1.

World

U.S.

SENATE BODY MOVES ON CFIUS OVERHAUL
By Stephanie Kirchgaessner

Financial Times (UK)
March 30, 2006

http://news.ft.com/cms/s/6ce99568-bf6a-11da-9de7-0000779e2340.html

The Senate banking committee will today finalize a proposal to overhaul the way the U.S. vets foreign takeovers on national security grounds, clearing the way for debate on a bill that will make it tougher for foreign companies to invest in the U.S.

People familiar with the committee's negotiations said 18 amendments had been proposed that would weaken an early draft proposal released on Friday by Senator Richard Shelby, the committee's chairman.

Mr. Shelby's proposal would, among other things, give members of the Committee on Foreign Investments in the U.S. (CFIUS), a Treasury-led interagency panel that investigates foreign deals, an additional 30 days to review a pending transaction on top of the 75-day investigation some acquisitions are already subject to. It would also widely expand the kinds of transactions that are subject to CFIUS reviews and designate the defense department as the vice-chair of the CFIUS panel.

The amendments proposed so far reflect concerns by some lawmakers that Mr. Shelby's proposal will make CFIUS reviews more onerous and slow the completion of cross-border deals without improving national security, people familiar with the negotiations say.

One amendment strips out a provision that would force the White House to rank countries based on their relationship with the U.S. Another proposed amendment would eradicate a provision that would force all deals that concern so-called "critical infrastructure" from being reviewed for 45 days.

Debate about how the U.S. should balance national security interests while encouraging foreign investment has been raging since the controversial takeoverof five U.S. port terminals by Dubai Ports World.

A handful of other deals are awaiting review or are expected to be investigated in the next few months, including the takeover of Westinghouse by Japan's Toshiba and the expected merger between Lucent and Alcatel of France.

"Senator Shelby has an enormously tough task putting together legislation that restores confidence to the CFIUS process while not damaging the benefits of foreign investment under a very short time frame," said Todd Malan, who heads the Organization for International Investment, which represents U.S. subsidiaries of foreign companies.

Mr. Shelby's proposal is expected to be amended and voted on today, at which time the proposal will move to the whole Senate. The House of Representatives' financial services committee is expected to propose a second hearing to discuss the matter on April 27.

2.

NEW IDEAS IN CONGRESS FOLLOW PORTS SCANDAL
By Marcy Gordon

Associated Press
March 29, 2006

http://www.washingtonpost.com/wp-dyn/content/article/2006/03/29/AR2006032902148.html

WASHINGTON -- New legislative proposals responding to the scandal over a Dubai-owned company's attempted takeover of major operations at some major U.S. ports, which touched off a political firestorm, are getting attention in Congress on Thursday.

Measures coming before committees in the House and Senate aim to strengthen U.S. cargo security and port safety, and to bring the federal panel that approved the DP World ports deal under tighter oversight by Congress.

The multiagency panel, called the Committee on Foreign Investment in the United States, would be required to investigate any proposed transaction that involved a foreign government or "critical infrastructure" of the country.

The president would be allowed to suspend or block a transaction if it is deemed to threaten or impair national security, under the bill expected to be approved by the Senate Banking Committee. And the panel would have to notify congressional committees and the House and Senate leadership of proposed deals and its investigations of them.

In the House, a Homeland Security subcommittee planned to vote on the measure addressing cargo security at home and abroad and safety at U.S. ports.

Reps. Dan Lungren, R-Calif., and Jane Harman, D-Calif., sponsored the measure in early March as Congress was in a bipartisan uproar over now-abandoned plans by United Arab Emirates-based DP World to manage terminals at a half-dozen U.S. ports: New Jersey, New York, Baltimore, New Orleans, Miami, and Philadelphia.

Nearly identical to a measure pending in the Senate, the House bill would require the Homeland Security Department to lay out a timeline -- and meet its targets -- for putting radiation portal monitors at U.S. seaports that don't have them. It also would require the agency to establish standard operating procedures for examining containers.

