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Lawmakers on July 13 blasted CNOOC Ltd’s $18.5 billion bid to buy Unocal Corp., arguing that the Chinese oil giant’s offer raises serious national and economic security concerns. “CNOOC’s offer to buy Unocal clearly would be a strategic acquisition and should be rejected,” Armed Services Committee Chairman Duncan Hunter, R-Calif., told reporters after a hearing on the transaction. “China is in the business of making strategic acquisitions.” The hearing is part of an escalating effort by U.S. legislators to derail the deal. A second hearing is scheduled for Tuesday in the House Energy Committee. Unocal has agreed for Chevron Corp. to acquire it for $16.4 billion. Unocal shareholders are scheduled to vote on the deal on Aug. 10. Amid rising tensions over CNOOC’s proposed acquisition, China’s foreign ministry issued a statement demanding that Congress stop interfering with “normal commercial exchanges between enterprises of the two countries.” On June 30, House lawmakers ratcheted up their pressure on CNOOC by voting 333-92 to pass an amendment to an appropriations bill that bars a government panel from reviewing any merger agreement Beijing-based CNOOC might strike with Unocal. The Chinese government controls 70 percent of CNOOC, whose chief executive, Fu Chengyu, is the company’s chief liaison with the Communist Party. Members of the Armed Services Committee renewed the assault, arguing that U.S. companies are prohibited from buying Chinese enterprises, while China expects CNOOC to receive clearance to buy El Segundo, Calif.-based Unocal. And while they acknowledged that Unocal is a relatively small energy player both in the U.S. and abroad, such a deal could affect the company’s relations with U.S. allies with which it does business, such as Azerbaijan, Georgia, Turkey and Taiwan. Many lawmakers on the panel also worried that the deal could help China develop its military and defense industry. Rep. Joe Schwarz, R-Mich., said the Chinese government would effectively gain access to a shuttered Unocal mine that produced rare earth metals that have military functions for laser technology. “These kinds of metal technology are important to our defense posture,” he said. Rep. Curt Weldon, R-Pa., added: “It’s not about China’s economic needs, but about China’s defense needs.” Ignoring such rhetoric, Rep. Vic Snyder, D-Ark., warned against barring CNOOC’s purchase of Unocal, arguing that allowing Chinese companies to buy U.S. assets could discourage them from expanding commercial ties in such geopolitical hot spots as Sudan and Iran, where CNOOC already does business. “If you call someone an enemy enough times, they become your enemy,” he said. Jerry Taylor, director of Natural Resource Studies at the Washington-based CATO Institute, a libertarian think tank, defended the CNOOC bid. China, like the U.S., is a net importer of oil, which means the two countries have a similar incentive to keep the price of energy low and to maximize productivity, he said. Weldon attacked this view, arguing that examining the deal only from an economic perspective ignored national strategic considerations. “You are not a defense expert, and you don’t have access to the same information we have,” Weldon told Taylor. Witnesses at the hearing also enumerated other defense-related concerns. Richard D’Amato, chairman of the U.S.-China Economic and Security Review Commission, an organization mandated by Congress, noted that Unocal has 14 offshore oil platforms in Alaska and the Gulf of Mexico that are near important U.S. defense strategic facilities, an apparent reference to missile defense operations in those regions. He also said Unocal may possess technologies for deep-sea exploration and drilling that have national security implications. After the hearing, CNOOC spokesman Mark Palmer complained that the Armed Services Committee did not invite anyone from the company to testify. Palmer added that he hoped Energy Committee Chairman Joe Barton, R-Texas, would invite a CNOOC official to testify at that panel’s hearing this month. After the hearing, lawmakers also expressed concern about the government’s secretive process for reviewing foreign acquisitions of U.S. assets. Both Hunter and Armed Services Committee ranking member Ike Skelton, D-Mo., said the committee has authority to seek changes at the Committee on Foreign Investments in the United States, or CFIUS, which investigates cross-border deals that could affect national security. “Changing CFIUS is a good idea, but it’s a complex process that requires input from other committees,” Hunter said.

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