Ports, Foreign Investment Still a Concern for Congress

The sale of port operations to a Dubai-owned company might have been headed off at the pass, but fears that terrorism could be perpetrated through the conduct of international commerce haven't sailed into the sunset quite yet.

After it came to light in February that Dubai Ports World had been approved by a low-flying executive branch committee to take over operations at terminals in six U.S. ports, lawmakers threatened to kill the deal before the company withdrew its proposal. Legislators have since proposed no fewer than 23 bills aimed at either preventing such deals, tightening port security or further scrutinizing foreign-owned companies' actions on U.S. soil.

But at a time when concerns over the growing U.S. trade deficit are high, fears have arisen that too much scrutiny on foreign-owned businesses could strain the economy. Nevertheless, worries about terrorists using under-regulated ports and shady business deals to strike the United States are pushing the debate.

"This issue touches every American that wants to know they'll wake up safe," said Rep. Deborah Pryce, R-Ohio, during a hearing last week exploring national security problems with foreign investment.

"There is, in my opinion, no time left," Rep. Edward Markey, D-Mass., said at a Democratic press conference on port security last Tuesday. "We're nearing the first five years after 9-11. Time is of the essence. Al Qaeda could be plotting right now to exploit this loophole" in cargo screening.

Returning from recess last week, Congress renewed the battle over port security and oversight of foreign businesses that invest in the United States. Since then, it appears that pro-trade advocates are gaining traction.

A House was to vote Thursday on a bill passed by a House panel that requires the Homeland Security Department to give a timetable for placing radiation portal monitors at U.S. seaports that don't already have them and for assessing the security implications of screening programs at foreign ports.

During the Homeland Security Committee vote last week, Republicans defeated an amendment by Markey that would have called for screening of 100 percent of cargo containers entering the United States. While Democrats have vowed to continue pushing the plan, Republican opponents say it would be too costly, would slow international commerce unnecessarily and won't be effective.

During debate Thursday on the House floor, Markey called the lack of 100 percent screening the "fatal flaw in the Republican bill." Saying the technology was available to perform the off-shore screening, he said the concern was to prevent nuclear weapons entering the country, and "so that we do not have to duck and cover here in the United States."

"This bill has a loophole big enough to drive a cargo container filled with nuclear weapons through it!" Markey shouted.

Rep. Peter King took Markey to the mat on his comments, calling him off the mark for saying Republicans have forgotten the Sept. 11, 2001, terror attacks.

"I don't need visual aides to remember what happened Sept. 11," King said, adding that the bill has satisfactory protections and screening measures.

In the meantime, members in both chambers of Congress continue to look at the administrative process set up to weed out national security threats when foreign businesses seek to buy or manage U.S. property, companies or other assets.

The Committee on Foreign Investment in the United States — CFIUS — was created in 1975 to look at foreign investment deals, and throughout the 1980s and 1990s was given broader powers to investigate questions of national security, according to a Congressional Research Service report.

Today, CFIUS is generally notified anytime a foreign company wants to buy U.S. assets, and it can decide to take up an investigation but rarely does so, says the April 3 report, citing a July 2005 Washington Post article. The report notes that its research was limited by the few public sources of information available on CFIUS.

CFIUS can take up to 45 days to complete its investigation of a deal, and then passes its recommendation on to the president, who has 15 days to OK or spike the deal.

In DP World's case, the United Arab Emirates-owned company proposed to buy port operations from the British company, Peninsular & Oriental Steam Navigation Co., which had been running the terminals for years. CFIUS looked at the agreement, signed off its approval in February and the deal went through.

But while the Bush administration supported it, bipartisan opposition in Congress and vast public opinion against the sale forced the company to pledge to sell its newly acquired assets to an American buyer by September. Now, the CFIUS process is in the sights of lawmakers, and proposals on the table include:

— Lengthening the amount of time for considering a business deal;

— Forcing CFIUS to consider certain deals, instead of its current, less formal way of picking and choosing deals to review;

— Increasing the level of congressional involvement, including more reporting and possible voting;

— Adding officials from the intelligence community to the process.

While the proposals are aimed at making the country safer, some analysts are warning that the ideas not only won't improve safety, but will make the economy weaker.

"We need to separate out what are true security issues from what are non-security issues," said James Carafano, a national security analyst for the Heritage Foundation who supports the idea of CFIUS, but says it needs some tweaking.

