Defense Trade
Implementation of Exon-Florio Gao ID: GAO-06-135T October 6, 2005The 1988 Exon-Florio amendment to the Defense Production Act authorizes the President to suspend or prohibit foreign acquisitions of U.S. companies that may harm national security, an action the President has taken only once. Implementing Exon-Florio can pose a significant challenge because of the need to weigh security concerns against U.S. open investment policy--which requires equal treatment of foreign and domestic investors. Exon-Florio's investigative authority was delegated to the Committee on Foreign Investment in the United States (Committee)--an interagency committee established in 1975 to monitor and coordinate U.S. policy on foreign investments. In September 2002, GAO reported on weaknesses in the Committee's implementation of Exon-Florio. This review further examined the Committee's implementation of Exon-Florio.
Several aspects of the process for implementing Exon-Florio could be enhanced thereby strengthening the law's effectiveness. First, in light of differing views among Committee members about the scope of Exon-Florio--specifically, what defines a threat to national security, we have suggested that Congress should consider amending Exon-Florio to more clearly emphasize the factors that should be considered in determining potential harm to national security. Second, to provide additional time for analyzing transactions when necessary, while avoiding the perceived negative connotation of investigation on foreign investment in the United States we have suggested that the Congress eliminate the distinction between the 30-day review and the 45-day investigation and make the entire 75-day period available for review. Third, the Committee's current approach to provide additional time for analysis or to resolve concerns while avoiding the potential negative impacts of an investigation on foreign investment in the United Stated is to encourage companies to withdraw their notifications of proposed or completed acquisitions and refile them at a later date. Since 1997, companies involved in 18 acquisitions have been allowed to withdraw their notification to refile at a later time. The new filing is considered a new case and restarts the 30-day clock. While withdrawing and refiling provides additional time while minimizing the risk of chilling foreign investment, withdrawal may also heighten the risk to national security in transactions where there are concerns and the acquisition has been completed or is likely to be completed during the withdrawal period. We are therefore suggesting that the Congress consider requiring the Committee Chair to (1) establish interim protections where specific concerns have been raised, (2) specify time frames for refiling, and (3) establish a process for tracking any actions being taken during the withdrawal period. Finally, to provide more transparency and facilitate congressional oversight, we are suggesting that the Congress may want to revisit the criterion for reporting circumstances surrounding cases to the Congress. Currently, the criterion is a presidential decision. However, there have only been two such decisions since 1997 and thus only two reports to Congress.
GAO-06-135T, Defense Trade: Implementation of Exon-Florio
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Testimony:
Before the Senate Banking, Housing, and Urban Affairs Committee:
United States Government Accountability Office:
GAO:
For Release on Delivery Expected at 10:00 a.m. EDT:
Thursday, October 6, 2005:
Defense Trade:
Implementation of Exon-Florio:
Statement of Katherine Schinasi, Managing Director, Acquisition and
Sourcing Management:
GAO-06-135T:
GAO Highlights:
Highlights of GAO-06-135T, a report to Senate Banking, Housing, and
Urban Affairs Committee:
Why GAO Did This Study:
The 1988 Exon-Florio amendment to the Defense Production Act authorizes
the President to suspend or prohibit foreign acquisitions of U.S.
companies that may harm national security, an action the President has
taken only once. Implementing Exon-Florio can pose a significant
challenge because of the need to weigh security concerns against U.S.
open investment policy”which requires equal treatment of foreign and
domestic investors.
Exon-Florio‘s investigative authority was delegated to the Committee on
Foreign Investment in the United States (Committee)”an interagency
committee established in 1975 to monitor and coordinate U.S. policy on
foreign investments. In September 2002, GAO reported on weaknesses in
the Committee‘s implementation of Exon-Florio. This review further
examined the Committee‘s implementation of Exon-Florio.
