Department of State, Foreign Operations, and Related Programs Appropriations Act, 2006

DEPARTMENT OF STATE, FOREIGN OPERATIONS, AND RELATED PROGRAMS APPROPRIATIONS ACT, 2006 -- (Senate - July 20, 2005)

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Mr. SCHUMER. Mr. President, we have had some discussion floating around this Foreign Operations appropriations bill about the proposed CNOOC-Unocal merger. As I understand it, amendments that directly affect that merger have been withdrawn. That is not a problem, as far as I am concerned, if the sponsors of those amendments on both sides of the aisle wish to delay offering the amendments, to do it on a different appropriations bill.

My amendment is different. Let me explain.

My basic problem with the CNOOC-Unocal merger is not the same as that of many of my colleagues.

I am not sure it meets the strategic test, and I am willing to leave that to the body that judges that strategic test. I have a different problem. It is a problem that the Senator from South Carolina and I have talked about in terms of currency and other issues; that is, China doesn't play fair. What China thinks is good for China, they don't think is good for American companies. That is true here in terms of mergers. CNOOC wishes to buy Unocal, an important company in the United States dealing with a very important commodity--oil--whether it meets the strategic test or not. But if you look at the ability of American companies to buy Chinese companies in industries that China considers strategic, you will find barriers along the way. At least that is what I have found.

What is good for the goose is good for the gander. We ought to have some degree of reciprocity. If the Chinese--in this case, the Chinese Government, since they own 70 percent of CNOOC--wish to buy an American company, why should they be allowed to block American companies that wish to buy similarly situated Chinese companies, the American automobile industry, the American construction industry, the American financial services industry? I will be issuing a report shortly which shows that in these strategic industries, American firms have barriers placed in their way. All of them meet approval. Yet in instance after instance, the American company cannot buy a majority share. The barriers are different for different industries, but they exist. In fact, foreign investment in China is divided into four categories--encouraged, permitted, restricted, and prohibited. Even in the nonprohibited categories, all foreign investment must be approved by the Ministry of Foreign Trade and Economic Cooperation called MFTEC.

The United States has a policy of being open to foreign direct investment in nearly every case, and strict levels of Government approval are only reserved for the most sensitive transactions involving national security. Of the 1,525 cases that have been filed with the Committee on Foreign Investment in the United States since 1988, only 25 have warranted investigation; 12 have been reported to the President, and only one has been denied. In the converse situation, where American firms seek to buy Chinese companies, the devil is often in the details. The Chinese Government creates de facto barriers that almost always require Western companies to give up some degree of control over its enterprise that would be highly irregular in any truly free market.

What is more, it is nearly impossible to gain an accurate picture of which investments, mergers, and joint ventures are rejected by the Chinese Government because companies' investors don't publicly want to admit it. The Chinese will say to General Motors or General Electric or scores of smaller companies: We will let you do it, but only under these circumstances. And the company, not wanting to offend the Chinese, doesn't fight the circumstances. All too often these large companies have an interest to their shareholders--they are supposed to--but not to the United States. If it serves their interest to send the technology to China, even though it will create many jobs in China and hurt jobs here in the United States, so be it. It is good for General Motors. So it is hard to figure this out. As I said, we have begun to do it, and we will be issuing a report shortly about it.

There are additional complications when a U.S. company wants to merge or acquire a Chinese state-owned enterprise such as a CNOOC, which is a state-owned enterprise, because any merger with an SOE requires additional approval of many state agencies, and so in instance after instance, which we will highlight in our report, the Chinese do not play the same way with our companies that they want us to play with their companies.

What our amendment does is very simple. It does not prohibit a merger from taking place. It simply requires a report be submitted to the Secretary of State, in consultation with the Secretary of Commerce, to assess whether that country will allow a similar transaction to occur in the opposite direction. The aim is not building barriers but simple reciprocity--fair, part of free trade, and better for everybody.

I hope my colleagues will accept this amendment. It doesn't go to the heart of this merger--that is a different issue which we will delay and do on a different bill--but, rather, goes to the point that the Chinese should treat our companies the way they want us to treat theirs.

I yield the floor and suggest the absence of a quorum.

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Mr. SCHUMER. Mr. President, I ask unanimous consent that the pending amendment be laid aside and that my amendment be called up.

The PRESIDING OFFICER. Is there objection?

Without objection, it is so ordered.

Mr. SCHUMER. Mr. President, I know we have agreement to accept this amendment, so I will not speak for very long. I know people want to vote on final passage.

Two quick points: This amendment does not block or change in any way the CNOOC-Unocal merger. It simply says, after any merger where a corporation that is owned by a foreign government seeks to buy an American company, that our Government, particularly MFTEC in the Treasury Department, issue a report that shows whether that country is treating our companies reciprocally and fairly. In other words, would an American company that wished to buy a Chinese company in a similar position be allowed to do so? I would argue that the Chinese do not. If you believe in free trade, it has to be a two-way street.

This amendment at least gives us a report and some knowledge of that condition. That is all I am asking.

With that, I yield the floor to the Senator from Kentucky.

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