Rosa DeLauro’s HR 5581 is a very bad bill indeed.
Last week, the Wall Street Journal
carried a long story—”German Firms Go on U.S. Buying Spree
”—about the $70 billion they have spent this year acquiring businesses in the United States. That figure is second only to Canadian activity–another $77 billion so far—and indicates just how economies on both sides of the Atlantic are drawing closer. The benefits are clear. When the acquisitions are for stock, most of those shares flow to now-American owners of foreign companies. When the acquisitions are for cash, most of of that money flows straight to Americans, who can reinvest it in what they will. Ideas flow back-and-forth across borders, and in the business of defense, that cross-pollination can produce innovative equipment that no single country could have produced on its own.
The DeLauro bill, HR 5581, would extend the scope of CFIUS reviews to include not only an assessment of the national security impact of a merger, takeover, acquisition by or with a foreign person, but also the “net benefit” of the transaction – namely, the effect of the transaction “on the level of economic activity” in the United States, including “the level and quality of employment” (among other factors) and “the effect of the proposed or pending transaction on productivity, industrial efficiency, technological development, technology transfers, and product innovation,” as well as the compatibility of the proposed action with US “cultural policies,” and the “effect on the public health, safety, and well-being of United States consumers.”
It’s notable that the federal Committee on Foreign Investment in the United States (CFIUS) chooses which transactions it reviews, so firms planning mergers are not required to notify the panel of their plans. Still, the CFIUS has the power to disallow any deal that it finds detrimental to national security. Since last month’s decision by the Supreme Court, the CFIUS does need to explain its rationale, but that’s still the only real check on its power. And yet, in contrast to the current law, as Brewster writes, “the DeLauro bill would mandate a net benefit review for any transaction that meets the threshold for Hart-Scott-Rodino antitrust reviews.” While it’s acquisitions by Chinese firms that have spurred the bill-writing, the act would apply to those of any country.
So, think for a moment about the federal government reviewing most of the foreign acquisitions of US firms valued at more than $16 million, to determine whether the administration in power liked the buyer’s “cultural policies”. As my Atlantic Council colleague Steven Grundman observed, “it suffices to say this would be bad for business in general, and create open-season for national-economic, vice national-security, arguments opposing foreign investment in the US.” That doesn’t even address the sketchy science behind measurements of “net benefit”. How does government begin to define that? It’s fortunate that this bill has a near-zero change of becoming law. The legislative session is almost over, and there are enough Republicans and Democrats in both houses of Congress who still hold classically liberal views on international trade. But it’s still worth a little attention as an example of how not to systematically stiff-arm transatlantic economic integration.
James Hasik is a senior fellow at the Brent Scowcroft Center on International Security.