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Key lawmakers want to expand regulatory scrutiny of foreign-U.S. acquisitions to include domestic economic repercussions, in addition to the national-security review already mandated, a change that could make it more difficult to close such deals. Some in Congress have wanted broader authority for the multiagency Committee on Foreign Investment in the U.S. since its establishment in 1987, arguing that economic security — the retention of jobs, high-value technology and overall competitiveness — is a critical component of national security. These people have become more vocal since CFIUS’ approval last week of a deal in which a state-controlled Chinese company, Beijing-based Lenovo Group Ltd., will acquire the PC division of IBM Corp. for $1.7 billion. CFIUS approved that deal after the parties made concessions meant to prevent the transfer of militarily sensitive technology to China. Among other things, people familiar with the case said, Lenovo agreed to remove its operations in a timely manner from the North Carolina office campus where the IBM division operates. The legislation that created CFIUS allows the president to kill a deal only if it appears to compromise U.S. national security. But House Small Business Committee Chairman Donald Manzullo is considering holding hearings about expanding the committee’s mandate, said Rich Carter, a spokesman for the Illinois Republican. House Armed Services Committee Chairman Duncan Hunter, R-Calif., who also wants to broaden CFIUS’ authority. “It’s fair to say we haven’t been happy with the whole process,” said Harald Stavenas, a spokesman for Hunter. “The real issue is, as it has always been, technology transfers to China. And that is an economic issue as much as it is a national security concern.” Many worry that the acquisition of U.S. companies by state-backed companies, particularly from China (Lenovo is 30 percent owned by the state-controlled Chinese Academy of Sciences), will leave the acquirers with an unfair advantage over their U.S. competitors. CFIUS critics also fear that such deals will hamper U.S. competitiveness by moving cutting-edge technology offshore. “It’s hard to make a national-security case [against] China [were it] to buy one of the U.S.’ car manufacturing companies,” said Bill Reinsch, president of the National Foreign Trade Council, a Washington-based industry group. “But is it in the U.S.’ long-term economic interests to be a maker of a basic industrial product like automobiles?” To be sure, there could be an element of protectionism in the movement to revise CFIUS. Daniel Griswold, director of the Center for Trade Policy Studies at the pro-free trade Cato Institute in Washington, said such efforts are rooted in an increasing concern about manufacturing-job losses in the United States. Indeed, he notes, Congress passed the CFIUS rules at a time of high anxiety about Japanese acquisitions of U.S. assets. Griswold said that the change that Hunter and Manzullo seek would hinder foreign, particularly Chinese, acquisitions of U.S. businesses. “That would create a giant loophole for all sorts of mischief for Congress,” he said. Manzullo, while boasting one of the strongest free-trade voting records in Congress, also has a constituency strong in tool-and-die manufacturers that fear competition from low-cost China. Carter, his spokesman, conceded that Manzullo’s district has lost such jobs to foreign competition but said Manzullo is equally concerned about job losses throughout the United States as a result of foreign competition. “We’re concerned about fair trade,” he said, “and Lenovo and other Chinese companies get direct payments from the Chinese government.” Hunter, meanwhile, is regarded as a protectionist and has openly sought to curtail technology flow to China. In 2001, for example, he supported legislation to prevent the U.S. Army from having berets made in China. Michael Wessel, a member of the U.S.-China Economic and Security Review Commission, a congressional advisory panel that monitors trade with China, said CFIUS may already have the authority to reject deals on an economic basis but that Congress may need to bolster its authorization in this area. CFIUS critics also want to expand the group of lawmakers who are privy to the panel’s deliberations. Wessel notes that Manzullo, Hunter and House International Relations Committee Chairman Henry J. Hyde, R-Ill., sought a meeting with CFIUS officials about the Lenovo deal before it was approved but will get a briefing on it only this week. “It enhances the process to have the input of members of Congress while the review is ongoing,” Wessel said. Copyright �2005 TDD, LLC. All rights reserved.

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