusion of an ``evergreen'' 
provision, meaning that the government would have the ability 
to unwind the transaction for an indefinite period if security 
commitments were breached. The opinions of the national 
security agencies have been given more weight in the post DP 
World CFIUS reviews. This generated a strong reaction from the 
business community which felt that it was far reaching and a 
departure from past practice.\12\ There are strong concerns 
about the overall impacts of DP World on the CFIUS process. 
These concerns exist not only regarding deterred foreign 
investment in the U.S., but also regarding backlash against 
U.S. companies seeking to invest in other countries.\13\ 
However, the business community has recently reacted positively 
to both the House passed and Senate proposed legislation.\14\
---------------------------------------------------------------------------
    \10\ U.S. Expands Oversight of Deals; Ron Orol, The Deal, L.L.C., 
January 10, 2007.
    \11\ Assistant Secretary of Treasury Clay Lowery, Testimony before 
the House Armed Services Committee, November 14, 2006.
    \12\ ``That CFIUS sought to and, apparently, did impose this 
condition on the Alcatel-Lucent merger is a disturbing departure from 
the government's stated support for an open trade and investment 
regime. Such conditions can chill investment, make those who do invest 
more cautious about the types of commitments they are willing to give 
the government in the context of the CFIUS review, and ultimately, harm 
the economy.'' Letter from Business Roundtable, Financial Services 
Forum, Organization for International Investment and United States 
Chamber of Commerce, December 5, 2006.
    \13\ ``Just last week, the Russian government approved two laws. 
The first would create a CFIUS-like review process for foreign 
investments in 39 sectors. The second would ban foreign ownership in 
certain gas, oil, gold and copper assets. It September, China passed a 
new regulation allowing the government to block transactions that 
negatively affect China's ``economic security'' and state owned 
enterprises. Debate has started in Korea about whether they need an 
Exon-Florio law. In November, Canada's Minister of Finance called for a 
``principle-based approach'' to address situations where ``a particular 
foreign investment might damage Canada's long-term interests.'' The 
Indian government has begun an internal consultation process on the 
need for legislation to deal with foreign investments that have 
national security implications.'' David Marchik, Partner, Covington and 
Burling; Testimony before the House Financial Services Committee, 
February 7, 2007.
    \14\ See Appendix A.
---------------------------------------------------------------------------

                             United Kingdom

    There were several aspects of the DP World transaction 
which were felt in London. The initial was that the subject of 
DP World's acquisition was a British company, and subsequently, 
there were concerns that the U.S. public might fear foreign 
ownership generally, regardless of nationality. The private 
sector in London seems to have determined to approach the CFIUS 
reforms from a practical perspective. Multinational companies 
indicated an understanding that it was inevitable that the 
process would be reformed after the circumstances surrounding 
the DP World transaction. They were focused on understanding 
the new process and factoring it in to their business analysis. 
One of the primary considerations is when a CFIUS filing is 
required. After DP World, companies indicated they will err on 
the side of making a filing rather than not in order to 
safeguard the transaction from potential peril down the road. 
If a company determined that in spite of the time and cost of a 
CFIUS filing, it was still commercially beneficial to proceed, 
there are other aspects which could impede the transaction. For 
instance, if financing from an outside source were required, 
that source would have to make a determination regarding the 
risk. In transactions since DP World which could trigger a 
CFIUS filing, funding sources must now add in the additional 
time, cost and risk of possibility that the transaction might 
not proceed. Another factor increasing time and cost is the 
need to educate corporate executives regarding the CFIUS 
process.
    Some of the larger multinational companies indicated they 
would be slightly more cautious when investing in the U.S. due 
to the CFIUS process. If the risk were too great, a transaction 
might be abandoned altogether. Executives also said they are 
currently exploring developing markets and that governments in 
these markets have affirmatively reached out to attract foreign 
investors. Commonly cited examples of such markets are India 
and China. For many, investing in the U.S. is their first 
choice; however, to the extent that it becomes more difficult 
to do so, they will explore these other markets. There was also 
a sense, however, that because they had been navigating the 
CFIUS process for so long and had become experienced in it, 
they were developing the expertise to proceed with CFIUS 
reported transactions. Concerns would be stronger from smaller 
companies and those who are not as experienced at investing in 
the U.S. These entities could potentially be disadvantaged when 
attempting to determine the appropriate procedures to follow 
due to lack of experience and resources.

