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Even though an American oil company won’t be falling into Chinese hands after all, Cnooc Ltd.’s failed bid for Unocal Corp. has still rattled protectionist-minded politicians. These lawmakers are calling for changes in the Committee on Foreign Investments in the United States, the government panel charged with reviewing the national security implications of mergers between American and foreign companies. The broad question in the CFIUS debate is whether the panel should review deals not just for their effect on national security, but also for their economic impact. Also up for discussion: Which government agency should chair the panel, and which congressional committee should oversee it? Currently the U.S. Department of the Treasury leads CFIUS (which includes representatives from 10 other agencies), and the panel is overseen by the Senate Banking and House Commerce committees. In August, Senate Banking Committee chairman Richard Shelby, R-Alabama, introduced an amendment to a defense bill that would expand CFIUS’ review mandate to include economic and energy security issues. Under Shelby’s provision, House and Senate committees could order CFIUS to investigate a proposed acquisition by a state-owned foreign entity, even if CFIUS initially determines there are no national security issues. The amendment would also require CFIUS to submit quarterly reports to Congress on all reviews. Shelby’s measure replaced an earlier amendment by Sen. James Inhofe, R-Okla., that not only would have increased CFIUS’sresponsibilities, but would have switched the panel’s chairmanship from the Treasury Department to Defense. That, however, would have necessitated a change in congressional oversight for CFIUS, to the House and Senate armed services committees. Shelby’s provision leaves Treasury as CFIUS chairman. Some skeptics think that the effort to remake CFIUS is little more than a ploy to enable the panel to reject deals that lawmakers don’t like. “Clearly congressional leaders are uncomfortable with [some foreign] acquisitions, and expanding CFIUS’ purview would make it more difficult to have these deals approved,” says Jerry Taylor, director of natural resource studies at the Cato Institute, a libertarian think tank based in Washington. The Organization for International Investment, a D.C.-based group that represents foreign companies with U.S. assets, also opposes any efforts to tinker with CFIUS, says spokeswoman Nancy McLernon. “Shelby’s amendment second-guesses the president’s discretion to block or allow an acquisition,” McLernon says. Cnooc’s bid for Unocal triggered the latest debate over CFIUS. Based in Beijing and controlled by the Chinese government, Cnooc made an $18.5 billion offer this summer for California-based Unocal. But the deal was sharply criticized by some politicians, and in August Cnooc withdrew its bid. Unocal is going with a $17.1 billion offer from Chevron Corp., also based in California. An earlier failed deal has already shown how treacherous CFIUS review can be for Sino-American transactions. In 2003 Hong Kong-based Hutchison Whampoa Ltd. withdrew its $250 million offer for Global Crossing Ltd., a New Jersey-based telecom that was in bankruptcy at the time. Hutchison Whampoa gave up because it was unable to convince the Defense Department’s CFIUS representative that it did not have ties to the Chinese military. The Cnooc/Unocal deal also raised national security worries — some critics argued that Unocal’s sophisticated underwater technology could eventually find its way to the Chinese military. However, lawmakers also objected to the economic implications of the proposed transaction. In a public statement Rep. Joe Barton, R-Texas, said that the deal “would be especially egregious at a time when energy markets are so tight and the U.S. is becoming even more dependent on foreign sources of energy.” These concerns led to the current efforts to expand CFIUS’ authority so that it can review deals for their economic impact. But a CFIUS official who declined to be identified said that this move could have unintended consequences. For instance, the panel might have to examine transactions involving American companies with foreign operations. A hypothetical linkup between Chevron and ExxonMobil Corp. might come under review, the CFIUS official said, “because of their foreign links and whether that deal would threaten U.S. energy supplies.”

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