WASHINGTON — In 1976, amid mounting public fears that Arab oil sheiks were about to "buy up" American land and corporations, a beleaguered President Gerald R. Ford did the best thing he could to quell American paranoia: He formed a committee to handle the issue.
For a decade, it worked exactly as planned: The high-level Committee on Foreign Investments in the United States--or CFIUS, as it is known--essentially did nothing. America continued to welcome foreign investment. And the fear of a massive Arab takeover faded.
But last year, concerned anew about foreign investment, this time from Japan, Congress gave the panel heightened status--and new power to block acquisitions of U.S. firms. And the Treasury has just proposed regulations that some fear may turn CFIUS into a monster.
The new statutory authority transforms CFIUS--which had been little more than a monitoring group, into a "powerful actor" in international investment, contends Joseph F. Dennin, a former assistant secretary of commerce who is now a trade lawyer in Washington.
'Sword of Damocles'
Dennin argues that CFIUS' new powers are so broad--and the proposed regulations so ambiguous--that a potentially deal-blunting uncertainty will be injected into foreign acquisitions of American companies.
Dennin calls the new law "a sword of Damocles" hanging over would-be investors.
Susan Liebeler, former chairwoman of the U.S. International Trade Commission, agrees. She notes that the legislative provision giving CFIUS its new power--called the Exon-Florio amendmentafter its sponsors, Sen. J. James Exon (D-Neb.) and Rep. James J. Florio (D-N.J.)--may do seriousdamage.
Unless the new regulations are tightened, she warns, the United States could end up discouraging overseas investors, choking off foreign capital the United States badly needs and making it easier for future administrations "to implement a policy of economic nationalism."
"I think there are some big problems," Liebeler said.
The ambiguity of the draft regulations is the major difficulty cited by critics. Under the Exon-Florio provision, CFIUS may move to block a proposed foreign acquisition or merger if the takeover threatens to "impair the national security."
But the new regulations, proposed by the Treasury on July 14, do not define "national security" or cite industries that might be exempt from possible intervention--lapses that Liebeler warns could open the way for abuses later on.
