To the Congress of the United States:

1. I hereby report to the Congress on my decision to order the China National Aero-Technology Import and Export Corporation (CATIC) to divest all its interest in MAMCO Manufacturing, Inc., a company located in Seattle, Washington, and incorporated under the laws of the State of Washington. I have taken this action under the authority vested in me as President by section 721 of the Defense Production Act of 1950 (``section 721'' or ``the Exon-Florio provision''), 50 U.S.C. App. 2170. This report is submitted pursuant to subsection (f) of section 721. A copy of my order is attached.

2. The United States welcomes foreign direct investment in this country; it provides foreign investors fair, equitable, and nondiscriminatory treatment. This Administration is committed to maintaining that policy. There are circumstances in which the United States maintains limited exceptions to such treatment. Generally these exceptions are necessary to protect national security. Of those foreign mergers, acquisitions, and takeovers which have been reviewed under the Exon-Florio provision to determine effects on national security, this is the first time I have invoked section 721 authority. My action in this case is in response to circumstances of this particular transaction. It does not change our open investment policy and is not a precedent for the future with regard to direct investment in the United States from the People's Republic of China or any other country.

3. Section 721 requires me to make certain findings before exercising the authority conferred by that provision. Specifically, I must find that:

(1) there is credible evidence that leads me to believe that the foreign interest exercising control might take action that threatens to impair the national security, and

(2) provisions of law, other than section 721 and the International Emergency Economic Powers Act (50 U.S.C. 1701 - 1706), do not in my judgment provide adequate and appropriate authority for me to protect the national security.

I have made the findings required by section 721. Specifically, confidential information available to me concerning some of CATIC's activities raises serious concerns regarding CATIC's future actions. It is my determination that this information constitutes the ``credible evidence'' required by the statute. Moreover, I have determined that no law, other than section 721 and the International Emergency Economic Powers Act, provides adequate and appropriate authority to protect against the threat to the national security posed by this case.

4. MAMCO voluntarily notified the Committee on Foreign Investment in the United States (``CFIUS'') of CATIC's intention to acquire MAMCO. CFIUS has been designated by Executive Order No. 12661 to receive notifications and to review and investigate to determine the effects on national security of foreign mergers, acquisitions, and takeovers. On November 30, 1989, CATIC purchased all of the voting securities of MAMCO. The acquisition was consummated while CFIUS review of the transaction was in progress, an action not prohibited by the statute.

CATIC is an export-import company of the Ministry of Aerospace Industry of the People's Republic of China. CATIC has business dealings with various companies in this country, in several sectors including commercial aircraft. The Ministry engages in research and development, design, and manufacture of military and commercial aircraft, missiles, and aircraft engines.

MAMCO machines and fabricates metal parts for aircraft. Much of MAMCO's production is sold to a single manufacturer for production of civilian aircraft. Some of its machinery is subject to U.S. export controls. It has no contracts with the United States Government involving classified information.

5. On December 4, 1989, CFIUS made a determination to undertake a formal investigation and so informed the parties to the transaction. CFIUS undertook the investigation in order to assess MAMCO's present and potential production and technological capabilities and the national security implications of CATIC's purchase of MAMCO.

6. During the investigation, CFIUS asked for and received information from MAMCO in addition to that provided in the initial filing. Officials of the Departments of Commerce and Defense, representing CFIUS, visited MAMCO to gather information to assist CFIUS in its assessment of MAMCO's current production and technological capabilities.

7. In its investigation, CFIUS also considered the adequacy of all laws, other than the Exon-Florio provision, to deal with the national security concerns posed by the transaction.

8. Because of the sensitive nature of the evidence in this investigation, CFIUS will be available, on request, to provide the appropriate committees, meeting in closed sessions, with a classified briefing.

George Bush

The White House,

February 1, 1990.

Note: The message was released by the Office of the Press Secretary on February 2.