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.
The Chinese know how to drill oil wells. They've got thousands of them. Unocal does not own something they can't get elsewhere, if we tell them to take a hike. If we won't sell them oil we own in SE Asia, then they will have to buy more Venezuelan oil or Mexican oil, or ME oil to make up the difference. And they will be bidding against us when they do so.
They are willing to pay us a premium for this oil, and the reason, I suspect, is that it's close to China, so the transportation costs are lower. We can import our oil form SE Asia, at great cost to us, and make them import from Venezuela at great cost to them. Or we can import from Venezuela at lower cost to us, and let them import from SE Asia, at lower cost to themselves.
We'll both be better off.
If you take your logic to its conclusion, then why stop at Unocal? Why not ban every American oil company from selling to China? In fact, why not ban every American from selling oil to anyone? After all, we need, that oil, don't we? Why let it slip out of our hands?
This seems eerily similar to the issues surrounding our boarders (sovereignty/national security). If Pres. Bush lets this go through, he may as well join the Democratic Party.
I'll concede to your knowledge on this subject. Seems like we are outsourcing and selling off America, I just hope it doesn't come back to bite us in the ass.
Thank you. My sentiments, exactly.
Very true.
We're buying oil a lot faster than we are selling it, even after taking the Unocal deal into account. The thing to keep in mind about the Unocal deal is that it is the result of market forces. The guys who own Unocal would rather have China's dollars than the oil. Apparently, they think the dollars are worth more than the oil.
Yes, I hope they are right, too, but they are in a much better position than you or I to tell. And it's not like they don't have a choice. China is bidding against an American bidder for Unocal. They were the high bidder. Apparently, the other bidder thinks the price is too high, or they would increase their bid.
The causes of Japan's aggresiveness in Asia circa 1933 to the attack on Pearl Harbor would take even the most superficial historian far too much space here to explain.
I suugest you read: "While America Slept," or some equally authoritative history study of the time. Yes, it involved oil, scrap iron, trade with the US, living space, minerals, agricultural land suitable for feeding its immense and growing population as well as a security buffer from the Soviet Union that coveted Asian areas bordering on Siberia and the far southeast reaches of the USSR republics.
"....hope it doesn't come back to bite us in the ass."
It will. "Buying UNOCAL" is not just some neighborhood oil near China......"Unocal (in its entirety) is a WHOLE bunch more.......to behold it, see these hotlinks at the page the blue link below will take you to. Does anyone want China to own and control all of this instead of us?
All About Unocal
Learn about our company, our operations, our plans, and our people.
A snapshot of who we are and what we do.
More than a century of spirit since our founding in 1890
North America Energy Operations
International Energy Operations
Geothermal Energy Operations
Unocal Midstream & Trade
Real Estate, Remediation Services, Mining & Carbon Operations
Delivering Superior Results Through Technology and Innovation (pdf format)
All about Unocal's patents for clean-burning gasoline formulations
http://www.unocal.com/aboutucl/index.htm
"If the Chinese decided to show down Unocal's US refineries it could have a large negative effect."
Yep. Why is so hard for some to see that we have to protect our national interests.
Raw capitalism will at times sell out to the highest bidder; sometimes the highest bidder wants to kill us with what we sell to them.
We wouldn't have sold oil to Japan during WW2 if they offered us a higher price.
Hearing this at the same time our court wants to take away property rights is really bizzare.
I want Norman Rockwell's world back.
"If the Chinese decided to show down Unocal's US refineries it could have a large negative effect"
If the Chinese decided to shut down Unocal's US refineries it could have a large negative effect.
I think I heard somewhere that Venezuelan oil is not good quality
You better believe it's a security issue.
China is thirty for oil.
They can easily divert the oil from here to China and leave us high and dry.
Or they could be getting out while the getting is good - nest egg and golden parachute to boot.
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