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Sovereign Wealth Funds and the World Economy [Rush Transcript; Federal News Service]

Presider: Gideon Rose, Managing Editor, Foreign Affairs
Speaker: Robert M. Kimmitt, Deputy Treasury Secretary, U.S. Department of the Treasury
January 28, 2008
Council on Foreign Relations

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GIDEON ROSE:  Hi, everybody.  It's Gideon Rose here, managing editor of Foreign Affairs.  We're delighted to be able to be here today with Deputy Treasury Secretary Robert Kimmitt, one of the wisest, most experienced, sharpest technocrat in government, and that's said from a Foreign Affairs perspective in the best and most complimentary of all possible ways; somebody who actually knows what he's doing, the kind of person who should be in government doing things with power.  He has a long biography and resume that we don't need to recite now because we want to get to him and to you as much as possible, so take it as listed.  You can find it on his website.

The subject of the day is sovereign wealth funds.  It was said that last year's world economic forum in Davos was dominated by talk of private equity and hedge funds, and this year's was dominated by sovereign wealth funds.  The -- in keeping with that, Foreign Affairs had a wonderful hedgefund article by Sebastian Mallaby last year at this time anticipating the game, and doing the same thing this year, we have a wonderful article on sovereign wealth funds by somebody who actually -- not just is in a position to know, but in a position to make authoritative policy about it.

So without further ado, let's get to our speaker, who is himself fresh from Davos and can talk to us later on about the hoopla surrounding the issue there.

Deputy Secretary Kimmitt, why should we be scared or not be scared of sovereign wealth funds?

ROBERT KIMMITT:  Well, in direct answer to your question, I don't think we should fear sovereign wealth funds anymore than we should fear any investment into the United States that is done on commercial grounds.  And as the piece makes clear, although the term "sovereign wealth" and "sovereign wealth fund" seem to pick up its greatest resonance in the summer of 2007.  In fact, these funds have been around for over five decades, and the track record that has been established so far is that they have been endeavoring to generate higher investment returns without generating political controversy by making their investments on commercial rather than political grounds.  That only has -- that is not only investment that we don't fear, that's investment that we welcome.

And I would just say that sovereign wealth fund issue and indeed the article are really part of the broader look at investment policy, investment flows, investment review that has been under way for the last several years, particularly after the CNOOC and Dubai Ports cases.

ROSE:  Okay.  The -- you talk about how this issue has arisen recently, and you say that there are reasons to be concerned -- there are certain kinds of investments that might generate concern and certain kinds of investments that shouldn't be problematic at all.  What are the kinds of investments that shouldn't be problematic no matter who is making them?

KIMMITT:  Well, again, in the article, we talked about the need for vigilance.  That vigilance really was due to the growing size and number of these sovereign wealth funds.  There's been dramatic growth both in the number and in the aggregate size of these funds.  That means we need to watch the funds development both from a global macroeconomic perspective, but also, as your question suggested, an investment review perspective.

On the macroeconomic side, they are already of the size and will be of the size in the future, and I think there is close monitoring in terms of macroeconomic effects.  And on the investment review side, given the fact that cross-border investments tend always to be viewed in the broader political context, we think it's especially important for sovereign wealth funds, other state-owned and controlled investment to recognize the responsibilities that they have in the investment review process and also the responsibility the governments have.

And I would say as a general matter, going back to my earlier statement, investments that are made on sound commercial bases, whether they be from sovereign wealth funds, other state-owned assets, or from private entities, have been the kind of investments that have generally not led to concerns, that have been welcome investments here in the United States.  And in asking the IMF and the World Bank to work with the sovereign wealth funds, to emphasize the commerciality of their investments, while at the same time asking the OECD to work with investment recipient countries to make sure that we remain open to investment that is done on a commercial basis, we thought we were addressing that investment review component of the vigilance question.

ROSE:  Got it.  You say that -- in the article that essentially you develop a set of best practices both for countries receiving SWF investment and sovereign wealth funds who are doing the investing themselves.  The four components of the best practices for the receiving countries are kind of interesting and important.  Do you want to walk through those?

KIMMITT:  You know, Gideon, I'll tell you:  I do not have a copy of the article right in front of me.

