Scrutiny of foreign deals urged

WASHINGTON — WASHINGTON -- President Bush is coming under growing pressure to toughen the government's scrutiny of future transactions, as the furor continues over an Arab firm's purchase of some U.S. port operations, including in Baltimore.

Lawmakers in both parties are advancing proposals that would overhaul the way the government screens acquisitions of U.S. firms by foreign investors. Among the changes being considered: barring foreign purchases of critical U.S. infrastructure and giving Congress power to veto deals it believes might weaken national security.


For now, Bush, as president, has the authority to rule on foreign investment matters. But the backlash against the Dubai Ports World deal could give momentum to efforts that would, for the first time, give Congress a hand in making those decisions.

At the same time, a debate is brewing over how to balance U.S. dependence on foreign investment against the national security risks that have taken on greater urgency since the Sept. 11 attacks.


Yesterday, lawmakers said reform of the review process was needed.

The problem is "the committee that conducts the review is weighed toward the Treasury Department," said Sen. Susan M. Collins, a Maine Republican who is chairwoman of the Senate Homeland Security Committee.

Collins and Sen. Patty Murray, a Washington Democrat, will make a fresh push today for their legislation aimed at improving the security of unchecked cargo containers that enter U.S. ports.

"I think we need to scrap the committee, start again, constitute it within the Department of Homeland Security," said Collins, who spoke on ABC's This Week. "The process now is deeply flawed."

Rep. Duncan Hunter, a California Republican and chairman of the House Armed Services Committee, said on This Week that he wants to scuttle the Dubai deal and then require foreign governments to divest from critical U.S. installations unless they pass a review by the departments of defense and homeland security.

Democratic Sen. Evan Bayh of Indiana, a potential 2008 presidential candidate, wants to require a high-level intelligence assessment of any foreign purchase of a U.S. firm. He would also force the president to inform members of Congress, state officials and the public of any such deal, lifting the secrecy that cloaks the process.

"Up until now, it's been too much of the free-trade agenda and not enough of our nation's national security interests," Bayh said.

Bayh and others contend that the case of Dubai Ports World - the government-owned firm whose purchase of British-owned Peninsular & Oriental Steam Navigation Co. would allow it to operate at six U.S. ports - shows that the arcane, closed-door process by which the government reviews such deals is broken.


National security concerns are swept under the rug, these critics allege, in the interests of smoothing the path for commerce. But senior lawmakers in both parties want assessments of potential threats to weigh more heavily in the reviews.

Defenders of the current system warn that U.S. economic and foreign policy interests would suffer if Congress makes it more difficult for such transactions to go through. They argue that the process has successfully identified and resolved national security problems, and that changing the rules - by lengthening audits, giving security officials a larger role, or divulging proposed business transactions to Congress - would reduce crucial foreign investment in the U.S. economy.

The conflict has sparked an intense lobbying effort by business groups and multinational firms, which fear that any changes could hurt their bottom lines.

"We're active," said Stephen Canner of the U.S. Council for International Business, a coalition of major U.S. corporations. "This is going to become an important issue for business."

The intensity of the outcry over the DP World deal has prodded the Bush administration to acknowledge problems with the system, and commit to working with Congress to fix it.

But Bush is unlikely to embrace sweeping changes that give Congress more input, substantially slow the process, or interfere with his power to have the last word on foreign investment.


Administration officials "want to communicate better with Congress and make sure that they have full confidence in the process," said Tony Fratto, a Treasury Department spokesman who declined to comment on any specific proposals. "Balancing that is that there are responsibilities that the executive carries out, and we need to be respectful of that."

As recently as last fall, top officials defended the reviews and resisted efforts to change them.

The port debate is "a blessing in disguise, because what it means now is that Congress is going to rewrite this law. It's clear that [Bush administration officials] realize that they're going to get reform, whether they want it or not," said Patrick A. Mulloy, a Clinton administration trade official and former congressional aide who helped craft the current law.