What GAO Found:
Several aspects of the process for implementing Exon-Florio could be
enhanced thereby strengthening the law‘s effectiveness. First, in light
of differing views among Committee members about the scope of Exon-
Florio”specifically, what defines a threat to national security, we
have suggested that Congress should consider amending Exon-Florio to
more clearly emphasize the factors that should be considered in
determining potential harm to national security.
Second, to provide additional time for analyzing transactions when
necessary, while avoiding the perceived negative connotation of
investigation on foreign investment in the United States we have
suggested that the Congress eliminate the distinction between the 30-
day review and the 45-day investigation and make the entire 75-day
period available for review.
Third, the Committee‘s current approach to provide additional time for
analysis or to resolve concerns while avoiding the potential negative
impacts of an investigation on foreign investment in the United Stated
is to encourage companies to withdraw their notifications of proposed
or completed acquisitions and refile them at a later date. Since 1997,
companies involved in 18 acquisitions have been allowed to withdraw
their notification to refile at a later time. The new filing is
considered a new case and restarts the 30-day clock. While withdrawing
and refiling provides additional time while minimizing the risk of
chilling foreign investment, withdrawal may also heighten the risk to
national security in transactions where there are concerns and the
acquisition has been completed or is likely to be completed during the
withdrawal period. We are therefore suggesting that the Congress
consider requiring the Committee Chair to (1) establish interim
protections where specific concerns have been raised, (2) specify time
frames for refiling, and (3) establish a process for tracking any
actions being taken during the withdrawal period.
Finally, to provide more transparency and facilitate congressional
oversight, we are suggesting that the Congress may want to revisit the
criterion for reporting circumstances surrounding cases to the
Congress. Currently, the criterion is a presidential decision. However,
there have only been two such decisions since 1997 and thus only two
reports to Congress.
What GAO Recommends:
GAO‘s accompanying report on Exon-Florio”Defense Trade: Enhancements to
the Implementation of Exon-Florio Could Strengthen the Law‘s
Effectiveness, GAO-05-686 (Washington, D.C.: Sept. 28, 2005)”contains
matters for congressional consideration regarding Exon-Florio‘s
coverage and needed improvements to the implementation of the law.
www.gao.gov/cgi-bin/getrpt?GAO-06-135T.
To view the full product, including the scope and methodology, click on
the link above. For more information, contact Katherine V. Schinasi at
(202) 512-4841 or schinasik@gao.gov.
[End of section]
Mr. Chairman and Members of the Committee:
I am pleased to be here today to discuss the implementation of Exon-
Florio--an amendment to the Defense Production Act of 1950[Footnote 1]
that authorizes the President to suspend or prohibit foreign
acquisitions, mergers, or takeovers[Footnote 2] of U.S. companies that
pose a threat to national security. As such, Exon-Florio is meant to
serve as a safety net when laws other than the International Emergency
Economic Powers Act[Footnote 3] may be ineffective in protecting
national security. As you know, implementing Exon-Florio can pose a
significant challenge for the federal government because of the
potential for conflict with the long-standing U.S. open investment
policy. This policy recognizes the economic benefits associated with
foreign investments. Accordingly, foreign investors are to be treated
no differently than domestic investors.
The Committee on Foreign Investment in the United States, originally
established in 1975 to monitor foreign investments, has been delegated
responsibility for investigating foreign acquisitions when necessary.
According to the regulations, after a company voluntarily files a
notice of a pending or completed acquisition by a foreign concern, the
Committee conducts a 30-day review to determine whether there are any
national security concerns. If the Committee is unable to complete its
review within 30 days, the Committee may either allow the companies to
withdraw the notification or initiate a 45-day investigation. At the
completion of the investigation, the Committee submits a report to the
President, including a recommendation for action. The Committee
currently has 12 members: the Department of the Treasury, which serves
as Chair; the Departments of Commerce, Defense, Homeland Security,
Justice, and State; and six offices in the Executive Office of the
President.[Footnote 4] Other agencies may be called on when their
particular expertise is needed. The Department of Homeland Security was
the most recently added member, created as a result of the terrorist
attacks of September 11th and the recognition of the new security
environment in which we exist.