ROSE:  Wait, what --

KIMMITT:  I could pull it out, though --

ROSE:  What you said was avoiding protectionism, upholding fair and transparent investment frameworks, respecting investor decisions and treating investors equally.

KIMMITT:  Right.

ROSE:  Those are the things you said that countries receiving sovereign wealth fund investment should follow.

KIMMITT:  Yeah, and on the best practices point, what we have suggested is that this needs to be approached on a multilateral basis.  And that is that those were some -- what we thought would be organizing principles that should be discussed, under an OECD lead, by investment-receiving countries.  And by the way, those principles would apply to all investment, say, coming into the United States or other countries, so that it would be, yes, applicable there, but -- any sovereign wealth investment or other state-owned investment, but it would also be the same for investments from private enterprises.

ROSE:  For the sovereign wealth funds themselves, your code of conduct basically is to invest commercially, not politically; to convey world-class institutional integrity; to compete fairly with the private sector; to promote international financial stability; and to respect host country rules.  I think a lot of people would say those are absolutely sensible guidelines, and if indeed we were confident that the sovereign wealth funds would do those things, there wouldn't be any problem.  How, however, do you get confidence that these government-directed or operated enterprises in foreign countries will actually obey such a high-minded code of conduct?

KIMMITT:  Sure.  Again, those principles that we laid out should apply to any investor coming into the United States.  Some have particular applicability to state-owned and controlled investment, whether it be through a sovereign wealth fund, a state-owned enterprise or otherwise. 

What we have suggested is, this would be a good starting point for the discussion that is taking place under an IMF at World Bank lead right now, with the sovereign wealth funds, around organizing a set of principles, a voluntary set of best practices to which the sovereign wealth funds would subscribe, again, to emphasize that they are committed to these principles, particularly the commercial nature of their investments.

Again, I think it is important to recognize that we're saying there are things that need to be done on the investor/recipient side -- investment recipient side, and also on the investor side.  But in each case, we recognize that, you know, sovereign countries will make their own sovereign decisions.  But in the general interest of encouraging the free flow of capital across borders based on open investment policies, we think there should be sort of mutuality of best practices on both sides of the investment question.

ROSE:  Do you think that the multilateral discussions and processes that have already begun to, in effect, develop and promulgate a set of best practices on this issue will get anywhere?  And if so, under what kind of time frame?

KIMMITT:  I think that good progress is being made based on what was said by OECD secretary general at Davos -- comments made by the IMF managing director.  I think each of those processes is proceeding well.  My guess is that there would be an update on where those processes stand at the spring meetings of the World Bank and the IMF with a goal of trying to conclude that work not later than the fall meetings of the Bank and the Fund.

ROSE:  You mentioned Davos.  From the press reports, it sounded like there was almost some kind hysteria going on there about sovereign wealth funds.  Is that true, or did it dominate discussions as much?  And if so, was the talk the kind of thing you think was constructive or not?

KIMMITT:  I think the talk was very constructive.  I mean, I think Davos had multiple themes at play this year.  Certainly what was going on in the world economy, in the U.S. economy, in global financial markets was a major theme, starting, as Davos did, the Tuesday after the market falls on Monday and Tuesday.  Of course, by later in the week, Societe General picked up a certain degree of topical discussions consistent with that look at global markets.  Sovereign wealth funds were certainly a major issue, as you said earlier, maybe taking the place of some of the discussion about both private equity hedge funds, other private pools of capital last year.  But there were also quite a number of other discussions at Davos, as usual, on a wide range of issues, but clearly sovereign wealth had a particular focus this year that it had not had in previous years.

ROSE:  As one of the people who was involved in the initial reviews of the Dubai Ports World deal last year, were you taken aback by the public uproar that ensued when that became public?  And what are the implications of that whole episode for the future of this subject?

KIMMITT:  Sure.  Dubai Ports actually took place in 2006.  The review by the professional security people who had looked at it was in 2005 and in early 2006.  I was actually not involved in those initial reviews.  Like other senior people, we learned about the decisions that had been made by our security professionals after they had made their decision and notified the company. 