One way to keep the focus on security matters is to make sure that CFIUS has oversight from the main U.S. national security agencies: the departments of Justice, Homeland Security and Defense.

Representatives from each of those departments now participate in CFIUS as do officials from the departments of State and Commerce, the Office of Management and Budget, the Council of Economic Advisers, the National Security Council, the National Economic Council, the Office of Science and Technology Policy and the US Trade Representative. The Treasury secretary chairs the panel. Other U.S. agencies, including the departments of Energy and Transportation and the Nuclear Regulatory Agency also sometimes sit in to consider transactions that impact those industries.

Carafano suggested that Justice, Homeland Security and Defense hold the strongest weight in the committee's decisions. When national security is a priority, approval of a deal should be based on a consensus of those three departments, not the whole committee as is the case now.

Economic Ramifications of National Security

A panel of business representatives who appeared last week before a Financial Services subcommittee chaired by Pryce asked Congress to be extremely cautious in any new controls it considers on foreign investment, which in 2004 accounted for $113 billion in investment in U.S. businesses and real estate, according to Commerce Department figures.

"We urge Congress to keep America's markets open, even as it pursues national security," said Donald Evans, who was President Bush's secretary of commerce until last year and now is CEO of the high-powered financial lobbying group The Financial Services Forum, an association of bank and other large financial institution chief executives.

Evans and others said that adding time to the CFIUS process could signal to foreign investors that their money is no longer welcome, and it would be unnecessary to look at every foreign acquisition.

The point is to make sure a foreign investor is not "going to have to wait 90 days, just because they're acquiring an ice cream company," Georgetown University law professor Daniel Tarullo told the House panel.

Donald Losman, an economics professor at National Defense University, said national security and the economy concerns can achieve balance. In one instance a few years ago, a European company wanted to buy a U.S.-based Navy contractor. The government set up a blind trust that allowed the foreign company to invest without being directly involved in the day-to-day operations.

"There are ways to do it, to put restrictions on it, without chasing away the investor, without insulting the investor," Losman said in a phone interview.

House Majority Whip Roy Blunt, R-Mo., announced last Thursday that he would introduce reform legislation by the end of May that would tighten controls without hurting trade.

"We must strike the right balance between strengthening our economy and protecting the American people," Blunt said in a release.

But not everyone is convinced more regulation will work. Rep. Barney Frank, D-Mass., said during the hearing that stricter enforcement of current laws might be better than increasing the amount of regulation.

"I think there's been a history of people being too nervous," Frank said, noting concerns over Japanese investment in the 1980s that eventually amounted to failed business deals with little impact on national security.

Frank targeted the Bush administration for its handling of the CFIUS process, adding, "Of course, I have a better solution, and that would be to change the administration."

CFIUS supporters say one change that should be avoided is any increase in the level of politics in the committee. Some proposals would increase reporting requirements to Congress about the committee's work, and that has raised concerns over confidentiality of business information; others would allow Congress to overturn the president's decision.

Calling it the "Abramoff" provision after the now-convicted Washington lobbyist Jack Abramoff, Carafano said having congressional votes determine whether business should stay or go would just flush the system with more unwanted money.

"That would become a lobbyist's dream world," Carafano said. "The purpose is not to have government approval for investment in the United States" hinging on a vote in Congress. "It's a horrifying idea."

Dan Ikenson, a trade policy analyst with the CATO Institute, agreed.

"If we don't have an executive branch agency reviewing these types of cases, and it was left to the Congress, it would be played out in the popular press, sort of the way the DP World deal was. It would be subject to grandstanding," Ikenson said.

Ikenson said the most important thing is to keep from over-defining the role of CFIUS. He said one proposal would force foreign countries to divest their interests in the U.S. "infrastructure."

"Well, what is infrastructure? ... That's an easy thing to sort of fudge. We need to create rules that are clear, but not too restrictive," Ikenson said.

But congressional oversight could be good, too, said Ikenson, noting that enforcement of agreements between CFIUS and the foreign investors reached as a contingency for approval have rarely been monitored. Also, a line of communication between CFIUS and Congress might stave off future political uproars like those over DP World, Ikenson said.

Losman said adding more members to the CFIUS committee might lengthen the process, but in the end could help add trust between Congress and the administration.

"At some point, you have to trust your bureaucrats," Losman said.