                          United Arab Emirates

    Meetings with U.S. embassy officials in Abu Dhabi provided 
broader context for the overall bilateral relationship. They 
indicated that in addition to the bilateral trade and 
investment relationship, it is important to understand the 
significance of the relationship for purposes of regional 
stability. The UAE government has pledged money and training 
resources for U.S. operations in Iraq and Lebanon. It has also 
historically supported and assisted moderate elements in the 
region.
    U.S. officials indicated that the UAE was not inclined to 
let the DP World transaction compromise the overall bilateral 
relationship. There was a sense that government-owned entities 
would continue to seek to invest in the U.S., but would be more 
cautious in looking at investments which might trigger CFIUS 
filings. There was also concern that the UAE public was feeling 
as if foreign direct investment from Arab countries in 
particular was not welcome. The larger, more sophisticated 
investors are still able to contemplate investments in the 
U.S., however, small and medium size companies have expressed 
reluctance in trying to do so. Although it is difficult to 
quantify the overall effect of investment flows from the UAE to 
the U.S., it was felt that there has been adverse effect.
    UAE government officials indicated that they were surprised 
at the extent of the political fallout surrounding the DP World 
transaction. It was entered into as purely a commercial 
transaction. They explained that when the business opportunity 
arose, it was to purchase the British company P&O. The fact 
that P&O managed several U.S. ports was an incidental factor 
and not the reason for the transaction. From their perspective, 
the bilateral relationship is still considered strong and this 
single event will not change its nature altogether, however, 
there was a sense of disappointment that it occurred in spite 
of the strides that they felt have been taken to cooperate with 
the U.S. on national security. They also felt that although 
government to government discussions on a range of matters 
would continue to progress, there has been an impact in the 
private sector. Corporate executives signaled to the government 
that they did feel less welcome and more cautious when 
considering whether or not to invest in the U.S.
    The failed DP World transaction also complicated other 
aspects of the commercial relationship. It was not cited as the 
reason for the halt in free trade agreement (FTA) talks, 
however, there were indications that post-DPW, UAE trade 
officials would be less willing to compromise their position in 
the negotiations. The President had notified Congress in 
November 2004 of his intent to commence FTA discussions with 
the UAE, which began in early 2005. Although many issues have 
been resolved, some, such as labor and investor-state dispute 
settlement remain open. The renewal of Trade Promotion 
Authority (TPA) may ultimately determine from the U.S. side if 
talks are resumed. There have been concerns that the DP World 
transaction fueled protectionist fears and could potentially 
have an adverse effect on renewal of TPA and other upcoming 
free trade measures.
    Executives of the government owned or controlled 
corporations in Abu Dhabi indicated that although foreign 
perceptions are that the majority of UAE capital is housed in 
Dubai, in reality it is in Abu Dhabi. These executives, 
therefore, followed the DP World transaction carefully. They 
explained that any enhanced compliance requirements for 
investment from ``government controlled'' entities would have 
greater consequences in the UAE due to the fact that such 
entities are the largest source of investment outflows. There 
were also fears that in the case of foreign investors, the U.S. 
government could seize assets or take other forms of adverse 
unilateral action. However, they still indicated a desire to 
invest in the U.S., and to be a part of an environment where no 
single issue controls the bilateral relationship. The potential 
to have to make a CFIUS filing is a relevant issue when 
determining whether or not to do business in the U.S., but it 
did not appear to be the only, or the determinative issue. 
Other significant factors cited when determining whether to 
invest in the U.S. were travel and immigration. They felt that 
it has become more difficult to navigate U.S. immigration 
policies and to enter the country to do business.
    Business executives, whether in wholly private owned or 
government owned companies, all indicated a desire to move 
beyond the DP World issues and find other ways to generate 
increased business relations. An FTA was discussed as something 
that could serve this purpose. In addition to the actual 
technical reduced tariffs and duties from such an agreement, 
simply its existence would signal an affirmative desire on the 
part of both governments to increase bilateral trade. Another 
area of increased cooperation discussed was student exchanges. 
Executives indicated that they previously sponsored students to 
study in the U.S., but the numbers have now dropped 
significantly. There was a sense that student exchange was an 
effective way to create a comfort level for the up-and-coming 
generations in both countries. To the extent there are greater 
common understandings, there is more trust and more possibility 
for cooperation on all fronts.

