U.S. Reviews Chinese Firm's UNOCAL Bid

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ROBERT SIEGEL, host:

The China National Offshore Oil Corporation, C-N-O-O-C or CNOOC (pronounced see-nook), is trying to buy the US oil company Unocal. So is Chevron. CNOOC is willing to pay more, but the Chinese company faces a hurdle that Chevron does not. For the deal to go through it would have to clear the Committee on Foreign Investment in the United States. The C-F-I-U-S or CFIUS (pronounced sif-ee-us) is a little-known body that has representatives of 12 federal agencies. James Andrew Lewis, who directs the Technology and Public Policy Program at the Washington think tank CSIS, is the rare scholar who has actually studied and written about CFIUS, and he joins us from Cambridge, Massachusetts.

Tell us, who actually is on this committee?

Mr. JAMES ANDREW LEWIS (Director, Technology and Public Policy Program, CSIS): You have Defense, Justice, Treasury, Commerce, the Department of Homeland Security has just been added, the Department of State. So the Cabinet-level agencies with an interest in either international economics or with law enforcement or with national security.

SIEGEL: And how often does it actually review foreign investments, and what are the criteria that it applies?

Mr. LEWIS: It is always on demand. When a company comes in and--notification of a purchase or a planned purchase is voluntary, so when a company thinks that it needs to go to CFIUS, they then go to the committee and say, `Here's what we're planning on doing. Do you think it warrants your opening an investigation?' In most cases CFIUS says, `No, this isn't--this falls below the level of interest for us.' The things they are looking at affect national security and law enforcement and now critical infrastructure protection. They're looking for illicit technology transfer. They're looking for foreign involvement in the communications systems and they're looking for foreign ownership of infrastructures that are vital to the US interest.

SIEGEL: But ownership of an American oil company, is there a track record there? Can we tell if that's something that historically has been an interest of CFIUS?

Mr. LEWIS: Historically, it has not been an interest. The bulk of the cases reviewed involve companies that make defense or military technology or are in telecommunications or which involve very high-tech items, you know, like lithography for semiconductors. So this is a little out of the beaten path for them.

SIEGEL: When was the last time that a deal actually was in some way thwarted by this committee, by CFIUS?

Mr. LEWIS: CFIUS can thwart a purchase in two ways. The last time one went through the entire process and rejected was in the George H.W. Bush administration when a Chinese company was forced to give back an aerospace company it bought. That was more than 15 years ago. The thwarting, though, is more frequent. The recent case of Global Crossing, which is now about a year and a half old, CFIUS reviewed and raised concerns and, you know, the Hong Kong purchaser in that case--or the potential Hong Kong purchaser eventually withdrew their offer because it was clear they were facing such obstacles. CFIUS usually doesn't deny a case. They usually end up discouraging the foreign purchaser.

SIEGEL: A resolution passed the House of Representatives by a vote of 398-to-15 saying that for this Chinese company to buy Unocal would threaten to impair the national security of the United States. Is the Committee on Foreign Investment in the United States by charter responsible to do what the Congress says? Should--would it naturally take into account that sentiment of the House?

Mr. LEWIS: It will take it into account and I think that's part of the reason that this case is getting some extra scrutiny is they don't want to seem cavalier. They don't want to seem that they just approved it or, you know, dismissed it out of hand. But at the end of the day, this process is somewhat removed from politics. So it's nice that the House did this vote, but CFIUS has been a fairly honest broker in the past and I expect they'll continue to be one for this case.

SIEGEL: It seems like all of this would go along a lot more easily if gasoline were selling for $1.70 a gallon at the pump right now.

Mr. LEWIS: That would probably help. The obvious thing, though, is that there are, you know, increasing concerns about China. Some of them are legitimate. You know, the Chinese do have a military buildup. Some of them strike me as silly, kind of like what we went through with Japan in the 1980s, you know, concern about this new growing economic power and how it will affect the US. You know, it's just that China in itself is just such a hot spot that that would probably--even if gasoline was at $1.70--keep this in the cards.

SIEGEL: James Andrew Lewis of the CSIS Technology and Public Policy Program, thanks a lot for talking with us.

Mr. LEWIS: Thanks very much.

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