Skip to comments.Secretive panel could block China's Unocal bid
Posted on 06/24/2005 4:23:21 PM PDT by Libloather
Secretive panel could block China's Unocal bid
By Jim Wolf
38 minutes ago
WASHINGTON (Reuters) - If Unocal Corp. accepts an $18.5 billion takeover by China's CNOOC Ltd. the deal's fate may hinge on how a secretive U.S. review panel defines "national security," experts said on Friday.
"The primary question for this transaction is whether they consider energy security to be a national-security issue," said Michael Wessel, a Democrat and a member of the U.S.-China Economic and Security Review Commission.
Wessel said the Bush administration, so far, had restricted the definition of national security.
State-owned CNOOC's unsolicited bid trumped a roughly $16.4 billion offer from Chevron Corp. and coincides with record oil prices, unease over China's $160 billion trade surplus with the United States and concerns about its growing military might.
The 12-member Committee on Foreign Investment in the United States, or CFIUS, is chaired by the Treasury secretary and brings together top White House aides, the secretaries of State, Homeland Security, Defense, Commerce and Justice and the U.S. Trade Representative.
Under a 1988 law, the president may deny a foreign acquisition of a U.S. corporation only if a CFIUS review establishes two things:
-- credible evidence that the foreign entity seeking control might threaten national security and;
-- relevant laws do not provide adequate authority to protect national security.
In 2003, a CFIUS review led to the collapse of a bid by Hong Kong-based Hutchison Whampoa> to buy then-bankrupt telecommunications company Global Crossing.
But China's Lenovo Group Ltd. was approved to buy IBM's personal computer business this year despite objections from some China critics and a CFIUS review.
Since taking shape 17 years ago, CFIUS has reviewed 1,560 cases, only 25 of which involved expanded 45-day investigations. A CFIUS review normally takes 30 days.
Unocal, the ninth largest U.S. oil and gas production company, has extensive holdings in Asia. If CNOOC succeeds, it would mark the largest overseas purchase by a Chinese firm.
Voicing concern over China's mounting clout, the chairman of the House Small Business Committee, Rep. Donald Manzullo, an Illinois Republican, said Thursday:
"We must reform the CFIUS process to consider economic security as part of national security," Manzullo said.
The law creating CFIUS does not define national security. CFIUS reviews typically have focused on whether proprietary U.S. technology with strategic uses is available elsewhere.
Wessel said any CFIUS review would have to look at whether any Unocal oil-drilling and oil-prospecting technologies could help China test nuclear weapons or mask such tests.
But CNOOC's bid raises a potential new concern -- that it could help China corner oil supplies, threatening U.S. security by jeopardizing its energy resources and economy.
The prospective CFIUS review would be the first to focus on a natural resource company, according to William Reinsch, a Commerce Department undersecretary under President Bill Clinton. "In that sense, it's groundbreaking," he said.
Reinsch, president of the National Foreign Trade Council, a private business group, said a key issue likely would be the productive capability that China may be "locking up for 10, 15, 20 years from now," not just current supplies.
Still, not all analysts perceived a security threat.
James Lewis, a technology transfer expert at the Center for Strategic and International Studies, said CFIUS should not have any concerns about a Unocal purchase.
"From a security perspective, it's as much of a threat as when the Japanese purchased (New York's) Rockefeller Center," he said by email.
Oil in abundance is very necessary for military mobility. It has often been the case (and will be) that he who has the oil, wins.
Give me a break. You're not going to improve our national security by preventing them from buying stuff from America. They can get oil from thousands of different places. You're not going to stop them from getting oil. Let the stockholders sell their oil for the highest price they can get, and if that is to the Chinese, then so be it.
In general, whether they are from China or from Denmark, will we allow a government owned monopoly from another country buy a US firm? To me, doing so would let foreign socialism intrude directly into our economy. On that basis, at a minumum, I must vehemently oppose this! (Analogously, would we let PEMEX buy something here?).
But they are a government owned monopoly, not a real company. Doesn't that change the calculus? If we allow government owned monopolies from other countries to buy US private sector corporations, think of the precedent being set.
"Let the stockholders sell their oil for the highest price they can get, and if that is to the Chinese, then so be it."
I simply do not nelieve that your view of this is so limited. You must own some UCL.
They should put a stipulation in the deal to make China stop pegging their currency to the dollar in return for letting the deal go through. It's a steep price, but if they want to stand on their own 2 feet and have the resources to do it they should have the responsibility for maintaining their own economy like everyone else and stop leeching off of us.
Yeah, and let them buy Boeing and Lockheed too! < sarcasm >
A billion barrels of oil is a drop in the bucket. The appraisal of Unocal's reserves has been dwindling quickly in recent years. They sold off the best ones, and are left with the most expensive ones. That's why the company is valued so low.
If we go to war with China, Unocal's reserves will be worthless, because as you say, they are in Southeast Asia, for the most part. They will be knocked out on the first day of the war.
We'd be much better off letting the stockholders sell these reserves to China when the price is high. If they want to, they can invest their money in other reserves, or you can invest your money in other reserves if you think it's such a scarce commodity, and they don't.
The notion that we should tell stockholders who they can and who they can't sell their stock to does not appeal to me when all we are talking about is a oil reserves. Many Freepers are always talking about how the world is awash in oil. I don't really agree with that, but it's not so rare that we should tell China that we aren't going to sell oil to them when they are willing to pay us a premium over the market price. To do so would accomplish nothing.
Boeing and Lockheed don't own oil. Oil is a fungible commodity.
I don't own Unocal, though I do own other oil stocks. Do you really think that by unilaterally prohibiting our people from selling oil to the Chinese, we are going to prevent the Chinese from getting oil?
All you are doing is ceding the business to other nations, who are more astute businessmen.
The good news is if they DO buy Unocal, the Chinese governemnt can take your home and build a refinery on it.
The US blocked oil and steel exports or something.
Any history buffs on line.........?
I think there are other factors like tankers and pipelines owned that come into play as well. Why help the red plague put their war machine into high gear any quicker. They are prparing for war with us and I don't think we should do them any favors. 41 and 42 did enough of that.
"If we go to war with China, Unocal's reserves will be worthless, because as you say, they are in Southeast Asia, for the most part. They will be knocked out on the first day of the war."
Who really cares about Unocal's oil reserve? What we need to be concerned about are the refineries. If the Chinese decided to show down Unocal's US refineries it could have a large negative effect.
I would guess that UCL already sells "oil" to China.
Why do you treat this as though UCL's sole business is selling foreign reserves? They do many things, not the least of which is fully participate in our domestic petroleum economy......as well as the full range of exploration, service/construction, and production worldwide.
This is a core national security issue IMO.
No, but their products (i.e our military) do use "Oil" and I don't want a possible future conflict with China to have that leverage against us. Let them dig their own wells.
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