                        Measures to Attract FDI

    During the 109th Congress, subsequent to the DP World 
fallout, there was a growing perception that the U.S. was no 
longer a welcome destination for foreign direct investment. In 
order to counteract this sentiment, Senators Bingaman and Lugar 
introduced legislation aimed at attracting foreign direct 
investment so that the benefits that flow to the U.S. from FDI 
would not be lost. Statistics indicate the foreign companies 
not only employ significant numbers of workers in each state, 
but employ such workers in higher wage jobs.\15\ The bill has 
been introduced in the 110th Congress as the Invest USA Act of 
2007.\16\
---------------------------------------------------------------------------
    \15\ See Appendix B.
    \16\ Introduced in the 109th Congress as the United States Direct 
Investment Act of 2006.
---------------------------------------------------------------------------
    It provides guidelines for the establishment of a new 
division in the Department of Commerce, the United States 
Investment Administration, which would be headed by a newly 
created Under Secretary of Commerce for Investment. The 
responsibilities of this new agency and Under Secretary would 
be to gather specific data about foreign investment and create 
a report to be submitted to Congress. The duties of the Under 
Secretary would include coordination with the administration on 
the CFIUS process. It also provides for an annual investment 
report. The report would specifically include the amount of 
investment coming into each state, a description of programs 
designed to attract foreign investment, comparisons of 
investment flows into the other countries, the sectors into 
which investment is being made and sectors in which it is 
lacking. The bill contains details on how the analysis should 
be made including the impact that investment trends have on the 
competitiveness of domestic industries globally, employment in 
the U.S., and the provision of health care and benefits by 
companies to domestic workers. Based on this report, the agency 
would develop and implement policies which would seek to 
increase foreign investment in communities where employment has 
been adversely affected due to trade.
    The bill also requires an Annual Investment Agenda (AIA) 
which includes an evaluation of research and development (R&D) 
expenditures being made, particularly with respect to the high 
technology industry. In the AIA, the new Under Secretary would 
also be required to develop proposals that encourage investment 
which will enhance domestic competitiveness, and increase job 
opportunities. In addition, there is a requirement for 
consultation with Congress in development and implementation of 
the AIA. The bill further provides for the establishment of an 
interagency Investment Promotion Committee comprised of the 
Commerce Secretary, Treasury Secretary, Agriculture Secretary, 
the USTR, members of the International Trade Commission and 
National Economic Council.\17\ It is currently pending before 
the Senate Finance Committee. Subsequent to introduction of 
this bill, the Department of Commerce, International Trade 
Administration, introduced its own initiative to affirmatively 
attract foreign direct investment, ``Investing in America,'' 
which based on the same concepts in the Invest USA Act.
---------------------------------------------------------------------------
    \17\ S. 740.
---------------------------------------------------------------------------
    In discussions with embassy officials in the UK and the 
UAE, including U.S. Foreign Commercial Service (FCS) officers, 
all indicated that such affirmative measures seeking foreign 
investment were welcome and needed. The stated purpose of the 
FCS is to assist American companies seeking to do business 
abroad. Occasionally, they receive inquiries from foreign 
companies in their host countries that ask advice on how to do 
business in the U.S., however, such counseling is beyond their 
mandate and they often lack the time and resources to provide 
such advice.

