That Tough New Line On Foreign Investment Is Only A Mirage

When the Justice Dept. filed suit on Jan. 3 to block a Japanese company's planned purchase of a San Jose (Calif.) maker of semiconductor manufacturing equipment, critics of foreign purchases of U. S. companies rejoiced. Coming on the heels of Interior Secretary Manuel Lujan Jr.'s outrage at the prospect of Japanese ownership of concessions in Yosemite National Park, the Bush Administration seemed to be taking a tougher line on foreign investment.

It appears that the celebrations were premature. Justice officials insist their opposition to the planned purchase of Semi-Gas Systems Inc. by Nippon Sanso was based entirely on antitrust concerns. In a suit filed in Philadelphia, the government charges that the acquisition would give the Japanese company too much control of the market for equipment to handle the hazardous gases used in semiconductor manufacturing.

CAPITOL SPARKS. The government says the merged companies would control 48% of the U. S. market and a third of the world market. Filing suit, says Assistant Attorney General James F. Rill, "was purely an antitrust decision" and was not cleared by the White House.

In fact, on other fronts, the Administration seems to be retreating from confrontations over foreign investment--a stance Congress may move swiftly to reverse. Even as Justice was moving against Nippon Sanso, Treasury Dept. lawyers were clipping the wings of the Committee on Foreign Investment in the U. S. (CFIUS). Until now, the interagency panel felt free to investigate technology transfers resulting from any foreign investment in a U. S. company. Under the new rules, CFIUS can only probe the purchase of a majority stake in a U. S. business.

Among those cases immediately affected were a proposed joint venture between Mitsubishi Advanced Materials and UCAR Carbon, a Danbury (Conn.) subsidiary of Union Carbide that manufactures graphite composites for Stealth aircraft. Another deal ruled off limits by the Treasury lawyers was Sanyo Electric Co.'s plan to buy 5% of Areal, a San Jose company that enjoys a lead in the technology for making glass platters for computer disk drives.

Critics charge that the Treasury has emasculated the committee. While the group has examined 495 cases, it has started investigations of only a dozen, and the President has blocked just one acquisition.

WORRIER. Congress will likely make an early effort to strengthen CFIUS. The Defense Production Act, which includes the agency's charter, expired last year and must be renewed. Representative Mel Levine (D-Calif.) says there is a concentration of certain high-tech industries in foreign hands. "We are ceding our ability to control our economic destiny through what amounts to a fire sale of American assets," says Levine. Congress may also try to broaden the definition of "national security" that the President can invoke to block a sale. Several Democratic proposals call for consideration of "economic security" when evaluating deals.

Senator J. James Exon (D-Neb.), co-sponsor of the 1988 amendment that gave CFIUS its new powers, says it should have broad discretion: "If we had a U. S. tiddlywink manufacturer who provided tiddlywinks to our troops in the Mideast, then the President ought to be able to tell a foreign company, `You can't acquire them.' "

The disappointment of critics as they learn that the move against Nippon Sanso wasn't what it seemed will only strengthen congressional resolve to put the teeth back in CFIUS. The Administration doesn't like the idea, but it probably can't stop it.

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