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Last week’s bid by Beijing-controlled CNOOC Ltd. company for Unocal Corp. is likely to bring unprecedented public attention to the little-known Committee on Foreign Investments in the United States, a multiagency panel that scrutinizes the national-security implications of U.S.-foreign mergers. But just as CFIUS faces what would likely be its most controversial case to date, many are asking whether the whole CFIUS review process needs an overhaul. Several lawmakers are demanding that the scope of the panel’s reviews be expanded to issues other than national security, and some complain that CFIUS fails to keep Congress adequately informed about the deals it investigates. Others say CFIUS is not equipped to ensure implementation of the conditions that it imposes on mergers. There’s also a debate about whether the Treasury secretary should remain chairman of the committee, whose other 11 members range from the Pentagon to the Commerce Department. As the cross-border deals become more common, CFIUS is likely to bear the brunt of concerns regarding the broader domestic impact of U.S.-foreign mergers, particularly those in which the buyer is foreign. There’s little doubt that cash-flush Chinese companies, in some cases backed by a regime widely viewed as a U.S. enemy, will be among these suitors. The first shot across the bow of CNOOC’s bid came on Tuesday when two influential Republican House members called on President Bush to reject any deal that the Chinese firm might strike with Unocal. (In problematic reviews, CFIUS sends its recommendations to the president, who makes a final decision.) Even before that, more than 40 lawmakers were pressing Treasury Secretary John Snow to conduct in the CNOOC case a formal, 45-day examination, in addition to an informal, 30-day probe that every CFIUS review entails. But some say even a 45-day review is not enough. Long before CNOOC came along, many in Congress were demanding that the scope of CFIUS’ reviews be expanded to include the domestic economic repercussions, arguing that job retention, high-value technology and overall competitiveness are critical components of national security. Others see hints of protectionism in that suggestion, noting that the review authority given to CFIUS by the 1988 Exon-Florio provision to the Defense Production Act itself came at the height of fears about an acquisitive Japan Inc. Whatever the scope of CFIUS’ authority, some wonder if the Treasury is the right agency to lead it. “I think it’s time that the CFIUS process was administered by the Commerce Department, which already looks at industrial-security issues,” said Rep. Donald Manzullo, R-Ill., in a speech before the intergovernmental U.S.-China Economic and Security Review Commission on June 23. Manzullo spokesman Rich Carter said the congressman, chairman of the House Small Business Committee, is in talks with other lawmakers about holding hearings on CFIUS. Then there’s the issue of disclosure. Patrick Mulloy, a member of the U.S.-China commission, contends that the Bush administration has failed to fulfill a key reporting provision mandated by the Defense Production Act that authorized CFIUS. In 1992, the statute was amended to require that the administration report to Congress every four years on “whether foreign governments or companies have a coordinated strategy to acquire U.S. critical technology companies.” Mulloy, who was the general counsel for the Senate Committee Banking, Housing, and Urban Affairs between 1987 and 1989, when lawmakers there crafted the CFIUS statute, notes that there has been no report since the Clinton administration’s in 1993. CNOOC “is a Chinese government-owned company buying a huge U.S. company in an industry that is critical to both sides,” Mulloy said. “Clearly, this is the kind of case CFIUS was made for, and a report like the one required by the statute would have been helpful in understanding what is driving this deal.” Moreover, he said, “there could be a lot of [Chinese] acquisitions in the near future. The Chinese have acquired a lot of money.” Mulloy and other members of the commission sent a letter on June 24 to Senate Appropriations Committee Chairman Thad Cochran, R-Miss., and Sen. Robert Byrd, D-W.Va., expressing concern about apparent neglect of the reporting requirement. The letter also called for a 45-day CFIUS review of any CNOOC-Unocal deal. White House officials did not return calls seeking comment. Neither did Gay Hartwell Sills, a CFIUS spokeswoman at the Treasury Department. Apart from the four-year reviews, another report on CFIUS is in the works. In February, Senate Banking Committee Chairman Richard Shelby, R-Ala., and ranking member Sen. Paul Sarbanes, D-Md., asked the Government Accountability Office to examine whether the CFIUS review process is functioning properly. Another China-related deal appears to have prompted their request: Beijing-based Lenovo Group Ltd.’s then-pending $1.7 billion acquisition of IBM Corp.’s personal-computer unit. The timing was “no coincidence,” said a Capitol Hill staffer. CFIUS approved the deal in March. Anne Calvaresi-Barr, a GAO director, said the report should be available to CFIUS agencies and the Banking Committee by today. Copyright �2005 TDD, LLC. All rights reserved.

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