"I think now, finally, we're in a position where we'll be able to pass something we were not able to pass before," Sen. James M. Inhofe, an Oklahoma Republican, said last week.

Sen. Richard C. Shelby, the Banking Committee chairman, called the Dubai case an indictment of the obscure interagency panel, the Committee on Foreign Investment in the United States, charged with reviewing foreign investment.

"A process that could produce such a result is simply no longer acceptable," said the Alabama Republican, who is working with senior lawmakers, including Democratic Sen. Paul S. Sarbanes of Maryland, to revamp the review process. Sarbanes said he is concerned about the "deeply flawed process that permits this sort of transaction to go forward before it is analyzed sufficiently."


Most lawmakers say they should be kept better informed about the work of the committee, led by the Treasury Department and which, by law, operates in secret to protect proprietary business information and prevent disclosure of national security details that are classified.

Created in 1975 to monitor the impact of foreign investment in the United States, the committee was charged in the late 1980s with considering the national security effects of proposed deals, as part of a move to give the president power to block any transaction deemed a security threat.

The group, with representatives from 12 agencies, has 30 days to review proposed transactions. If members raise national security concerns, it can take up to another 45 days for a deeper investigation. Ultimately, the president has the last word. Congress hears about transactions after the fact, and only if they are subjected to a national security probe that prompts the president to weigh in - something that has happened only 25 times out of more than 1,600 applications.

Bayh's measure would require Congress to be notified at the outset of any foreign purchase of a U.S. firm, while other proposals would require that lawmakers are told whenever a government-owned foreign company seeks to buy an American business.

"There needs to be enough transparency so that you can make a good, hard evaluation about security without compromising trade secrets," said Rep. Donald Manzullo, an Illinois Republican who is proposing legislation that would require the administration to notify Congress and hold a public hearing any time a deal is submitted for review. "The problem with [the interagency committee] is that no one even knows when somebody files."

Other lawmakers want to keep foreign firms from owning any U.S. facility related to critical homeland security infrastructure. Democratic Rep. Debbie Wasserman Schultz of Florida proposes to ban any foreign ownership of property at U.S. ports, while several lawmakers in both parties, including Democratic Rep. Benjamin L. Cardin of Baltimore, want to keep out any government-owned foreign firm. Republican Rep. Mark Foley of Florida and Democratic Rep. Edward J. Markey of Massachusetts both want Congress to be able to weigh in on deals involving foreign governments, which their measures would automatically subject to a 45-day review.


Businesses and some veterans of the review committee shudder at the idea of letting Congress keep close tabs on the process, fearing that would hamper foreign investment without protecting national security.

"If you had 535 members of Congress able to question every transaction, our economy would come to a screeching halt," said William H. Lash III, a George Mason University international trade law specialist who formerly served in Bush's Commerce Department.

Other proposals in Congress would require a 45-day national security review of any deal involving a foreign government-owned firm, whether or not the committee on foreign investment sees a potential threat.

Manzullo proposes moving the panel out of the Treasury Department, where, critics say, it sometimes focuses on welcoming foreign investment to the detriment of national security. The committee often works with foreign firms to cut side deals on security issues and sparing them more lengthy national security reviews, a practice that, skeptics say, papers over real threats.

"When somebody from a national security agency shows up at the meeting and you start raising concerns, you become the skunk at the garden party, and they try to mollify you in some way without really taking care of the problem," Mulloy said.

Bush administration officials and some foreign investment analysts argue that the reviews give proper weight to national security concerns, arguing that changing them won't make the country safer and might harm the economy.


"We'll get a slower, less effective and more cumbersome regulatory process for no benefit in security," said James Andrew Lewis, of the Center for Strategic and International Studies. "Foreign investors are going to say, 'Those Americans are so crazy - I'm not going to put myself through that.'"

The Associated Press contributed to this article.