Foreign direct investment is a vital part of the US economy, but it periodically raises public and congressional alarms. Under what conditions might a foreign acquisition of a US company constitute a genuine national security threat to the United States? What kinds of risks and threats should CFIUS (Committee on Foreign Investment in the United States) analysts, strategists, and congressional overseers be prepared to identify and deal with?

To tackle this problem strategically, Three Threats classifies the potential threats into three distinct categories.

The first category of threat is the potential for US dependency upon a foreign-controlled supplier who provides goods or services essential to both the US economy and the operation of the defense industrial base.

The second category of threat is a proposed acquisition that would allow transfer of technology or other expertise to a foreign-controlled entity. In turn, this technology might be deployed by the entity or its government in a manner harmful to US national interests.

The third category of threat is a proposed acquisition that would allow insertion of potential capability for infiltration, surveillance, or sabotage--via a human agent or nonhuman agent-- into the provision of goods or services crucial to the functioning of the US economy, including defense industrial activity.

This book looks at real-life cases and concludes with a critical examination of analytical tools that might aid CFIUS deliberations, namely, the Herfindahl-Hirschman concentration index as used in antitrust cases and strategic trade theory.

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Paperback: 100 pages
Publisher: Peterson Institute for International Economics; 1 New edition (August 17, 2009)
Language: English
ISBN-10: 0881324299
ISBN-13: 978-0881324297

INTRODUCTION
Under what conditions might foreign acquisition of a US company constitute a national security threat to the United States? How should analysts and strategists in the Committee on Foreign Investment in the United States (box 1.1), together with congressional overseers, assess risks and threats to distinguish between the serious and the inconsequential? These are the questions I address in this Policy Analysis.

The potential threats that foreign acquisition of a US company might pose fall into three categories (all of which are of particular, but not exclusive, interest to the functioning of the defense industrial base). The first category (“Threat I”) concerns any proposed acquisition that would make the United States dependent on a foreign-controlled supplier of crucial goods or services who might delay, deny, or place conditions on the provision of those goods or services (i.e., the mere fact of dependence does not necessarily warrant a threat designation).

The second category (“Threat II”) applies to any proposed acquisition that would allow transfer of technology or other expertise to a foreigncontrolled entity (or its government) that might use it in a manner harmful to US national interests.

The “Threat III” designation is for any proposed acquisition that could allow insertion of the means for infiltration, surveillance, or sabotage, whether by a human or nonhuman agent, in goods or services crucial to the functioning of the US economy. ...

ABOUT THE AUTHOR
Theodore H. Moran, a nonresident senior fellow at the Peterson Institute for International Economics, holds the Marcus Wallenberg Chair at the School of Foreign Service at Georgetown University.

He is the founder of the Landegger Program in International Business Diplomacy at the university and serves as its director. He is on the executive council of the McDonough School of Business at the university. He is the author of numerous books including Harnessing Foreign Direct Investment: Policies for Developed and Developing Countries (2007), Does Foreign Direct Investment Promote Development? (2005), Beyond Sweatshops: Foreign Direct Investment, Globalization, and Developing Countries (2002), Parental Supervision: The New Paradigm for Foreign Direct Investment and Development (2001), and Foreign Investment and Development (1998).

In 1993-94, he was senior adviser for economics on the Policy Planning Staff of the Department of State. He is a consultant to the United Nations, governments in Asia and Latin America, and international business and financial communities. In 2000, he was appointed counselor to the Multilateral Investment Guarantee Agency (MIGA) of the World Bank Group.

In 2002, he was chairman of the Committee on Monitoring International Labor Standards of the National Academy of Sciences. In 2007, he was invited to join the Director of National Intelligence Advisory Panel on Foreign Investment in the United States.

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