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  • 2The Exon-Florio Amendment

    The United States has formally invited foreign investment since the late1970s. In 1983 President Ronald Reagan publicly announced, for the firsttime by a US president, that the United States welcomed foreign invest-ment, stating, The United States believes that foreign investors should beable to make the same kinds of investment, under the same conditions, as nationals of the host country. Exceptions should be limited to areas oflegitimate national security concern or related interests.1 This nationaltreatment policy, reinforced by the United States attractiveness as theworlds largest economy, has led to sustained increases in foreign directinvestment (FDI) into the United States over the last 30 years, apart froma brief lull from 2000 to 2003. US affiliates of foreign multinational enter-prises employed 5.2 million American workers in 2003, accounting for 4.2percent of total private sector US employment. Capital expenditures bythese same affiliates totaled $109 billion in 2004.

    The path of the United States open investment policy, however, has not been free from turbulence. As chapter 1 discussed, political pressuresbased on real or perceived threats to tighten the valves on FDI have arisenfrom time to time. While these pressures generally failed to carry the day,in 1988, they resulted in the establishment of an investment review lawthe Exon-Florio Amendmentgrounded in national security concerns.

    In this chapter, we provide an overview of the Exon-Florio Amendmentand its legislative history. We discuss how the Committee on Foreign In-vestment in the United States (CFIUS) has implemented Exon-Florio, in-cluding the national security issues that the committee has considered in

    33

    1. See Reagan (1983). President George Herbert Walker Bush also issued a statement on thesubject; see George H. W. Bush, White House Statement Announcing United States ForeignDirect Investment Policy, December 26, 1991.

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  • applying the statute, and how the amendment has been applied morebroadly since the attacks of September 11, 2001. Since, in practice, CFIUShas focused on mitigating the national security impact of a particular for-eign acquisition, as opposed to blocking acquisitions altogether, we con-clude this chapter with specific case studies in the telecommunicationsand defense sectors, and a discussion of the tools that CFIUS has used toreduce the perceived threats from foreign investments.

    Overview of the Exon-Florio Amendment

    In 1988 Congress enacted the Exon-Florio Amendment to Section 721 ofthe Defense Production Act of 1950.2 Exon-Florio authorizes the presidentto investigate foreign acquisitions, mergers, and takeovers of, or invest-ments in, US companies from a national security perspective. If necessary,the president may also prohibit a transaction that appears to threaten na-tional security when other laws, except for the International EmergencyEconomic Powers Act (IEEPA),3 are otherwise inadequate to mitigate thethreat. In the words of the amendment, the president may block an ac-quisition if there is credible evidence that leads the President to believethat the foreign interest exercising control might take action that threatensto impair the national security, and if other laws except for IEEPA donot in the Presidents judgment provide adequate and appropriate au-thority for the President to protect the national security in the matter be-fore the President.4

    When Exon-Florio became law, the president delegated his initial re-view and decision-making authorities, as well as his investigative re-sponsibilities, to CFIUS, 5 which had been established by executive orderin 1975.6 Thus an Exon-Florio review is often alternatively called a CFIUSreview. CFIUS is chaired by the secretary of the Treasury and has 11 othermembers (box 2.1). The assistants to the president for national security af-fairs (the national security adviser) and economic policy (national eco-nomic adviser) are formally members of CFIUS, but they and their staffhave tried not to participate actively in CFIUS deliberations in the initial30-day review period of an investigation, in case they are called upon to

    34 US NATIONAL SECURITY AND FDI

    2. Omnibus Trade and Competitiveness Act of 1988, 5021, Public Law 100-418, US Statutes atLarge 102 (1988): 1107, codified at US Code 50 1988, App. 2170. The original authorizationwas scheduled to expire in 1991 but was made permanent by Section 8 of Defense ProductionAct Extension and Amendments of 1991, Public Law 102-99, US Statutes at Large 105 (1991): 487.

    3. International Emergency Economic Powers Act, 17011706.

    4. Omnibus Trade and Competitiveness Act of 1988, App. 2170(e).

    5. Executive Order no. 12,661 (1988).

    6. Executive Order no. 11,858 (1975). As discussed below, CFIUS originally was establishedprimarily to monitor and evaluate the impact of foreign investment in the United States.

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  • mediate disputes between CFIUS agencies, or to advise the president ona particular transaction. CFIUS is unique among executive branch intera-gency committees in that it purposefully includes agencies with distinctmissions. Certain CFIUS agencies have law enforcement, defense, andhomeland security as their mandate, while others are oriented towardpromoting open trade and investment policies. This tension among mem-ber agencies is designed to elicit carefully considered judgments that ac-count for a myriad of economic and security considerations.

    By statute and regulation, CFIUS is authorized to review a transactioneither upon a voluntary filing by either party to the transaction, or upon anagency notice filed by one of the committees members.7 The statutorilymandated timetable for the CFIUS review process is as follows (figure 2.1):

    initial 30-day review following receipt of notice;

    45-day investigation period for transactions deemed to require ad-ditional review following the initial 30-day period (not all transactionsare subject to this);8

    formal report to the president at the end of the 45-day investigationperiod;

    presidential decision within 15 days of receiving the formal report.9

    THE EXON-FLORIO AMENDMENT 35

    7. Regulations Implementing Exon-Florio, Code of Federal Regulations, title 31, sec. 800, App.A (1988).

    8. The term investigation is a misnomer; practically speaking, it is only an extended review.

    9. Regulations Implementing Exon-Florio, Code of Federal Regulations, title 31, sec. 800, App.A (1988).

    Box 2.1 Members of CFIUS

    Secretary of Treasury (Chair)

    Secretary of State

    Secretary of Defense

    Secretary of Commerce

    Secretary of Homeland Security

    Attorney General

    Director of the Office of Management and Budget

    United States Trade Representative

    Chairman of the Council of Economic Advisers

    Director of the Office of Science and Technology Policy

    Assistant to the President for National Security Affairs

    Assistant to the President for Economic Policy

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  • 36

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