[OUTLOOK]Not all foreign capital is good

The term “Red China” is popular again in the United States these days. This term means not just China but communist China.
The United States is in a different mood compared to the time when it took “capitalist China” for granted while it was surrounded by cheap products made in China. This change began as China National Offshore Oil Corp. pushed to buy Unocal Corp., the ninth-largest U.S. oil and gas producer, with a bid of $18.5 billion in cash.
When the Chinese corporation, in which the Chinese government holds 70 percent of the shares, attempted to make inroads into the U.S. energy industry, armed with huge capital power, the American people became agitated. U.S. lawmakers devised various kinds of resolutions and bills and tried their best to delay the takeover process, and at the same time, they have geared up to revise energy bills to prepare long-term measures for its national energy policy.
Originally, the United States took a very open stance toward the free market economy and foreign investment. But where it makes one exception is in national security.
As the Cold War began, the United States was worried about the outflow of its national defense-related materials and technology according to the principle of the market economy, which it gained by investing an astronomical amount of funds, technology and human power.
The United States established the Committee on Foreign Investment in the United States in 1975. After Senator James Exon and Representative James Florio proposed an amendment to the Trade Act in 1988, the authority of this committee was strengthened so that it can intervene in the export, acquisition, merger or hostile takeover by foreigners or foreign businesses. The decision whether to approve the takeover of Unocal would be made by this committee.
The Exon-Florio provision also amended the Defense Production Act of 1950 so that the U.S. president could block a foreign acquisition of a U.S. corporation if he finds credible evidence that the foreign entity might take action that threatens national security and current laws offer inadequate protection.
The factors the committee considers in its review are whether the U.S. companies that become the target of foreign acquisition are domestic industries related to human resources, products, technology, materials, and other supplies and services needed for national defense, whether they are related to the defense and space industries and whether the acquisition or sale of the companies will undermine the nation’s technological leadership.
The committee also looks at whether the foreign entity that attempts the acquisition is a foreign government and whether it supports terrorism or proliferates chemical and biological weapons.
The committee, chaired by the secretary of the Treasury, is an inter-agency organization that consists of the heads of major administrative departments, the prosecutor general and heads of the Office of the U.S. Trade Representative and Congres-sional Budget Office. The secretary of Homeland Security, which was established after the Sept. 11 terrorist attacks, plays an essential role at the anti-terrorism level.
Hundreds of contracts are annually submitted to the committee, and most of them are approved. But it becomes a different story when a clear threat to national security is revealed, as it was in the attempted acquisition by the China National Aerotechnology Import and Export Corporation of the MAMCO Manufacturing of the United States, an aircraft parts manufacturer, in 1990, which marked the first time the committee withheld approach.
While formulating the 10th five-year plan at present, China is intensively attacking the blind spots of capitalism to gain a technological edge more quickly and easily. China’s takeover strategy fights against heavy odds in other places like the United States and European countries. How should we accept the phenomenon that thrives in our country alone?
Senator Exon, the force behind the Exon-Florio process, happened to pass away in June when China National Offshore Oil Corp. publicly announced its bid to take over Unocal. Thanks to his establishment of the legal system that prepared for a potential threat to national security, looking decades ahead, the United States could build the last stronghold that could protect its national interest even in a market economy.
At one time, the unconditional attraction of foreign investment and acquisition and merger of foreign companies was accepted as if it were a virtue. But now, we must regain the ability to discern at the national level what industries, technologies and human resources to protect.
For Korea to survive the turbulence of the global economy, it is urgent to have stricter standards and legal and institutional devices concerning the inflow of foreign capital. How long will we leave our economic security to the conscience and morality of individuals?

* The writer is a professor emeritus of international relations at Sejong University. Translation by the JoongAng Daily staff.

by Kim Joung-won