And I think that one of the lessons that was learned there was that we needed to have a mechanism inside the executive branch to make sure senior people, both at my level and higher, were involved in investment review decisions, and importantly, that we had a good line of communication with the Congress on these decisions.  That process was very much put into place after Dubai Ports World and then ultimately enshrined in the Foreign Investment National Security Act that was passed in July of 2007.  I think a lot of lessons were learned on both ends of Pennsylvania Avenue and on both sides of the investment review question in the wake of Dubai Ports. 

And I would note that in calendar 2006, investment into the U.S. grew to its highest level since 2000, and in 2007 it grew to its highest level ever.  So I think that the United States remains an exceptionally attractive place for investment.  We continue to review a small number of cases, but an important number of cases, in the Committee on Foreign Investment in the U.S. under both the provisions of the new law but also the experiences we and others have learned, both since the CNOOC case in 2005 and then Dubai Ports in 2006.

ROSE:  So you're not worried by the prospect of future populist demagoguery on the part of the legislature and others?

KIMMITT:  Well, I would just say that I think there is an important responsibility on the part of both the executive and legislative branches with regard to investment review.  We know what it is we need to do, and including what we need to do with the Congress. 

I think one of the important lessons that's been learned by investors is that there is an important process and regulatory process that they need to go through inside the executive branch, but it's very important for them also to be in touch closely with the Congress but also governors, mayors and others during the course of any investment into the United States, because it is, after all, jobs in those communities, states and districts that will be affected. 

And I think that's one of the reasons why things have gone so relatively well since 2006, in that the two branches of government have a good working understanding now on how we will interact during these, but the investors know that it is important for them to work both with the executive, legislative and indeed state branches of government.

I would also note, though, that as a general matter, it is usually under 10 percent of cross-border deals in the United States that are reviewed by the Committee on Foreign Investment in the U.S.  So a strong 85 to 90 percent of the cross-border investment that comes into the United States does not even raise any security issues.  I think that shows that we are open to investment while at the same time making clear that if there is a security dimension to any acquisition or merger, that we're going to take steps properly to balance open investment with national security.

ROSE:  So the cynic in me says that I should really hear your comments as saying that sovereign wealth funds and other foreign institutions like that should make their decisions on commercial grounds but take -- beware of political realities in how they sell and market them.

KIMMITT:  Well, I think that's fair.  I think it is fair to say that the points that we laid down, including the commerciality of the transaction, is at the core the most important part of it.  But we do have to recognize, whether it's in U.S., Europe or elsewhere in the world, these cross-border investments do take place in the broader political context, of which not only people in the government in the recipient country but the investors need to be aware.  I think that's a fair statement.

ROSE:  Okay.  With that, let's turn it over to our engaged audience, who will ask questions. 

OPERATOR:  Thank you.  At this point, if you'd like to ask a question, please press star-1 on your telephone keypad now.  Questions will be taken in the order which they are received.  Any time you would like to remove yourself from the questioning queue, please press star-2.

Again, star-1 if you'd like to ask a question, and the first comes from Chris Ruggeberg (sp) with the Associated Press.

QUESTIONER:  Hi.  How are you?

ROSE:  Fine, thank you. 

QUESTIONER:  Good.  I guess my question is, just in terms of what you're working -- or what you hope to see World Bank and IMF do, you talked about an update in the spring.  Is that -- so should we expect to see a draft of maybe some kind of voluntary code by that time?  And more importantly, are you hoping that this kind of effort, multilateral, will sort of forestall any potential action by Congress, which may or may not be in the works.  But I mean, are you hoping that people here will sort of hold fire until you see what happens -- until we see what happens overseas, or in multilateral settings?

KIMMITT:  Sure.  First, I would leave to the IMF -- which is leading the effort, working with World Bank and the sovereign wealth funds -- to sort of make clear when it is they would make public any of the work that has been under way now for several months.  But I would think that we would expect to hear an update from the IMF and the World Bank during the Bank-Fund Interim Committee meetings in the spring.  And I think they would certainly expect to get questions from the press at that time on where the process stands.

With regard to the U.S. Congress, all I would say is that there already is in the Foreign Investment National Security Act of 2007, as there was since amendment to the previous review act, Exon-Florio, in 1992, a specific provision that requires a more detailed review of any state-controlled investment that would raise a national security concern, whether that be, again, on the part of a sovereign wealth fund, state-owned enterprise or otherwise. 

