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Defense Trade: Enhancements to the Implementation of Exon-Florio Could Strengthen the Law's Effectiveness

GAO-05-686 Published: Sep 28, 2005. Publicly Released: Sep 28, 2005.
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Highlights

The 1988 Exon-Florio amendment to the Defense Production Act authorizes the President to suspend or prohibit foreign acquisitions of U.S. companies that may harm national security, an action the President has taken only once. Implementing Exon-Florio can pose a significant challenge because of the need to weigh security concerns against U.S. open investment policy--which requires equal treatment of foreign and domestic investors. Exon-Florio's investigative authority was delegated to the Committee on Foreign Investment in the United States--an interagency committee established in 1975 to monitor U.S. policy on foreign investments. In September 2002, GAO reported on the implementation of Exon-Florio. This report further examines that implementation.

Recommendations

Matter for Congressional Consideration

Matter Status Comments
In light of the differing views within the Committee on Foreign Investment in the United States regarding the extent of authority provided by Exon- Florio, the Congress may wish to consider amending Exon-Florio by more clearly emphasizing the factors that should be considered in determining potential harm to national security.
Closed – Implemented
On July 26, 2007, the President signed Public Law 110-49 into law. Public Law 110-49 contains provisions that implement this recommendation.
To address Treasury's concern with the impact of investigations on U.S. open investment policy and the member agencies' concerns with having sufficient time to address relevant issues concerning the acquisitions, the Congress may wish to consider eliminating the distinction between a review and an investigation and make the entire 75-day period available for review. The Committee could then be required to submit recommendations to the President only if presidential action was necessary.
Closed – Not Implemented
The Foreign Investment and National Security Act of 2007 was enacted and implementing regulations issued; no action was taken to implement this recommendation.
To provide more transparency and facilitate congressional oversight, the Congress may wish to revisit the criterion for reporting circumstances surrounding cases to the Congress. For example, the Congress could require an annual report on all transactions that occurred during the preceding year. Such a report could provide the Congress with information on the nature of each acquisition; the national security concerns raised by Committee member agencies, if any; how the concerns were mitigated; and whether each acquisition was concluded or abandoned, in addition to any presidential decisions required under the statute.
Closed – Implemented
On July 26, 2007, the President signed Public Law 110-49 into law. Public Law 110-49 contains provisions that implement this recommendation.
In view of the need to ensure that national security is protected during the period that withdrawal is allowed for companies that have completed or plan to complete an acquisition prior to the Committee completing its work, the Congress may wish to require that the Secretary of the Treasury, as Committee Chair, establish (1) interim protections where specific concerns have been raised, (2) specific time frames for refiling, and (3) a process for tracking any actions being taken during the withdrawal period.
Closed – Implemented
On July 26, 2007, the President signed Public Law 110-49 into law. Public Law 110-49 contains provisions that implement this recommendation.

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Congressional oversightCorporate mergersCritical infrastructureDefense industryFederal lawForeign corporationsForeign investments in USForeign policiesHomeland securityInternational economic relationsNational policiesGovernment and businessTransparency