Over the past decade, GAO has conducted several reviews of the
Committee's actions and has found areas where improvements should be
made. For example, in September 2002, we reported that member agencies
could improve the agreements they negotiated with companies under Exon-
Florio to mitigate national security concerns.[Footnote 5] While our
recent work indicates that member agencies have begun to take action to
respond to some of our recommendations, concerns remain about the
extent to which the Committee's implementation of Exon-Florio has
provided the safety net envisioned by the law. My comments today will
focus on the process the Committee follows in conducting its reviews,
concerns about the process, and suggestions we have made in our report
on these issues.[Footnote 6] It should be noted that because the law
provides for confidentiality of information filed under Exon-Florio,
our ability to discuss certain details of cases we examined is limited.
In summary, several aspects of the Committee's process for implementing
Exon-Florio could be enhanced thereby strengthening the law's
effectiveness. First, in light of differing views among Committee
members about the scope of Exon-Florio--specifically, what defines a
threat to national security, we have suggested that Congress should
consider amending Exon-Florio to more clearly emphasize the factors
that should be considered in determining potential harm to national
security.
Second, to provide additional time for analyzing transactions when
necessary, while avoiding the perceived negative connotation of
investigation on foreign investment in the United States we have
suggested that the Congress eliminate the distinction between the 30-
day review and the 45-day investigation and make the entire 75-day
period available for review.
Third, the Committee's current approach to provide additional time for
analysis or to resolve concerns while avoiding the potential negative
impacts of an investigation on foreign investment in the United Stated
is to encourage companies to withdraw their notifications of proposed
or completed acquisitions and refile them at a later date. Since 1997,
companies involved in 18 acquisitions have been allowed to withdraw
their notification to refile at a later time. The new filing is
considered a new case and restarts the 30-day clock. While withdrawing
and refiling provides additional time while minimizing the risk of
chilling foreign investment, withdrawal may also heighten the risk to
national security in transactions where there are concerns and the
acquisition has been completed or is likely to be completed during the
withdrawal period. We are therefore suggesting that the Congress
consider requiring the Committee Chair to (1) establish interim
protections where specific concerns have been raised, (2) specify time
frames for refiling, and (3) establish a process for tracking any
actions being taken during the withdrawal period.
Finally, to provide more transparency and facilitate congressional
oversight, we are suggesting that the Congress may want to revisit the
criterion for reporting circumstances surrounding cases to the
Congress. Currently, the criterion is a presidential decision. However,
there have only been two such decisions since 1997 and thus only two
reports to Congress.[Footnote 7]
Background:
The Exon-Florio amendment to the Defense Production Act, enacted in
1988, authorized the President to investigate the impact of foreign
acquisitions of U.S. companies on national security and to suspend or
prohibit acquisitions that might threaten national security. The
President delegated the investigative authority to the Committee on
Foreign Investment in the United States, an interagency group
established in 1975 to monitor and coordinate U.S. policy on foreign
investment in the United States.[Footnote 8]
In 1991, the Treasury Department, as chair of the Committee, issued
regulations to implement Exon-Florio. The law and regulations establish
a four-step process for reviewing foreign acquisitions of U.S.
companies: (1) voluntary notice by the companies;[Footnote 9] (2) a 30-
day review to determine whether the acquisition could pose a threat to
national security; (3) a 45-day investigation to determine whether
those concerns require a recommendation to the President for possible
action; and (4) a presidential decision to permit, suspend, or prohibit
the acquisition. In most cases, the Committee completes its review
within the initial 30 days because there are no national security
concerns or concerns have been addressed, or the companies and the
government agree on measures to mitigate identified security concerns.