So I think the Congress quite rightly, in putting the law together last summer, anticipated the issue of state ownership or control in the national security context.  And I think we're going to be guided by that law, as we were in the past, in making individual reviews. 

QUESTIONER:  Great, and actually just a quick, separate follow-up question. 

I mean, in the article and, I think, during the call, you talked a little bit about competing with commercial investors.  Is there a concern about, say reports that some of the banks that have received these investments from the sovereign wealth funds, that they might have preferred or shoved aside some of the more commercial banks?  I mean, is this just sort of a theoretical concern?  Or are there specific things you're responding to? 

KIMMITT:  I don't think we had anything in the article on that particular subject.  The article was written before the subsequent investments into the financial institutions.  We generally don't comment on individual transactions. 

What I would say again is, we are open to investment, including in our financial sector.  I think it's particularly important that the banks, in strengthening their balance sheets, are put in a better position to continue lending both to individuals and businesses.  That's good, not just for the domestic economy but the world economy. 

With regard to the specific question that you have, I think I'd probably defer to the banks to answer that question. 

QUESTIONER:  Okay, thank you. 

OPERATOR:  Thank you. 

The next question comes from Paul Gallagher with Executive Intelligence Report. 

QUESTIONER:  A little follow-up on the last questioners second question -- aren't these loans -- these are capital investments in the banks.  Isn't this the responsibility of the U.S. federal government, as lender of last resort?  I mean, do we and do you know if conditionalities have been placed on these investments to the banks? 

If I may, my own question, concerning the Fed dropping interest rates so fast while the ECB and the other banks are not doing so, are you concerned that this will set off a drop in the dollar, waves of inflation?  Was the Fed moved too rapidly to do this because of the Societe panic?  Or how do you view that? 

KIMMITT:  Your second question touched on the two topics on which I don't speak.  One is interest rates.  That is the province of our independent Federal Reserve.  And the second is the dollar, which is the province of the secretary of the Treasury. 

Going back to your first question, however, without commenting on any individual transaction, I would say that there are certain thresholds of investment that engage regulatory bodies in the United States.  That could include bank regulators, the Securities Exchange Commission or the Treasury Department, if a national security issue is raised.  And if, in fact, the investment is at or above a level that would require that review, a range of factors would be taken into account.  I just can't comment on it with regard to the specific investments in question. 

QUESTIONER:  All right, thank you. 

OPERATOR:  Nick Ramil (sp) with Financial Week.

QUESTIONER:  Yeah, hi.  I had another question regarding the banking industry.  Is there -- in the spring, my understanding is that there's going to be some guidance related to FINSA, and I think there's some confusion among some in the industry right now about whether investment banks will be scrutinized under CFIUS or merely under Bank Holding Act and other regulations.  Can you give any update on that?

KIMMITT:  The law was passed last July.  The president last week signed the executive order that is the necessary precondition to regulations that the Treasury will put out FINSA, the Foreign Intelligence National Security Act.  Those regulations are due in the spring.  They will be the follow on to regulations that already exist under the old Exon-Florio amendment.  They will be very much focused on the FINSA process; that is the review of foreign investment in those instances where national security issues are or might be raised.

With regard to other aspects of any review, certainly including Bank Holding Company Act or any other acts, that would remain the responsibility of other bank regulatory or other regulatory agencies.  So if you took a look at the president's executive order of last week and the current regulations that exist under the old law, I think that would give you a fairly good idea of what's likely to be in our new regulations that come out this spring.  As you know, the Bank Holding Company Act is the regulatory responsibility at the Fed.  If there's a specific question on that, I think you'd have to talk to them or other bank regulators, the SEC or the other appropriate regulatory body.

QUESTIONER:  A quick second question for you, if I may.  My understanding is that some country funds -- I think Russia and Kuwait specifically -- expressed some dismay or were against the idea of some kind of international code of conduct.  Should there be some kind of requirement such as having these sovereign wealth funds adhere to this kind of code of conduct or best practices -- you mentioned mutuality -- as a requisite for investing in the U.S.?  I mean, if Russia and Kuwait say they don't want this, should that be some sort of threshold that they should have to meet to be able to invest in the U.S.?

