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Defense Trade: Mitigating National Security Concerns under Exon-Florio Could Be Improved

GAO-02-736 Published: Sep 12, 2002. Publicly Released: Oct 15, 2002.
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Highlights

The Exon-Florio amendment to the Defense Production Act authorizes the President to suspend or prohibit foreign acquisitions, mergers, or takeovers of U.S. companies if (1) there is credible evidence that a foreign controlling interest might threaten national security and (2) legislation, other than Exon-Florio and the International Emergency Economic Powers Act, does not adequately or appropriately protect national security. The President delegated the authority to review foreign acquisitions of U.S. companies to an interagency group, the Committee on Foreign Investment in the United States. The Committee initiates investigations only when it cannot identify potential mitigation measures in the review period to resolve national security issues arising from the acquisitions or when it needs time beyond the 30-day review to negotiate potential mitigation measures and the companies involved are not willing to request withdrawal of their notification. The Committee's process for implementing Exon-Florio contains the following weaknesses that may have limited effectiveness: (1) the Committee has not established interim protections before allowing withdrawal when concerns were raised and the acquisition had already been completed (2) agreements between the Committee and companies contained nonspecific language that may make them difficult to implement and (3) agreements did not specify responsibility for overseeing implementation and contained few provisions to assist in monitoring compliance.

Recommendations

Recommendations for Executive Action

Agency Affected Recommendation Status
Department of the Treasury In view of the need to assure that national security is protected during the period that withdrawal is allowed for companies that have completed or plan to complete acquisition prior to the Committee completing its work, the Secretary of the Treasury should, in his capacity as Chair of the Committee on Foreign Investment in the United States, revise implementing regulations to require specific interim protections prior to allowing withdrawal for companies that have completed or plan to complete the acquisition before the Committee has completed its work.
Closed – Implemented
On July 26, 2007, the Foreign Investment and National Security Act of 2007 (Public Law 110-49) was signed into law. This law requires the Committee on Foreign Investment in the United States to establish, as appropriate, interim protections to address specific concerns prior to allowing companies to withdraw its notification from the committee.
Department of the Treasury Further, to ensure compliance with agreements concluded under the authority of Exon-Florio, the the Secretary of the Treasury should, in his capacity as Chair of the Committee on Foreign Investment in the United States, increase the specificity of actions required by mitigation measures in the future agreements negotiated under the authority of Exon-Florio.
Closed – Implemented
GAO found that the Committee had increased the specificity of required actions in agreements.
Department of the Treasury Further, to ensure compliance with agreements concluded under the authority of Exon-Florio, the Secretary of the Treasury should, in his capacity as Chair of the Committee on Foreign Investment in the United States, designate in the agreement the agency responsible for overseeing implementation and monitoring compliance with mitigation measures.
Closed – Implemented
GAO has found that agreements specified the parties responsible for monitoring compliance. Further, the Department of Homeland Security, a member of the Committee on Foreign Investment in the United States, has negotiated two agreements and has taken the lead in overseeing and monitoring compliance with these agreements including keeping other members aware of the status of compliance.

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Topics

Foreign corporationsCorporate mergersDefense industryInternational economic relationsForeign investments in USNational securityForeign trade agreementsForeign investmentsTelecommunicationsBidder responsibility