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The Bush Administration has committed itself to taking every possible step to protect America's national security since the beginning of the War on Terrorism, in response to the attacks on our country on September 11, 2001, as well as to the worldwide threat posed by Islamo-fascism. Similarly, the Administration has been an active proponent of free trade and an open investment policy in the United States. While both laudable, these two goals may come into conflict when foreign direct investment transactions within the United States may in some way threaten national security. This conflict between the demands of national security and an open foreign investment policy was illustrated in very public and controversial ways by two recent controversies surrounding attempts by foreign corporations to acquire American corporations: the attempt by the China National Offshore Oil Corporation, Ltd. (ᑼNOOCň) to acquire Unocal, a U.S. oil company, and the attempt by Dubai Ports World (ᑽPWň), a state-owned company based in the United Arab Emirates, to acquire a British company which would have given DPW operating rights at terminals in a number of American ports. Both of these controversies featured criticism of the Committee on Foreign Investment in the United States (IUSň or Ňthe Committeeň), the interagency committee chaired by the Department of the Treasury which is tasked by the President under the Exon-Florio Amendment to the Defense Production Act of 1950 with reviewing mergers and acquisitions for national security concerns. CNOOC's attempt to acquire Unocal occurred in the summer of 2005. After a much-publicized bidding and public relations war for control of Unocal between CNOOC and another major U.S. oil company, Chevron, Inc., CNOOC's bid was ultimately defeated by political pressure applied by the United States Congress. Many members of Congress had publicly and forcefully expressed grave reservations about the possible national security repercussions if China's state-owned company gained control of Unocal's oil reserves. This debate led to discussion not only of national security, but also of economic security. Even though CFIUS never initiated a review of the CNOOC transaction, let alone gave the transaction its approval, numerous members of Congress who feared that the Committee would not block the transaction began to suggest that changes to the Exon-Florio statute were in order as a means to address these concerns. This debate over changes to Exon-Florio resumed in early 2006, when DPW attempted to purchase Peninsular and Oriental Steam Navigation Co. (ŇP&Oň), a British firm, in a $6.8 billion deal. With the acquisition of P&O, the Dubai-based company would have acquired operational control of certain terminals at six U.S. ports. The revelation that CFIUS had approved the deal set of a firestorm of criticism on Capitol Hill; members and leaders of both political parties in Congress denounced the merger. Though DPW and the Administration agreed to conduct an additional 45-day investigation under the CFIUS statute, the House Appropriations Committee voted 62-2 to block the transaction, and under intense political pressure DPW agreed to transfer its U.S. ports interests to an American company. In the midst of the ports controversy, legislation was proposed in Congress not only to block the deal, but also to make substantial changes to the Exon-Florio statute in an attempt to strengthen the CFIUS review process. These controversies and the loud calls to amend Exon-Florio that accompanied both of them illustrate that changes to the Exon-Florio statute are likely. These changes could potentially have a tremendous impact on the country's national security and economic health. This Note will argue that currently the Exon-Florio statute and CFIUS process maintain an appropriate balance between national security and economic security. It will then examine recent Congressional proposals to amend the Exon-Florio statute, and argue that such changes would have dire consequences for this balance. Part II of this Note will provide a detailed description of the Exon-Florio process as well as of the legislative history behind Exon-Florio and the executive orders which delegated the President's authority under the statute to CFIUS. It is important to understand this legislative history in order to comprehend the context in which changes to the Exon-Florio statute occur. Part III will explain four major transactions that were examined by CFIUS (or in the case of CNOOC, merely mentioned in the context of a potential review that never actually occurred) and which received far greater public attention than average CFIUS transactions. Part IV will explain the various changes to the Exon-Florio statute that have been proposed in Congress as a result of the fear by some members of Congress that the current system is insufficient to protect the country's national security. Finally, Part V will explain why the current statutory system maintains a careful balance between national security and the promotion of an open investment policy, and how the proposed changes to the Exon-Florio statute could potentially impact that balance. The conclusion will then summarize those changes which would be beneficial and which would be detrimental to the Exon-Florio balance.