KIMMITT:  Well, I sat on a panel with the head of the Kuwait Investment Authority and the Russian Finance minister in Davos.  I didn't hear either of them make that particular point.  Indeed I didn't hear any resistance to the fact that there could be work on both sides of the investment review question, that is by potential investors as well as investment recipient countries.  The Russian Finance minister did raise some questions about clarity with regard to the U.S. investment review regime.  I responded that we were working on regulations to try to provide as much clarity as possible and we were working with the OECD together with other investment recipient countries to make sure that we were as clear as possible, we're keeping our barriers as low as possible, and we're being non-discriminatory on any investor who is looking to put money in on a commercial basis.

Again, what we have called for, indeed what the G-7 has called for, is a voluntary set of best practices.  We think that would be in the best interests of the sovereign wealth funds.  At the end of the day, however, our review authority derives from the law that you mentioned, the Foreign Investment National Security Act.  That will guide our review of any individual investment that triggers the provisions of the law.

QUESTIONER:  Thank you.

KIMMITT:  Thank you.

OPERATOR:  Thank you.  The next question comes from John Brinkley (sp) with Bloomberg News.

QUESTIONER:  Well, actually, I guess it's sort of a follow-in, and Mr. Kimmitt sort of answered this.  But my understanding was that at Davos there was a certain amount of resistance to adopting best practices or any kind of voluntary guidelines, and so what is the United States' position going to be if the funds decide not to adopt whatever it is the IMF and World Bank may come up with?

KIMMITT:  Again, I did not hear that myself in Davos, that is resistance to the notion of voluntary best practices, either on the part of the sovereign wealth funds or on the part of investment recipient countries.  I think right now both the sovereign wealth funds as well as the investment review -- excuse me -- investment recipient countries are working well with the IMF, World Bank, on the one hand, OECD on the other, respectively.  I haven't sensed any resistance to continuing those discussions.  I think we'll know more as that process unfolds with a good interim check in April.

QUESTIONER:  Thank you very much.

OPERATOR:  Thank you.  And the next question comes from Tessa Moran (sp) with Thomson Financial News.

QUESTIONER:  Hi.  I have a question about what you mentioned in your paper specifically.  You had said that you want these funds to serve as a commercial basis, but then you go on to say that profit maximization may not be considered the primary objective.  What other objectives do these funds serve?

KIMMITT:  Well, I think that what we were saying there was really with regard to the issue of transparency and the reason why that we thought it was in the funds' interest to be more transparent with regard to their purposes, their investment strategy, their governance, risk management procedures and issues of that sort.  And the point was that to be able to continue to demonstrate that they are making these investments on commercial grounds we thought was both in their interest and in the interest of the investment recipient countries.

QUESTIONER:  Okay.

OPERATOR:  Thank you.  Once again, if you'd like to ask a question, please press star-1.  And the next is from David Greising with Chicago Tribune.

QUESTIONER:  Hi. I've got a question about the Chinese Investment Corps' investments in particular.  With their big investments in Morgan Stanley and Blackstone, for example, is there concern that they might be able to use those positions in order to get access to technology -- information about technology that otherwise would be prohibited to them, let's say if they on their own behalf made an outright purchase of a company?  In other words, if Blackstone or Morgan is involved in purchasing a company, that wouldn't seem to trigger any CFIUS review process.  And I'm just wondering if that creates any security concerns.

KIMMITT:  Well, certainly the scenario that you've described, or the hypothetical that you've described is one in which it would sound to me as though an entity were making an investment for a political rather than commercial purpose.  And without specifically commenting on any investments by the Chinese or others, that is something that would be taken into account if there were any indication that that was the purpose for the investment.

QUESTIONER:  Okay.  Where would you trigger some sort of a disclosure requirement, though? You know, for example, if one of the investment banks made a purchase on its own behalf, for example, but by virtue of their position, the Chinese fund would get a look at technology that otherwise it wouldn't have access to?  When is some sort of disclosure or approval process triggered when you have a domestic fund making an investment like that?