                    Conclusions and Recommendations

    It is difficult to quantify the business effects of the DP 
World transaction on foreign direct investment into the U.S. in 
terms of numbers. It is safe to say that there was adverse 
effect, both in terms of actual parties seeking to invest here 
and in the perception of those who might seek to do so in the 
future. However, there was an overriding sentiment that because 
the U.S. is the largest consumer market in the world, investors 
who want to achieve world class business status would continue 
to come here and learn to navigate the process. The reactions 
varied from the UK to UAE, with those in the UAE being a bit 
more wary and concerned that there would be discriminatory 
effects on UAE companies due to ethnicity.
    The experience of DP World, combined with the legislation 
pending in both the House and Senate should provide some 
certainty and increased transparency in the process. It will 
also provide for increased communication between the 
administration and Congress, which has been cited by many as 
one of the major reasons for the political fallout from DP 
World. Both the current House and Senate bills provide for 
reporting to Congress and more information for those Members 
whose states and districts may be affected.
    In addition to the affect on FDI, DP World and the 
publicity it garnered had an impact from a diplomatic 
perspective. Foreign companies doing business here and American 
companies doing business abroad create more than just bilateral 
commerce. They also contribute to common understandings among 
populations, which are vital in shaping and maintaining a 
greater diplomacy. Cooperation on the commercial front 
increases the ability to work with nations on all other fronts 
and seek solutions to common concerns. It is essential that we 
maintain global ties because it is our open market which 
provides opportunity for the American worker and our open 
diplomacy which provides well being for the American public.
    Over the last several decades, and in particular after 
September 11, 2001, it has become more challenging to balance a 
strong national security while remaining open to foreign direct 
investment from all regions of the world. It is vital to 
achieve the correct balance for many reasons. Our national 
security should never be compromised. However, we can continue 
to maintain it while still remaining relatively open to foreign 
investment. In fact, the perception that the U.S. is no longer 
open to foreign ownership, and in particular ownership from 
certain parts of the world, may work against our national 
interest. There should be a transparent process and careful 
review of any questionable transactions. Those that are in the 
commercial and diplomatic interest of the U.S. and which do not 
compromise our national security should go forward. ``A world 
with strong investment flows is the opposite of a zero sum 
game. We believe there are only winners, no losers, and all 
participants gain from it.'' \18\
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    \18\ Ronald Reagan Statement on Investment Policy, September 9, 
1983.

                          A P P E N D I X E S

                              ----------                              

                               APPENDIX A

                                                      May 16, 2007.
The Hon. Harry Reid,
U.S. Senate, Washington, DC.

The Hon. Mitch McConnell,
U.S. Senate, Washington, DC.

    Dear Senators Reid and McConnell: We are writing to express 
our support for the Foreign Investment and National Security 
Act of 2007 which passed unanimously out of the Senate Banking 
Committee today. The bipartisan legislation will protect our 
national security and American jobs, and restore certainty to 
the CFIUS process while avoiding undue barriers to foreign 
investment in the United States. For this reason, we would urge 
you to quickly schedule this bill for floor consideration.
    We commend Chairman Chris Dodd and Ranking Member Richard 
Shelby and other members of the Senate Banking Committee for 
working in a bipartisan manner to craft legislation that, like 
its House counterpart, recognizes the significance of foreign 
investment to the U.S. economy while ensuring that the 
President maintains the necessary clear authority to block the 
foreign acquisition of a U.S. company if the transaction were 
found to have an adverse impact on our national security.
    This is important legislation for our economy, and we 
applaud the efforts of the Senate Banking Committee in passage 
of the Foreign Investment and National Security Act. We would 
strongly urge that this bill be moved expeditiously through the 
full Senate. Thank you for your time and consideration.
        Sincerely,

                                           John Castellani,
                                    President, Business Roundtable.

                                               Rob Nichols,
                        President and COO Financial Services Forum.

