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other [initially Defence but extended in 1988 to include Justice and Homeland Security in 2003] never saw a deal they did.” 53

The problems are exacerbated by a failure to define what constitutes national security in either the underpinning legislation or regulatory procedures.54 There are of course sound policy reasons for such an approach. Most notably, it gives policymakers exceptional flexibility. Nevertheless, the abortive investment by state-owned Dubai Ports World in P&O’s stevedore operations on the US eastern seaboard in 2005 demonstrates the unintended consequences. The failure to disentangle the national interest and how to order potentially incommensurable commercial and military imperatives severely compromised the integrity of the regulatory system. 55 The controversy centred on the interpretation of an Executive Order. It had opined ‘certain national infrastructures are so vital that their incapacity or destruction would have a debilitating impact on the defense or economic security of the United States’. Despite the support of the Bush administration, political pressure convinced Dubai that it had, in reality, little choice but to divest. This political pressure demonstrates that the voluntary system of review could be short-circuited by policy entrepreneurs. 56

The Foreign Investment and National Security Act (2007) was designed to address this defect by codifying the entire foreign investment review process.57 It reinforces earlier Executive Order imperatives in the definition of critical infrastructure. Significantly, financial services industry is omitted from the list of controlled sectors in the primary legislation. Individual agencies have maintained the sector as a component of critical infrastructure. As such, the Committee on Foreign Investment in the United States remains a politically charged arena. Moreover, the underpinning legislation specifically calls on the Committee to take into consideration ‘the relationship of the acquiring country with the United States, specifically on its record of cooperating in counter-terrorism efforts’.58 This degree of politicisation is particularly problematic for Chinese domiciled investors. The scale of distrust was already evidenced in the blocking of the sale of a Californian-based oil company to the Chinese National Oil Corporation in 2006. This unease re-emerged in the machinations surrounding the recent attempted takeover of 3Com, a leading telecommunications firm. The deal was structured to give the Chinese conglomerate Huawei just 16.5% of the stock with the remainder held by a US private equity group, Bain Capital. It was derailed, in part, because of fears expressed outside the committee process that the integrity of network security protocols could not be protected. The alleged links between Huawei and the Chinese Peoples’ Liberation Army represented

53 Interview, Washington DC, 28 May 2008. Moreover, the OECD has found no evidence of specific country evaluation of how investment policy actually helps or impedes the furtherance of national security considerations, see OECD, above n 48 at 7 (rather it acts as a mechanism of last resort).

54 The Department of Homeland Security, for example, defines as part of its mandate the need to protect ‘systems and assets, whether physical or virtual, so vital to the United States that the incapacity or destruction of such systems and assets would have a debilitating impact on national security’; cited in OECD, above n 48 at 3.

55 See generally, E Graham and D Marchick, US National Security and Foreign Direct Investment (2006).


Executive Order 13010.


PL 110-49, 121 Stat 246


GAO, above n 47 at 34.


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