KIMMITT:  And maybe you could tell me exactly how an investor would, in the normal course of business, have access to that kind of information.  Because it seems to me -- again, without referring to any particular investment either by a Chinese company or others -- it seems that there has been care taken in most of these recent investments to stress the passive nature of those investments, with percentages being under 10 percent, in some cases even under 5 percent, no board seats, in many cases agreements not to increase the share of ownership.  And so while I understand your hypothetical, I'm just wondering where in practice you think that might come into play.

QUESTIONER:  I think your response implies a fair point, which is we don't at this point see in practice a scenario under which that sort of, I guess, inquisitiveness might be exerted.  On the other hand, given the private nature of firms such as this, as outsiders we know very little about what goes on.  There aren't disclosure requirements, for example, on behalf -- imposed on the firms themselves.  And I'm just kind of wondering how comfortable you are with the amount of transparency there is after a deal such as this about, you know, whether in fact the original terms are followed, whether there are amendments to those original terms, if there's a standstill promised or guaranteed, whether in fact that remains in place.

KIMMITT:  Well, certainly especially the investments we're talking about here in the public companies require those public companies, both in their annual reporting, their other periodic reporting, to make sure that if there are any material changes, that those are made known to the investing public.  And so that is something we and other regulators, as appropriate, would keep an eye on.

I think that one other point that this raises is that both the old Exon-Florio law that was passed in '88, amended in '92, and then the new FINSA law that came in in 2007, makes clear that there is a very important role for the Committee on Foreign Investment in the U.S., but it does not in any way weaken or certainly abrogate the statutory responsibilities that other departments and agencies already have. 

And so, for example, export control regulations still rest with the Commerce Department and with the State Department.  When one looks at setting up special security arrangements inside U.S. companies or one gets involved in the defense-industrial security program at the Defense Department, if in fact a U.S. institution, an investment bank or a company, is going to be involved in any program that has to do with classified information, then all of those laws and regulations that pre-existed FINSA will continue to apply, and therefore not only the Treasury Department but other departments and agencies should be working closely with the bank.

I would say I can't think of an instance where that's been the case with a bank, although there may have been examples, but it happens more with regard to companies, particularly those doing business with the Defense Department, where those special arrangements are set up; but then there are the same kind of restrictions on access to that information that would exist for any investor.  So, again, I think there is an appropriate role for Treasury and the Committee on Foreign Investment U.S. under FINSA if the provisions of the law are triggered, but don't look at this as the only law that can protect U.S. national security on a going-forward basis.

QUESTIONER:   Thank you.

OPERATOR:  Thank you.  The next question comes from Christine Romans with CNN.

QUESTIONER:  Hi there.  Along those same lines, let me ask you what we're doing in -- as regulators to follow up on these transactions once they're done, given just the size and the -- how rapid some of these purchases have been.  Once something is going through and is approved or not disapproved by CFIUS in going forward, are we -- are we looking closely at these deals? And will we watch sovereign wealth fund investments into, you know, what some would consider important infrastructure in this country -- in this country, like, you know, the financial companies?  Will we monitor this after deals are done?

KIMMITT:  Again, if notice is made to the Committee on Foreign Investment in the U.S., if we conduct a review of an individual transaction, that is something that we continue to have an interest in on a going-forward basis.  Again, without talking to any individual transaction, there are occasionally agreements struck as part of the review process in which the companies to the transaction agree to certain responsibilities on a going-forward basis; those are monitored on that going-forward basis.  And again, it just depends on whether the transaction has come inside the Committee on Foreign Investment in the U.S. to ask the question, what then needs to be done on a going-forward basis. 

I would say, however, that again, particularly with investments into the financial services sector, we would be one, but not the exclusive, potential regulatory agency, and that question, I think, might also appropriately be directed to the bank regulators, the SEC, and others.  And you will have noted, perhaps, two speeches that Chris Cox has given on this subject -- one at Harvard, one at AEI -- about the important role that the SEC plays in this process, including that forward-looking responsibility that your question raises.

QUESTIONER:  Can I ask one quick follow-up?  I mean, earlier, your moderator called it "populist demagoguery" in the Congress that killed CNOOC and the Dubai Ports deal.  Do you think it's populist demagoguery that concerns -- you said in your piece that concerns are exaggerated.  Do you think that those are exaggerated concerns?  Or is it -- is it fair to raise concerns about governments buying companies; you know, that -- governments by definition being different than a company buying a company?