In cases where the Committee is unable to complete its review within 30
days, the Committee may initiate a 45-day investigation or allow
companies to withdraw their notifications. The Committee generally
grants requests to withdraw. When the Committee concludes a 45-day
investigation, it is required to submit a report to the President
containing recommendations. If Committee members cannot agree on a
recommendation, the regulations require that the report to the
President include the differing views of all Committee
members.[Footnote 10] The President has 15 days to decide whether to
prohibit or suspend the proposed acquisition, order divestiture of a
completed acquisition, or take no action.[Footnote 11]
While neither the statute nor the implementing regulation defines
"national security," the statute provides the following factors to be
considered in determining a threat to national security:
* Domestic production needed for projected national defense
requirements.
* The capability and capacity of domestic industries to meet national
defense requirements, including the availability of human resources,
products, technology, materials, and other supplies and services.
* The control of domestic industries and commercial activity by foreign
citizens as it affects the capability and capacity of the United States
to meet national security requirements.
* The potential effects of the proposed or pending transaction on sales
of military goods, equipment, or technology to any country identified
under applicable law as (a) supporting terrorism or (b) a country of
concern for missile proliferation or the proliferation of chemical and
biological weapons.
* The potential effects of the proposed or pending transaction on U.S.
international technological leadership in areas affecting national
security.
Differing Views of What Defines A National Security Threat and When to
Initiate an Investigation May Weaken Exon-Florio's Effectiveness:
Lack of agreement among Committee members on what defines a threat to
national security and what criteria should be used to initiate an
investigation may be limiting the Committee's analyses of proposed and
completed foreign acquisitions. From 1997 through 2004, the Committee
received a total of 470 notices of proposed or completed
acquisitions,[Footnote 12] yet it initiated only 8 investigations.
Some Committee member agencies, including Treasury, apply a more
traditional and narrow definition of what constitutes a threat to
national security--that is, (1) the U.S. company possesses export-
controlled technologies or items; (2) the company has classified
contracts and critical technologies; or (3) there is specific
derogatory intelligence on the foreign company. Other members,
including the departments of Defense and Justice, argue that
acquisitions should be analyzed in broader terms. According to
officials from these departments, vulnerabilities can result from
foreign control of critical infrastructure, such as control of or
access to information traveling on networks. Vulnerabilities can also
result from foreign control of critical inputs to defense systems or a
decrease in the number of innovative small businesses researching and
developing new defense-related technologies.
While these vulnerabilities may not pose an immediate threat to
national security, they may create the potential for longer term harm
to U.S. national security interests by reducing U.S. technological
leadership in defense systems. For example, in reviewing a 2001
acquisition of a U.S. company, the departments of Defense and Commerce
raised several concerns about foreign ownership of sensitive but
unclassified technology, including the possibility of this sensitive
technology being transferred to countries of concern or losing U.S.
government access to the technology. However, Treasury argued that
these concerns were not national security concerns because they did not
involve classified contracts, the foreign company's country of origin
was a U.S. ally, or there was no specific negative intelligence about
the company's actions in the United States.
In one proposed acquisition that we reviewed, disagreement over the
definition of national security resulted in an enforcement provision
being removed from an agreement between the foreign company and the
Departments of Defense and Homeland Security. Defense had raised
concerns about the security of its supply of specialized integrated
circuits, which are used in a variety of defense technologies that the
Defense Science Board had identified as essential to our national
defense--technologies found in unmanned aerial vehicles, the Joint
Tactical Radio System, and cryptography and other communications
protection devices. However, Treasury and other Committee members
argued that the security of supply issue was an industrial policy
concern and, therefore, was outside the scope of Exon-Florio's
authority. As a result of removing the provision, the President's
authority to require divestiture under Exon-Florio has been eliminated
as a remedy in the event of noncompliance.[Footnote 13]
Committee members also disagree on the criteria that should be applied
to determine whether a proposed or completed acquisition should be
investigated. While Exon-Florio provides that the "President or the
President's designee may make an investigation to determine the effects
on national security" of acquisitions that could result in foreign
control of a U.S. company, it does not provide specific guidance for
the appropriate criteria for initiating an investigation of an
acquisition.[Footnote 14] Currently, Treasury, as Committee Chair,
applies essentially the same criteria established in the law for the
President to suspend or prohibit a transaction, or order divestiture:
(1) there is credible evidence that the foreign controlling interest
may take action to threaten national security and (2) no laws other
than the International Emergency Economic Powers Act are appropriate or
adequate to protect national security.[Footnote 15] However, the
Defense, Justice, and Homeland Security departments have argued that
applying these criteria at this point in the process is inappropriate
because the purpose of an investigation is to determine whether or not
a credible threat exists. Notes from a policy-level discussion of one
particular case further corroborated these differing views.