                                                Todd Malan,
      President and CEO, Organization for International Investment.

                                            Thomas Donohue,
                        President and CEO, U.S. Chamber of Commerce

                                ------                                

   BUSINESS COMMUNITY STATEMENT ON HOUSE PASSAGE OF CFIUS LEGISLATION

    WASHINGTON, DC.--Business Roundtable, The Financial 
Services Forum, the Organization for International Investment 
and the U.S. Chamber of Commerce issued the following statement 
on today's vote in the House of Representatives to pass H.R. 
556, legislation reforming the Committee on Foreign Investment 
in the United States (CFIUS):

          The passage today of bipartisan CFIUS legislation is 
        a victory for American jobs and a demonstration of how 
        both parties can work together on legislation that will 
        protect our national security while restoring certainty 
        to the CFIUS process. We commend Chairman Frank, 
        Ranking Member Bachus, Minority Whip Blunt and 
        Representatives Maloney, Pryce, and Crowley for 
        crafting a bill that strikes a critical balance between 
        protecting national security and encouraging beneficial 
        foreign investment. The bill recognizes the importance 
        of foreign investment in the United States and the 5.1 
        million American jobs it supports. At the same time, it 
        ensures that the President has the clear authority to 
        block a foreign acquisition of a U.S. company to 
        adequately and effectively protect our national 
        security.
          We look forward to working with Senate Banking 
        Committee Chairman Christopher Dodd, Ranking Member 
        Richard Shelby, and Senate leadership as the Senate 
        considers this issue. We encourage the Senate to act 
        promptly on this key legislation.

    Together, Business Roundtable, The Financial Services Forum, the 
Organization for International Investment and the US. Chamber of 
Commerce represent a broad range of U.S. businesses employing tens of 
millions of Americans. The organizations recognize the critical 
importance of foreign investment to both the US. economy and to the 
over five million American jobs it supports.

                               APPENDIX B

                        Insourcing Statistics\1\
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    \1\ Excerpted from Organization for International Investment 
website, www.ofii.org. The information was reformatted for inclusion in 
this report.
---------------------------------------------------------------------------
The Facts About Insourcing
   U.S. subsidiaries employ 5.1 million Americans. OFII 
        has compiled a state jobs study, detailing the 
        insourcing employment in each state.

   U.S. subsidiaries of companies headquartered abroad 
        support an annual payroll of $324.5 billion--with 
        average compensation per worker of $63,428, over 32 
        percent higher than compensation at all U.S. companies.

   U.S. subsidiaries heavily invest in the American 
        manufacturing sector; with 31 percent of the jobs at 
        U.S. subsidiaries in manufacturing industries.

   U.S. subsidiaries manufacture in America to export 
        goods around the world--accounting for nearly 19% of 
        all U.S. exports, or $153.9 billion.

   U.S. subsidiaries of companies headquartered abroad 
        reinvested a record-high of $80.3 billion in their U.S. 
        operations in 2006.

   U.S. subsidiaries share of American employment 
        represented 28.2% of the American chemicals industry, 
        24% in the U.S. motor vehicles industry and nearly 24% 
        of the U.S. non-metallic mineral products industry.

   U.S. subsidiaries' federal income taxes went up 57% 
        from the previous year, to an all-time high of $29.9 
        billion.

   Foreign direct investment (FDI) in the U.S. totaled 
        $183.5 billion in 2006; an increase of 67 percent from 
        the previous year (OFII analysis of Commerce Department 
        numbers.)

   U.S. subsidiaries spent $29.9 billion on U.S. 
        reasearch and development activities, up from $29.8 
        billion the previous year.

   U.S subsidiaries also spent $108 billion plant 
        construction and new equipment.

   Ninety-four percent of total assets owned by foreign 
        companies are from OECD countries.

   Ninety-eight percent of U.S. FDI is from private 
        sector firms--only two percent of total direct 
        investment (assets) is owned by companies that are 
        controlled by foreign governments.
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