KIMMITT:  I think that it is fair to note that foreign direct investment is a major positive contributor to the U.S. economy, being responsible for over 5 million good jobs in the United States.  I think it is also, though, quite fair to recognize that cross-border investments can occasionally raise security issues.  And therefore, while the CFIUS process, interestingly, was first set up by the executive branch in 1975, I think it was quite appropriate for the Congress to give a statutory basis in 1988 and update that statutory basis in 2007 to make sure that we encourage open investment but balance that with our important responsibility to protect national security. 

I think we have an important role; that is, in the executive branch.  I think the Congress has an important role to play.  I think we've struck that balance that is between the two branches in a way that has helped us, then, better strike that balance between open investment and the protection of national security.

ROSE:  (Laughs.)  That's the moderator's laughter -- (inaudible).

QUESTIONER:  (Laughs.)  I had to get you on that one.

OPERATOR:  Thank you.  If you'd like to ask a question, please press star-1. 

And the next is from Charles Harris with the (Yomiuri ?) newspaper.

QUESTIONER:  Hi.  Could you explain exactly how you would distinguish whether a company makes an investment motivated by a political rather than a commercial purpose?

KIMMITT:  I think it would depend to a considerable degree on the track record of that particular investor.  And again, when it comes to sovereign wealth funds, quite a number of them have been around for quite some period of time.  A lot of it, too, can be the sector in which they're investing.  Again, 90 percent of the deals -- over 90 percent of the deals that were done in the U.S. last year did not raise any security concerns. 

And then, if indeed, as the law says, they are getting ownership or control -- because again, that's the trigger for invocation of a FINSA review by CFIUS -- we would, both in the filing that we received from the companies and the dialogue that we have with the companies during the course of that review, be able to look at a number of factors that would address the national security question and ensure that the investment were being made on sound commercial grounds.

QUESTIONER:  Thank you.

OPERATOR:  Thank you.  Once again, if you'd like to ask a question, star-1.   (Pause.)  There are no more questions in the queue at this time.

ROSE:  Okay.  Well, at this point, let me give Deputy Secretary Kimmitt a chance to offer some final thoughts on the subject.  We are delighted to have him with us, and he's a very important guy who has a lot of things to do, so we won't keep him past the time when we have good questions for him. 

So -- by the way, let me just say that "populist demagoguery" is the kind of phrase that you don't answer and expect -- you don't utter and expect to become deputy secretary of the Treasury.  (Laughs.)  So, of course, nobody should hold him responsible for my comments, but I was interested in hearing the answer to that question. 

With that, let me turn it over for any final thoughts to Mr. Kimmitt.

KIMMITT:  Gideon, thanks very much -- including for that clarification.  (Chuckles.) 

Let me just say thanks to Foreign Affairs for publishing this article.  It's something that the staff of Foreign Affairs and I had spoken about last summer.  We anticipated that this was an issue that would attract additional attention.  I'm glad that we've been able to lay a bit of a foundation in Foreign Affairs. 

Secondly, I very much appreciate the reporters and other journalists who have been on the phone.  I think this is an important issue.  When I say "this," I mean investment in general and sovereign wealth funds' contribution to the topic in particular.  I think in years past, we have sometimes tended to treat investment as a subset of trade.

I think those are related but separable issues, and our belief is that the free flow of capital across borders based on open investment policies is every bit as important to the U.S. economy and the world economy, as are free trade and flexible exchange rates.  And I think you're going to find, both in the U.S. governments and governments overseas, a growing degree of attention to investments and investment policy on a, again, related but separable basis to trade.

So I think it's a terrific issue to continue to follow.  We certainly appreciate your interest in it.  And if anybody would like to do any additional follow up, Rob Saliterman of the Treasury Department is on with me.  You could give him a call.  We'd be glad to sit down and talk with you at any time because I think it is important to get out the facts -- with a lot of people not realizing that these funds have been around for quite some time.  But we're going to be presented with new issues on a going forward basis, and we learn a lot from the questions we get.  And we very much appreciate your time.

ROSE:  Thank you.  Thank all of you, and see you at the next call.

KIMMITT:  Thanks, Gideon.  Buh-bye.

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