To prevent threats from reaching U.S. soil, the bill would require the Homeland Security Department to assess the security implications associated with foreign ports that want to participate in a U.S. program designed to allow the agency to examine high-risk cargo overseas.

The legislation concerning the foreign investment review panel, which currently has 12 members from various federal departments and agencies and is led by the treasury secretary, also formally designates that official as its chairman and adds the defense secretary as its vice chairman.

The director of national intelligence also would be added as a formal member. Intelligence assessments requested by the panel now are handled through his office.

Several industry groups, including Wall Street investment houses, banks and insurers, have lobbied against the bill, contending it could result in harmful barriers to foreign investment in the United States.

"We are very concerned . . . about proposals that would give Congress unprecedented new power to interfere with or overturn decisions" by the review panel, top executives of several major financial-services companies said in a letter this week to Sen. Richard Shelby, R-Ala., chairman of the Banking Committee.

The measure "would likely transform what is now a fact-based security review into a process that could easily become highly politicized," they wrote. "Legislation that would have a chilling effect on foreign investment in this country would very likely elicit similar measures by our trading partners, thereby magnifying negative consequences for American businesses and the U.S. economy."

The companies included Allstate Insurance Co., American Express Co., American International Group Inc., Citigroup Inc., Fidelity Investments, Merrill Lynch & Co., MetLife Inc. and Wachovia Corp.

--Associated Press writer Liz Sidoti contributed to this report from Washington.

3.

Money

Business

WALL STREET WARNS OF PROTECTIONISM
By David Litterick

Daily Telegraph (UK)
March 30, 2006

http://www.washingtonpost.com/wp-dyn/content/article/2006/03/29/AR2006032902148.html

The most powerful figures on Wall Street put themselves on a collision course with the U.S. government, accusing Congress of damaging the U.S. and world economy with its increasing economic protectionism.

The chief executives of Citigroup, Morgan Stanley, and JP Morgan were among the leading bankers who published an open letter to the Senate banking committee. In it they said politicians were in danger of stifling foreign investment and prompting other countries to retaliate against the U.S.

The letter says the current mood on Capitol Hill has prompted plans that could have "a chilling effect on foreign investment in this country and would very likely elicit similar measures by our trading partners, thereby magnifying negative consequences for American businesses and the U.S. economy".

U.S. politicians on both sides of the political divide are keen to be seen as strong on issues like national security. They are increasingly playing the patriotic card in the run-up to crucial mid-term elections.

By playing up such fears in the post-September 11 environment, senators, led by presidential hopeful Hillary Clinton, managed to block the takeover of six U.S. ports by Dubai Ports World, which had acquired them in its deal to buy P&O Ports.

DP World has been forced to agree to offload the ports to a U.S. company.

"An open and robust system of global capital markets is essential to economic growth around the world," says the letter, which has 17 signatures, including those of Morgan Stanley's John Mack, JP Morgan Chase's James Dimon, Merrill Lynch's Stanley O'Neal, and Citigroup's Charles Prince.

"We are very concerned about proposals that could impose harmful barriers to foreign investment."

At issue is the role of the Committee for Foreign Investment in the US (CFIUS), which reviews the national security implications of foreign acquisitions in the U.S. The committee approved the ports deal before it was pulled apart by politicians.

Congress now wants more say in the CFIUS process and a possible veto over its decisions, something Wall Street titans believe is unacceptable.

"Some have questioned the constitutionality of any proposals that would likely transform what is now a fact-based security review into a process that could easily become highly politicized," the letter reads.

"We are very troubled by proposals that would discourage foreign investment by requiring lengthy review periods or might well prompt decision makers to disapprove meritorious investments that do not pose genuine national security threats."

Senator Richard Shelby, head of the Senate banking committee, appeared willing to listen to the concerns. While insisting that security issues should be paramount, he said recently that "the signals that we send to the rest of the world about our investment policies must be given thoughtful consideration."

The letter was sent under the auspices of the Financial Services Forum. The Business Roundtable has sent a similar letter to all members of Congress, urging them to recognize that foreign-owned businesses in the U.S. employ 5m Americans and contribute around 20pc of annual exports.

