STEVE INSKEEP, host:
Here in Washington, the same group that reviewed the ports deal last fall is reviewing it again. It's called the Committee for Foreign Investment and it is based at the Treasury Department.
Congress is also examining the deal, and Monty Graham has been following all these reviews for the Institute for International Economics.
Mr. MONTY GRAHAM (senior fellow at the Institute for International Economics): The process used to review foreign investment for security considerations is a marvelous technical apparatus. It's technical competence in the government at it's highest. But it seems unable to recognized where a potential political issue...
INSKEEP: A public relation problems
Mr. GRAHAM: It's a public relation problem.
INSKEEP: Can you think of any other case where the United States has gotten into this question of foreign ownership and security concerns, and they've simply blown the political side of it?
Mr. GRAHMAM: Yes. The potential CNOOC acquisition of Unocal last summer.
INSKEEP: The oil deal involving a Chinese firm and an American firm.
Mr. GRAHAM: Yes, exactly. Again there was really very little of what you would call a real national security interest at stake. Unocal, for instance, did not hold any deep sea drilling technologies the Chinese military would find interesting. Objections were so strong that the Chinese investor withdrew leaving the American bidder, which happened to be Chevron, to be the only bidder, and the shareholders of Unocal never were even allowed to make the choice between to alternative bidders.
INSKEEP: Now, a lot of members at Congress are looking into the question of whether this ports deal threatens the security of the United States. They will be investigating that. If somebody came to you and just asked you to name which kinds of foreign investment in the United States could be dangerous or give foreigners power over the United States, what kinds of investments would you point out?
Mr. GRAHAM: Well, it's actually kind of hard to answer that question because the power that is invested via foreign investment is reciprocal. Foreigners hold large assets in the United States. They don't want to lose those. In fact, they want to earn positive returns on those. Dubai Ports World is here to make money, and there's nothing that ruins your day more than having the port shut down because some incident occurs that forces the closure because of a security risks.
INSKEEP: So the company has a motivation to watch out for the possibility of some rogue employee who might pass on compromising information, for example.
Mr. GRAHAM: It certainly does.
INSKEEP: Let me ask about one other specific kind of foreign investment that people worry about. People focus on China as a potential enemy of the United States, and observed that China has bought billions and billions of dollars in U.S. government bonds, floating the U.S. government as it runs its own budget deficits. Could the Chinese say, look, we're going to stop buying so many bonds unless you, the United States, change your behavior.
Mr. GRAHAM: That is a definite possibility, and I would say that the behavior that they would want to change is the propensity of the United States to continually be in deficit with the respect to the rest of the world. The Chinese might at some point say that, unless there are corrective measures to reduce the U.S. trade imbalance, we will be somewhat more reluctant to buy US assets than we have been in the past.
INSKEEP: When you think about the controversy over the ports case or the controversy over the Chinese effort to buy an American oil company last year, is there any possibility that this might have a chilling effect, that foreign investors will be discouraged to come here at all?
Mr. GRAHAM: There is if the Congress now were to pass legislation that I would call silly. Silly legislation would include a bill to block this acquisition in spite of a presidential okay of it, legislation whereby a Congress would be given the right to have overview over future such transactions. That sort of legislation very well could have a chilling effect.
INSKEEP: Monty Graham is a senior fellow at the Institute for International Economics, Thanks for coming by.
Mr. GRAHAM: My pleasure.