Questions on Security Mar Foreign Investments By ERIC LIPTON

This puts the United States in a category all our own in terms of hostility to foreign investment (and to Chinese and Arabs). Good thing our economy is doing so well that we can afford to send foreign investors packing.

The New York Times

December 18, 2009
Questions on Security Mar Foreign Investments
By ERIC LIPTON

WASHINGTON — As foreign investors once again try to buy American industrial assets, the Obama administration is grappling with how to protect national security while promoting economic recovery.

In recent days, the administration has threatened to block the proposed takeover by the Chinese government of a tiny Nevada gold mining company, according to executives for the company, Firstgold.

Administration officials have also raised questions about a bid by a United Arab Emirates-controlled company to buy a large stake of Virgin Galactic, which is trying to build the world’s first commercial carrier to take tourists into space.

The issues involved are serious enough that the companies involved in the Virgin Galactic deal have agreed to withdraw the application to provide more time for them to be addressed.

“Foreign investments in the U.S. are critical to economic growth and job creation here at home, but we have an obligation to prioritize national security,” the deputy Treasury secretary, Neal S. Wolin, said in a statement released Thursday, in response to questions about the scrutiny of proposed deals.

Foreign investments in certain American industries, particularly those with critical technologies or military or homeland security assets, are reviewed by a federal panel and sometimes sent for approval by the president. Those decisions can set off political firestorms. The Bush administration came under attack for allowing a Dubai company to buy control of a dozen American port terminals. The plan was eventually scuttled.

After a lull in foreign investment during the global recession in the last year, applications before the panel, the Committee on Foreign Investment in the United States, have increased in recent months. About 60 applications have been submitted for such transactions this year, compared with 155 in 2008, a former administration official said. The panel’s decisions are not publicly released, though the companies can disclose them.

The Obama administration has approved most of the requests, including the proposed purchase by a French government-controlled company of a minority stake in nuclear power plants owned by Constellation Energy, which is based in Baltimore.

But the administration has alerted those involved in the Nevada gold mine deal that it will not approve the plan.

“This is very difficult news to receive,” Terry Lynch, chief executive of Firstgold, said Thursday.

He and other backers of the deal say the administration risks sending the wrong message to foreign investors, particularly China, by balking at such transactions. In that case, China’s giant Northwest Nonferrous International Investment Company wants to buy 51 percent of Firstgold, its first purchase of a mine operator in the United States.

Washington officials, however, are increasingly concerned about Chinese dominance in the global precious metals marketplace. The Nevada mines are also close to military installations, including the Fallon Naval Air Station, complicating the deal, according to written summaries of meetings with Obama administration officials obtained by The New York Times.

Under the proposed Firstgold transaction, Northwest Nonferrous would gain majority control of mining leases Firstgold has on 8,300 acres of mostly federal government property in Nevada, at four locations. The most important site is the so-called Relief Canyon in Lovelock, about 110 miles northeast of Reno.

The federal review “raised serious and significant and consequential national security risks” associated with the proposed transaction at all four sites, pointing both to Fallon Naval Air Station and adjacent military facilities it did not name that most likely are classified, according to a summary prepared by lawyers for the mining companies.

In questions it submitted to Firstgold, the administration also seemed to be concerned with what minerals other than gold a Chinese-controlled company might dig up at the Nevada sites or try to export.

Only once since 1990 has a president formally blocked a foreign acquisition. Typically, applications are withdrawn once serious objections are raised.

Firstgold and Northwest have until Monday to withdraw their application, or the recommendation of a denial will go to President Obama. “This smacks of anti-Chinese protectionism at a time when we need to be encouraging foreign investment to create jobs and expand our economy,” said Mark Nordlicht, managing partner at Platinum Management, one of the Firstgold investors.

Executives at Virgin Galactic, by comparison, say they remain confident they can clear up government concerns about the proposed sale of 32 percent of their venture to Aabar Investments of Abu Dhabi, which is controlled by the government there.

Virgin Galactic, created by the British entrepreneur Richard Branson and Burt Rutan, an aerospace engineer, has proposed building a spaceport in New Mexico, where a new generation of spacecraft would carry tourists into space and commercial payloads into orbit.

National security officials participating in the review have questioned whether sensitive rocket and missile launching and fabrication technology might be shared with foreign governments as a result of the transaction, according to executives involved in the deal who asked not to be identified because details of the transaction are confidential.

The administration also sought to make sure that the deal would not violate an international agreement called the Missile Technology Control Regime that is intended to prevent the global spread of missile-based weapons delivery systems.

As a result, the companies involved have agreed to resubmit their application for government approval, restarting the 90-day clock the government has to accept or reject the proposal.

“Aabar and Virgin Galactic remain committed to the transaction,” Jackie McQuillan, a Virgin Galactic spokeswoman, said in a statement. “Both companies are working together to secure the necessary regulatory approvals, and expect to close the transaction as contemplated.”

The review of these and other cases is also been complicated by the fact that at the Treasury and Commerce Departments, which both play a central role in the foreign investor review process, the two top political appointees who are supposed to oversee the effort are still awaiting Senate approval. They are Marisa Lago, nominated to serve as the assistant Treasury secretary for international markets, and Francisco J. Sánchez, Commerce under secretary for international trade.
Copyright 2009 The New York Times Company