Allowing Withdrawal of Notifications to Avoid Investigations While
Providing Additional Time May Leave National Security Concerns
Unresolved:
Committee guidelines require member agencies to inform the Committee of
national security concerns by the 23rd day of a 30-day review--further
compressing the limited time allowed by legislation to determine
whether a proposed or completed foreign acquisition poses a threat to
national security. According to one Treasury official, the information
is needed a week early to meet the legislated 30-day requirement. While
most reviews are completed in the legislatively required 30 days, some
Committee members have found that completing a review within such short
time frames can be difficult--particularly in complex cases. One
Defense official said that without advance notice of the acquisition,
time frames are too short to complete analyses and provide input for
the Defense Department's position. Another official said that to meet
the 23-day deadline, analysts have only 3 to 10 days to analyze the
acquisition. In one instance, Homeland Security was unable to provide
input within the 23-day time frame.
If a review cannot be completed within 30 days and more time is needed
to determine whether a problem exists or identify actions that would
mitigate concerns, the Committee can initiate a 45-day investigation of
the acquisition or allow companies to withdraw their notifications and
refile at a later date.[Footnote 16] According to Treasury officials,
the Committee's interest is to ensure that the implementation of Exon-
Florio does not undermine U.S. open investment policy. Concerned that
public knowledge of investigations could devalue companies' stock,
erode confidence of foreign investors, and ultimately chill foreign
investment in the United States, the Committee has generally allowed
and often encouraged companies to withdraw their notifications rather
than initiate an investigation.
While an acquisition is pending, companies that have withdrawn their
notification have an incentive to resolve any outstanding issues and
refile as soon as possible. However, if an acquisition has been
concluded, there is less incentive to resolve issues and refile,
extending the time during which any concerns remain unresolved. Between
1997 and 2004, companies involved in 18 acquisitions have withdrawn
their notification and refiled 19 times. In two cases, the companies
had already concluded the acquisition and did not refile until 9 months
to 1 year. Consequently, the concerns raised by Defense and Commerce
about potential export control issues in these cases remained
unresolved for as much as a year--further increasing the risk that a
foreign acquisition of a U.S. company would pose a threat to national
security.
We identified two cases in which companies that had concluded an
acquisition before filing with the Committee withdrew their
notification.[Footnote 17] In each case, the company has yet to refile.
In one case, the company filed with the Committee more than a year
after completing the acquisition. The Committee allowed it to withdraw
the notification to provide more time to answer the Committee's
questions and provide assurances concerning export control matters. The
company refiled, and was permitted to withdraw a second time because
there were still unresolved issues. Four years have passed since the
second withdrawal. In the second case, the company--which filed with
the Committee more than 6 months after completing its acquisition--was
also allowed to withdraw its notification. That was more than 2 years
ago.
Lack of Reporting Contributes to the Opaqueness of the Committee's
Process:
In enacting Exon-Florio, the Congress, while recognizing the need for
confidentiality, indicated a desire for insight into the process by
requiring the President to report to the Congress on any transaction
that the President prohibited. In response to concerns about the lack
of transparency in the Committee's process, the Congress passed the
Byrd Amendment to Exon-Florio in 1992, requiring a report to the
Congress if the President makes any decision regarding a proposed
foreign acquisition. In 1992, another amendment also directed the
President to report every 4 years on whether there is credible evidence
of a coordinated strategy by one or more countries to acquire U.S.
companies involved in research, development, or production of critical
technologies for which the United States is a leading producer, and
whether there are industrial espionage activities directed or assisted
by foreign governments against private U.S. companies aimed at
obtaining commercial secrets related to critical technologies.