4.

Columns

XENOPHOBIA'S THREAT TO PRSOPERITY
By Charles Prince

Washington Post
March 29, 2006
Page A19

http://www.washingtonpost.com/wp-dyn/content/article/2006/03/28/AR2006032801236.html

Citigroup employs 300,000 people in 100 countries. We are a guest in every one of those countries. We've bought companies in many of them and, with a few notable exceptions during periods of war and revolution, we've been welcomed with great hospitality everywhere for over a century -- just as the United States has welcomed many companies based in other countries. I sincerely hope things stay that way.

But that could prove a challenge in the current political environment. There are now upward of 30 proposals in Congress to make changes in the Committee on Foreign Investment in the United States (CFIUS), a little-known body that has the authority to suspend or prohibit any acquisition, merger, or takeover of a U.S. corporation that is deemed to threaten national security. The committee, made up of representatives from a dozen federal agencies, has recently come under intense scrutiny, even though it has not allowed a single breach of national security since it was established in 1988.

Some of the proposals would place new and potentially damaging restrictions on foreign investment in the United States. Legitimate national security concerns are one thing, but introducing overt political considerations into decisions regarding the allocation of capital has the potential to undermine investor confidence -- both domestic and foreign -- in U.S. markets and to jeopardize the continued vibrancy, depth, and liquidity of those markets.

Like the investments made overseas by Citigroup, IBM, General Electric, and countless other U.S.-based global firms, investment in the United States by companies based outside this country is essential for job creation and innovation. The same is true of individual and institutional investors in the United States and in other countries. U.S. assets owned by individuals or companies outside the United States total about $11.5 trillion. These investors have helped to finance the housing boom in the United States and have contributed significantly to the rise in home values and ownership. They bought nearly $227 billion of U.S. agency debt in 2005, and they currently hold more than $900 billion of such debt.

Non-U.S. companies established in the United States support nearly 5.3 million jobs in this country, spread throughout all 50 states. Put another way, 4.7 percent of Americans holding private-sector jobs are employed by companies based outside the United States. These employees receive compensation totaling $318 billion annually, and their numbers are growing rapidly. Indeed, the very presence of these companies in the United States creates a multiplier effect throughout local and national economies -- including tax revenue -- that benefits all Americans.

In an increasingly global economy, labels such as "foreign" and "domestic" have become less relevant. Many non-U.S. multinational firms have moved their U.S. personnel into senior global positions. For instance, many chief executives of U.S. subsidiaries, most of whom are American citizens, have gone on to become CEOs of the global company, including Don Shepard of Aegon, Don Robert of Experian, Marjorie Scardino of Pearson, and Klaus Kleinfeld of Siemens.

At the same time, many companies based outside the United States have moved senior managers with global responsibility for an entire business unit or function to the United States. The leadership role played by the employees of these companies, and their operations, benefit the U.S. economy, and must be taken into account when balancing the value conferred by non-U.S. companies against notions of national interest.

I respectfully urge Congress to take only those actions that will enhance the security review process for foreign investment in the United States, and to avoid endorsing proposals that could undermine America's support for access to capital markets and the free movement of capital. We must avoid measures taken in the name of national security that are isolationist and xenophobic, and could have the effect of choking off vital investments in America. Such a path could threaten job creation in the United States, impede American economic growth and jeopardize U.S. efforts to open foreign markets for American companies, consumers and investors. Any changes to the CFIUS process should result from an informed, sober and fact-based assessment of all of our interests.

Genuine threats to U.S. national security must be met with resolve and purpose -- no deal can be worth the safety of our citizens. But at the same time, challenges to U.S. economic success must be met with the same commitment to international leadership and engagement that has for decades contributed to increasing prosperity in this country and throughout the world. This is not a choice between protecting vital national interests and building a more prosperous future. These two goals are vitally important, but they are also compatible, and Americans will hold their leaders accountable for working to achieve both of them.

--The writer is CEO of Citigroup Inc.