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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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.

Status Legend:

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  • Review Pending-GAO has not yet assessed implementation status.
  • Open-Actions to satisfy the intent of the recommendation have not been taken or are being planned, or actions that partially satisfy the intent of the recommendation have been taken.
  • Closed-implemented-Actions that satisfy the intent of the recommendation have been taken.
  • Closed-not implemented-While the intent of the recommendation has not been satisfied, time or circumstances have rendered the recommendation invalid.
    • Review Pending
    • Open
    • Closed - implemented
    • Closed - not implemented

    Recommendations for Executive Action

    Recommendation: 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.

    Agency Affected: Department of the Treasury

    Status: Closed - Implemented

    Comments: 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.

    Recommendation: 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.

    Agency Affected: Department of the Treasury

    Status: Closed - Implemented

    Comments: GAO found that the Committee had increased the specificity of required actions in agreements.

    Recommendation: 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.

    Agency Affected: Department of the Treasury

    Status: Closed - Implemented

    Comments: 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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