While the Byrd Amendment expanded required reporting on Committee
actions, few reports have been submitted to the Congress because
withdrawing and refiling notices to restart the clock limits the number
of cases that result in a presidential decision. Since 1997, only two
cases--both involving telecommunications systems--resulted in a
presidential decision and a subsequent report to the Congress.
Infrequent reporting of Committee deliberations on specific cases
provides little insight into the Committee's process to identify
concerns raised during investigations and determine the extent to which
the Committee has reached consensus on a case. Further, despite the
1992 requirement for a report on foreign acquisition strategies every 4
years, there has been only one report--in 1994.
In conclusion, in recognition of the benefits of open investment, Exon-
Florio comes into play only as a last resort. However, since that is
its role, effective application in support of recognizing and
mitigating national security risks remains critical. While Exon-Florio
provides the Committee on Foreign Investment in the United States the
latitude to address new emerging threats, the more traditional
interpretation of what constitutes a threat to national security fails
to fully consider the factors currently embodied in the law. Further,
the practical requirement to complete reviews within 23 days to meet
the 30-day legislative requirement, along with the reluctance to
proceed to an investigation, limits agencies' abilities to complete in-
depth analyses. However, the alternative--allowing companies to
withdraw and refile their notifications--increases the risk that the
Committee, and the Congress, will lose visibility over foreign
acquisitions of U.S. companies.
Our report lays out several matters for congressional consideration to
(1) help resolve the differing views as to the extent of coverage of
Exon-Florio, (2) address the need for additional time, and (3) increase
insight and oversight of the process. Further, we are suggesting that,
when withdrawal is allowed for a transaction that has been completed,
the Committee establish interim protections where specific concerns
have been raised, specific time frames for refiling, and a process for
tracking any actions being taken during a withdrawal period.
Mr. Chairman, this concludes my prepared statement. I will be happy to
answer any questions you or other Members of the Committee may have.
For information about this testimony, please contact Katherine V.
Schinasi, Managing Director, Acquisition and Sourcing Management, at
(202) 512-4841 or schinasik@gao.gov. Other individuals making key
contributions to this product include Thomas J. Denomme, Allison
Bawden, Gregory K. Harmon, Paula J. Haurilesko, John Van Schaik, Karen
Sloan, and Michael Zola.
Scope and Methodology:
Our understanding of the Committee on Foreign Investment in the United
States' process is based on our current work and builds on our review
of the process and our discussions with agency officials for our 2002
report. For our current review, and to expand our understanding of the
Committee's process for reviewing foreign acquisitions of U.S.
companies, we met with officials from the Department of Commerce, the
Department of Defense, the Department of Homeland Security, the
Department of Justice, and the Department of the Treasury. For prior
reviews we also collected data from and discussed the issues with
representatives of the Department of State, the Council of Economic
Advisors, the Office of Science and Technology, and the U.S. Trade
Representative. Further, we conducted case studies of nine acquisitions
that were filed with the Committee between June 28, 1995, and December
31, 2004. These case studies included reviewing files containing
company submissions, correspondence between the Committee and the
companies' representatives, email traffic between member agencies, and
minutes of policy-level meetings attended by at various times all 12
Committee members.
We selected acquisitions based on recommendations by Committee member
agencies and the following criteria: (1) the Committee permitted the
companies to withdraw the notification; (2) the Committee or member
agencies concluded agreements to mitigate national security concerns;
(3) the foreign company had been involved in a prior acquisition
notified to the Committee; or (4) GAO had reviewed the acquisition for
its 2002 report. We did not attempt to validate the conclusions reached
by the Committee on any of the cases we reviewed. We also discussed our
draft report from our current review with officials from the Department
of State and the U.S. Trade Representative's office to obtain their
views on our findings.
