Selling U.S. Technological Secrets to the Highest Bidder by Rachel Ehrenfeld and Ken Jensen
http://EconWarfare.org
If your offer is high enough, you could purchase U.S. technological secrets. Rest assured, the Obama Administration will not block the sale.
Milwaukee Journal-Sentinel and Fox News (not the New York Times, or the Wall Street Journal, or CNN) revealed today that “the U.S. government has approved the sale of bankrupt, stimulus-fund recipient A123 Systems, Inc., to China’s Wanxiang Group Corp., with a North American business based in Elgin, Ill.
Apparently Wanxiang bid was $5 million higher that that of the Milwaukee-based Johnson Controls. “The Chinese company created “a new independent trust to buy A123’s civilian unit. The civilian arm makes up the bulk of the company’s operations. The idea would then be for Wanxiang to buy the business from the trust.”
A123 makes advanced lithium batteries and has developed technologies that have key U.S. military applications. Among its clients was U.S. subsidized electric carmaker Fisker, for which it has provided batteries. The batteries’ defects forced Fisker to shut down production for a while, and led to A123’s bankruptcy. Although Wanxiang didn’t buy A123’s military unit (which was sold to a U.S. firm), the technologies Wanxiang acquires are similar to those used in the military unit.
Wanxiang is an auto-parts company headed by Lu Guangiu,who in 2011, was reportedly was “the third richest man in the National People’s Congress,” who’s close ties with China’s new government, “worries some lawmakers.”
The deal was approved by a bankruptcy court in Delaware earlier, but Wisconsin Sens. Ron Johnson and Tammy Baldwin, and retired Sen. Herb Kohl, objected to the deal. Milwaukee-based Johnson Controls, Inc., who lost the bid for A123, complained publicly.
The Strategic Materials Advisory Council’s co-chair, Dean Popps, in a statement objecting the deal, said, “This highly sensitive technology should not be handed over to China. American taxpayers own this technology; we paid for it (with a $230 million “stimulus”).
Foreign acquisitions of American companies on the whole are not subject to U.S. government review. When they are, the initiative, as in the A123 case, is almost always one or more member Congress. Had a private company demanded a review, the government would have been under no obligation to act, since there is no law requiring U.S. firms involved in a foreign acquisition to apply for review. Requests for reviews are strictly voluntary.
The review body is the Committee on Foreign Investment in the United States (CFIUS), which was established by Gerald Ford’s Executive Order in 1975 to assure that foreign acquisitions did not bring threats to national security. Chaired by the Secretary of the Treasury, CFIUS includes representatives from 16 U.S. departments and agencies, including the Defense, State and Commerce departments, as well as (now) the Department of Homeland Security.
CFIUS can initiate reviews of transactions that are not voluntarily submitted. This is done by and large in secrecy and, in practice, not every review results in an actual investigation, which was actually mandated for every case by the original executive order.
Moreover, CFIUS rarely comes up with a negative judgment that causes the president to intervene in a transaction (another requirement of the original executive order). The threat of this is usually enough to stop what CFIUS once in a while considers a dubious transaction and we don’t hear about it. Almost all reviews are positive.
According to Derek Scissors of the Heritage Foundation, there is a general presumption that all deals go through. In addition, we know that CFIUS only looks at “dozens of cases each year.” Not hundreds or thousands, but dozens: this, despite spate of Saudi and recently Chinese investments in the United States. At the insistence of the Wisconsin legislators, CFIUS looked into the A123 battery deal and approved it anyway.
Late last September, President Obama blocked Chinese-owned U.S. company Ralls Corp., from developing four wind farm projects within the vicinity of restricted air space of a naval weapons systems training facility in Oregon. This was the first time since 1990 that such an executive order was issued at CFIUS’s recommendation.
Scissors suggests that it was the political interests of President Obama that occasioned the review and executive order. He notes that the order came during the presidential campaign and at a time when Mitt Romney was saying that Obama was soft on China.
The only area the CFIUS performs reasonably is in pending foreign acquisitions of standing U.S. defense contractors. Even then, it is not incumbent on the U.S. seller to seek a CFIUS review.
All of the above suggests that there is a great deal wrong with the way the U.S. goes about scrutinizing foreign investment with an eye toward maintaining national security. No agency is charged with paying close attention to foreign acquisitions and investment. Both foreign buyers and U.S. sellers are not obliged to report what they’re doing to anyone. Unless they acquire political clout on Capitol Hill or at the White House, those concerned with dubious foreign acquisitions cannot activate CFIUS.
Moreover, CFIUS is under no supervision that forestalls the possibility that its actions may be political, rather than in the interests of national security per se. Needless to say, the general economic health of the country is no concern of CFIUS’s, and there is no obligation on its part to respect the privacy of business dealings.
Yesterday, another case with national security considerations was exposed by Rowan Scarborough in the Washington Times:”The Indiana Finance Authority has approved $1.27 billion in tax-exempt bonds for Midwest Fertilizer Corp. to build a nitrogenous fertilizer manufacturing plant in Posey County. Midwest is a new startup company of the Fatima Group, a conglomerate headquartered in Lahore, Pakistan.”
The Fatima Group does not pose a danger to U.S. national security in Posey County, Indiana. However, it’s a serious threat to our security in Afghanistan. Fatima is the only producer in Pakistan of calcium ammonium nitrate (CAN). CAN is used in 70 percent of the homemade explosives used by terrorists to kill American troops in Afghanistan.
Scarborough reports, “Fatima’s corporate leaders know this is happening, based on communications with Obama administration officials and military leaders, but they have refused pleas to control the flow.” This, according to Lt. Gen. Michael Barbero, who heads the Pentagon’s Joint Improvised Explosive Device Defeat Organization (JIEDDO), who also said that Fatima will have nothing to do with even minimal controls on CAN.
The obvious question is where is CFIUS, the White House, Homeland Security, the Indiana Finance Authority, or anyone else in responding appropriately to this situation?
While whole agencies and billions of dollars are dedicated to prevent the theft of American defense technology, as well as the private sector’s intellectual property, there is nothing to prevent the sale of our technological secrets to the highest bidder. There are those who claim that this is how the free market works. However, free market cannot be sustained without responsibility. Free Market doesn’t mean national suicide.
A remedy is needed, and yesterday. CFIUS must be replaced by an agency that attends to U.S. national security interests as well as the competitive interests of the private sector and the legal and illegal acquisition of U.S. technology and intellectual property by foreign buyers.
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