By Elizabeth Kelleher
Washington File Staff Writer

Washington – Separate bills that passed the U.S. House of Representatives and Senate July 26 aim to change the review process of foreign investments in the United States.

In a show of bipartisan support, the House approved the National Security Foreign Investment Reform and Strengthened Transparency Act of 2006 (H.R. 5337) by a vote of 424-0.  The Senate passed the Foreign Investment and National Security Act of 2006 (S. 3549) by unanimous consent.

Differences between the two bills need to be reconciled and a compromise measure passed by both chambers before the president can sign it into law or veto it.

If signed into law, the bills would change the composition and procedures of an interagency panel called the Committee on Foreign Investment in the United States (CFIUS).  The panel, which consists of representatives from 12 government agencies and is chaired by the Treasury Department, scrutinizes foreign purchases of U.S. businesses for potential national security threats. It has 30 days to approve a deal, block it or launch an additional 45-day investigation.

The House bill would enforce compliance rules in any situation when CFIUS negotiates with a foreign company to take particular action. It also would require CFIUS to regularly report all its activities to Congress.  It adds two vice-chairs from the departments of Homeland Security and Commerce.

The Senate version would allow CFIUS to double the current 30-day, initial review after which the committee makes its decision. It also would require even more extensive reporting to Congress and to state governors, and make the Department of Defense the vice-chair of CFIUS.

CFIUS came under intense congressional criticism earlier in 2006, after the approval of the purchase of a London-based company by the United Arab Emirates-owned Dubai Ports World (DP World).  The transaction would have placed the operation of six U.S. ports in the hands of DP World. (See related article.)

After a strong, bipartisan reaction in Congress against the deal, which many lawmakers considered a national security concern, DP World divested its American operations.

In the House debate on reforming CFIUS, Representative Barney Frank, the ranking Democrat on the Financial Services Committee, said that “cooler heads on both sides prevailed” and that the House bill “does not jeopardize foreign direct investment.”

The House bill would require deals that involve a company owned by a foreign government to undergo automatically a 45-day investigation even if the panel does not voice any initial concerns. In the DP World case, the 45-day investigation was not done.

Business groups - including the U.S. Chamber of Commerce, Business Roundtable, Financial Services Forum and Organization for International Investment – have supported the House bill, arguing it brings transparency to the review of deals without stifling “job-creating foreign investment.” 

They have criticized the Senate version.  Bruce Josten, vice president of the U.S. Chamber of Commerce, said the Senate bill would require “constant reporting” and force CFIUS to “take its eyes off of true national security threats.”  He said the Senate’s reporting requirements could allow “over-politicization” of the process and the potential for 60-day, rather than 30-day, reviews, would create an “uneven playing field” for foreign investors.

Although the Senate bill passed unanimously, senators still can make changes to it during the House-Senate negotiations in a conference session, which likely will take place after the August congressional recess.

Nancy McLernon,senior vice president of the Organization for International Investment, said, “We know a number of senators have concerns about the current Senate version, and a number of House members have concerns [about the Senate bill].” 

Representative Joseph Crowley, a House Democrat from New York, said the Senate bill does not provide for national and economic security.  He said he hopes for a “constructive conference” with the Senate.  But, he said, the House wants  “a good bill, or we will take no bill at all.”