To determine whether the weaknesses in provisions to assist agencies in
monitoring agreements that GAO had identified in its 2002 report had
been addressed, we analyzed agreements concluded under the Committee's
authority between 2003 and 2005. We conducted our review from April
2004 through July 2005 in accordance with generally accepted government
auditing standards.
[End of section]
Appendix I: Agencies Represented on the Committee on Foreign Investment
in the United States:
Executive Departments:
Agencies Represented: Department of the Treasury (Chair);
Year Added: 1975;
Lead Office Mission: Office of International Investment: Coordinates
policies toward foreign investments in the United States and U.S.
investments abroad.
Agencies Represented: Department of Commerce;
Year Added: 1975;
Lead Office Mission: International Trade Administration: Coordinates
issues concerning trade promotion, international commercial policy,
market access, and trade law enforcement.
Agencies Represented: Department of Defense;
Year Added: 1975;
Lead Office Mission: Defense Technology Security Administration:
Administers the development and implementation of Defense technology
security policies on international transfers of defense-related goods,
services, and technologies.
Agencies Represented: Department of State;
Year Added: 1975;
Lead Office Mission: Bureau of Economic and Business Affairs:
Formulates and implements policy regarding foreign economic matters,
including trade and international finance and development.
Agencies Represented: Department of Justice;
Year Added: 1988;
Lead Office Mission: Criminal Division: Develops, enforces, and
supervises the application of all federal criminal laws, except for
those assigned to other Justice Department divisions.
Agencies Represented: Department of Homeland Security;
Year Added: 2003;
Lead Office Mission: Information Analysis and Infrastructure
Protection: Identifies and assesses current and future threats to the
homeland, maps those threats against vulnerabilities, issues warnings,
and takes preventative and protective action.
Executive Office of the President:
Agencies Represented: Council of Economic Advisers;
Year Added: 1980;
Lead Office Mission: Performs analyses and appraisals of the national
economy for the purpose of providing policy recommendations to the
President.
Agencies Represented: Office of the United States Trade Representative;
Year Added: 1980;
Lead Office Mission: Directs all trade negotiations of and formulates
trade policy for the United States.
Agencies Represented: Office of Management and Budget;
Year Added: 1988;
Lead Office Mission: Evaluates, formulates, and coordinates management
procedures and program objectives within and among federal departments
and agencies, and controls administration of the federal budget.
Agencies Represented: National Economic Council;
Year Added: 1993;
Lead Office Mission: Coordinates the economic policy-making process and
provides economic policy advice to the President.
Agencies Represented: National Security Council;
Year Added: 1993;
Lead Office Mission: Advises and assists the President in integrating
all aspects of national security policy as it affects the United
States.
Agencies Represented: Office of Science and Technology Policy;
Year Added: 1993;
Lead Office Mission: Provides scientific, engineering and technological
analyses for the President for federal policies, plans, and programs.
Source: GAO analysis.
[End of table]
[End of section]
Appendix II: Notifications to the Committee on Foreign Investment in
the United States and Actions Taken, 1997 through 2004:
Year: 1997;
Notifications: 62;
Acquisitions[A]: 60;
Investigations[B]: 0;
Notices withdrawn after investigation begun: 0;
Presidential decisions: 0.
Year: 1998;
Notifications: 65;
Acquisitions[A]: 62;
Investigations[B]: 2;
Notices withdrawn after investigation begun: 2;
Presidential decisions: 0.
Year: 1999;
Notifications: 79;
Acquisitions[A]: 76;
Investigations[B]: 0;
Notices withdrawn after investigation begun: 0;
Presidential decisions: 0.
Year: 2000;
Notifications: 72;
Acquisitions[A]: 71;
Investigations[B]: 1;
Notices withdrawn after investigation begun: 0;
Presidential decisions: 1.
Year: 2001;
Notifications: 55;
Acquisitions[A]: 51;
Investigations[B]: 1;
Notices withdrawn after investigation begun: 1;
Presidential decisions: 0.
