Dubai ports world under Exon-Florio: a threat to national security or a tempest in a seaport?

Albany Law Review, Spring, 2007 by Deborah M. Mostaghel

Eventually, public opinion turned against the influx of foreign capital. The American public increasingly believed that their country was being sold off piece by piece to foreign interests. A few headlines of the period make the point: "For Sale: America," (47) "Brits Buy Up the Ad Business," (48) and "Japan Goes Hollywood." (49) Congress was becoming increasingly concerned that CFIUS lacked authority to control foreign takeovers deemed risky to national security. Major catalysts for alarm were the 1986 attempts by the corporate raider Sir James Goldsmith to take over Goodyear Tire and Rubber (Goodyear) and by the Japanese company Fujitsu to take over Fairchild Semiconductor (Fairchild). (50)

Goodyear, founded in Akron, Ohio in 1898, had been one of the world's largest tire makers since 1916. (51) British financier Sir James Goldsmith tried to take over the company in 1986 with a $5 billion hostile bid. (52) To fight off this bid, Goodyear sold the company's non-tire businesses and borrowed heavily. (53) Goodyear succeeded in retaining control of the company, but at a cost of $90 million in greenmail (54) to Goldsmith and, according to some, the "abandonment of its long-term corporate strategy." (55) Goodyear's publicity campaign against the attack on a "treasured midwestern 'institution'" (56) helped set the stage for legislation to slow foreign investment.

In a similar vein, Fairchild, characterized as "the 'mother company' of Silicon Valley," (57) was a leader in the semiconductor industry. The potential takeover of this company, at the forefront of an industry considered vital in both the consumer computer chip market and the high-tech weapons market, raised red flags that Japan might corner the market on semiconductor technology (58) and "that existing statutory mechanisms could not adequately protect sensitive industries from military and economic competitors." (59) As it turned out, Fujitsu abandoned the attempt in light of the political pressure brought to bear on it. This political pressure was the result of an "'ideological brawl'" between those who espoused free trade and those who wanted to protect American industry. (60) The brawl spread to "U.S. government officials at Commerce, Defense, State, USTR, Justice, Treasury, and the White House." (61) The "'techno-hawks'" (62) argued "a domino theory that the Japanese would take over the industry and U.S. companies would eventually only market and distribute Japanese products." (63) The "'free traders'" (64) saw the national security arguments as a "'smokescreen' for 'Japan-bashing'" (65) and argued that the sale would help Fairchild, in particular, and U.S. competition and competitiveness in general. (66) The common conclusion between these two factions was that existing law could not block the transaction unless the sale violated the antitrust laws or unless the President declared a national emergency. (67)

Ultimately, the Fairchild deal was not consummated. (68) Based on his belief that the Goodyear and Fairchild transactions posed a threat to national security, Senator Exon proposed an amendment to the Technology Competitiveness Act, which was being considered at the time. The proposed amendment granted the President discretionary authority to limit various types of foreign investment initiatives should they be perceived to threaten national security or necessary U.S. commerce. (69) Representative J. Florio had introduced a similar proposal in the House. (70) These proposals were supported and attacked in line with the philosophies of the techno-hawks and the free traders. (71) The Exon and Florio proposals were finally adopted as part of the 1988 Trade Act. (72) Adoption of Exon-Florio was a direct response to congressional worries that the 1962 Trade Act did not protect national security from uncontrolled foreign investment in sensitive sectors of the American economy. (73) However, the scope of Senator Exon's initial proposal was limited in several ways between its initial appearance and its final incorporation into the 1988 Trade Act. (74)