Commentary

Senator Hollings Aims at Germany, Hits United States

By Daniel Griswold
September 16, 2000
Sen. Fritz Hollings is at it again, trying to save us poor, helpless Americans from those dangerous foreigners. The South Carolina Democrat’s latest assault on America’s engagement in the global economy is an amendment that would bar any foreign enterprise with more than one-quarter government ownership from acquiring an American-based telecommunications company.

The immediate impact of the amendment, the focus of a Sept. 7 congressional hearing, would be to squash Deutsche Telecom’s proposed $55 billion acquisition of the Seattle-based wireless telephone provider VoiceStream. The more lasting repercussions would be a chill on foreign investment in the United States, a less productive U.S. economy and the shredding of U.S. commitments to an open global telecommunications market.

Hollings has wrapped his amendment in the flag of national security, but that concern rings hollow. Any foreign-owned affiliate on U.S. soil, whether privately or government owned, must follow all U.S. laws. If the foreign-owned company acts in a way that compromises U.S. national security, such actions can be prohibited by law and, if necessary, the company’s assets confiscated.

Foreign investors in the U.S. telecommunications industry already face a gauntlet of reviews that consider the impact of any acquisition on national security, law enforcement and competition. First, the Federal Communications Commission has the power to deny a license for any foreign investment of more than 25 percent in a domestic telecommunications provider if the deal is deemed to be not in the “public interest.” Second, the Justice Department’s ever-zealous antitrust division can block acquisitions it deems harmful to domestic competition.

The final hurdle is the Committee on Foreign Investment in the United States, established by the 1988 Exxon-Florio amendment. The committee gives defense and law enforcement agencies a say in the approval of foreign acquisitions. The Hollings amendment would shove aside a review process that is already too restrictive and replace it with a flat ban that allows no discretion, no matter how benign the deal or how friendly the foreign government involved.

Through the 1997 Basic Telecommunications Agreement, members of the World Trade Organization agreed to open their domestic markets to the $1 trillion global telecommunications industry. If the Hollings amendment passes, it will undermine our long-standing efforts to open telecommunications markets in Japan, Europe, China and elsewhere to competition and investment from U.S. companies. The United States would be in clear violation of its WTO commitments, and U.S. companies would be subject to retaliatory restrictions abroad.

Foreign investment has been a boon to the U.S. economy and one of the drivers of our record economic expansion. When a company such as Deutsche Telecomm acquires a U.S. affiliate, the U.S. company’s shareholders are made wealthier and its workers more productive by the infusion of new capital. The new owner also injects more competition into the domestic market, raising the level of service and lowering prices for consumers.

Today, foreign-owned affiliates employ 5.6 million Americans in what are typically good-paying jobs, including one out of every eight U.S. manufacturing jobs. Foreign-owned firms produce $400 billion of our annual GDP and 22 percent of U.S. exports. The Hollings amendment would raise an unnecessary barrier to this inward flow of productive foreign capital.

Senator Hollings argued at the hearing that allowing foreign governments to buy a stake in U.S. telecommunications companies would be a step back for deregulation by “governmentizing” the market. But America’s competitive, deregulated telecommunications market would force Deutsche Telecom, whether publicly or privately owned, to run its new acquisition in a way that maximizes service to customers and return to shareholders. In fact, acquiring VoiceStream would be a major step toward privatization of the company, diluting the German government’s direct and indirect share of ownership from 58 percent to a minority 44 percent.

The Hollings amendment would apply an unthinking formula to a global industry that is changing almost as fast as the pulses of light and electrons that connect hundreds of millions of computers, cells phones, pagers and faxes around the world. The global economy would certainly be more productive and living standards higher if governments sold their shares of all business enterprises, including telecommunications. But until that happy day arrives, the United States should not deprive itself of any foreign investment that would stimulate competition and raise worker productivity without compromising our national security.

Dan Griswold is associate director of the Center for Trade Policy Studies at the Cato Institute.