Year: 2002;
Notifications: 43;
Acquisitions[A]: 42;
Investigations[B]: 0;
Notices withdrawn after investigation begun: 0;
Presidential decisions: 0.
Year: 2003;
Notifications: 41;
Acquisitions[A]: 39;
Investigations[B]: 2;
Notices withdrawn after investigation begun: 1;
Presidential decisions: 1.
Year: 2004;
Notifications: 53;
Acquisitions[A]: 50;
Investigations[B]: 2;
Notices withdrawn after investigation begun: 2;
Presidential decisions: 0.
Total;
Notifications: 470;
Acquisitions[A]: 451;
Investigations[B]: 8;
Notices withdrawn after investigation begun: 6;
Presidential decisions: 2[C].
Source: Department of the Treasury.
[A] Acquisitions that were withdrawn and refiled are shown in the year
of initial notification.
[B] Investigations are shown in the year of their notification.
[C] In both cases the President took no action, thereby allowing the
transaction, and sent a report to Congress.
[End of table]
FOOTNOTES
[1] 50 U.S.C. app. § 2170.
[2] In the remainder of this statement, acquisitions, mergers, and
takeovers are referred to as acquisitions.
[3] The International Emergency Economic Powers Act gives the President
broad powers to deal with any "unusual and extraordinary threat" to the
national security, foreign policy, or economy of the United States (50
U.S.C. §§ 1701-1706). To exercise this authority, however, the
President must declare a national emergency to deal with any such
threat. Under this legislation, the President has the authority to
investigate, regulate, and, if necessary, block any foreign interest's
acquisition of U.S. companies (50 U.S.C. § 1702(a) (1) (B)).
[4] See appendix I for information on Committee members.
[5] GAO, Defense Trade: Mitigating National Security Concerns under
Exon-Florio Could be Improved, GAO-02-736 (Washington, D.C.: Sept. 12,
2002).
[6] GAO, Defense Trade: Enhancements to the Implementation of Exon-
Florio Could Strengthen the Law's Effectiveness, GAO-05-686
(Washington, D.C.: Sept. 28, 2005).
[7] See Appendix II for a number of cases reviewed by the Committee
between fiscal years 1997 and 2004 and the disposition of these cases.
[8] Executive Order 11858 (May 7, 1975), as amended by Executive Order
12188 (Jan. 2, 1980), Executive Order 12661 (Dec. 27, 1988), Executive
Order 12860 (Sept. 3, 1993), and Executive Order 13286 (Feb. 28, 2003).
[9] Notification is not mandatory. However, any member agency is
authorized to submit a notification of an acquisition if the companies
have not done so. To date, no agency has submitted a notification of an
acquisition. Instead, member agencies have informed Treasury of
acquisitions that may be subject to Exon-Florio, and Treasury has
contacted the companies to encourage them to officially notify the
Committee of the acquisition to begin a review.
[10] 31 C.F.R. § 800.504(b).
[11] In 1990, the President ordered a Chinese aerospace company to
divest its ownership of a U.S. aircraft parts manufacturer. To date,
this is the only divestiture the President has ordered.
[12] Nineteen of these notices were refilings.
[13] The regulations provide that the Committee may reopen its review
or investigation and revise its recommendation to the President only if
it determines that the companies omitted or provided false or
misleading information (31 C.F.R. § 800.601(e)).
[14] 50 U.S.C. App. § 2170(a). Under the statute, investigations are
mandatory in those cases in which the acquiring company is "controlled
by or acting on behalf of a foreign government" and the acquisition
could result in control of the U.S. company and could affect the
national security of the United States (50 U.S.C. App. § 2170(b)).
[15] 50 U.S.C. app. § 2170(e).
[16] Exon-Florio's implementing regulations permit companies to request
to withdraw notifications at any time up to a presidential decision.
After the Committee approves a withdrawal, any subsequent refiling is
considered a new, voluntary notice.
[17] In one of these cases, as discussed above, the company had
previously withdrawn and refiled more than a year later.
