Law Curbing Foreign Takeovers Dead : Investment: The Treasury will continue to review acquisitions on the assumption that Congress will revive the lapsed measure in January.

The controversial Exon-Florio law, pushed through Congress two years ago to tighten controls on foreign investment, died--apparently inadvertently--in the closing days of the 101st Congress.

But no one will be able to tell, at least as far as the Bush Administration is concerned.

The Treasury informed foreign investors Tuesday that it intends to continue to review foreign takeovers as though the legislation were still on the books--on the assumption that Congress will revive the measure when it returns in January.

The provision, approved by Congress in 1988, empowered a high-level interagency committee to block or nullify foreign acquisitions of U.S. firms if the takeovers were judged to be against the U.S. national interest.

Though relatively harmless in practice, it has been widely criticized by foreign investors and free-trade advocates as a potential deterrent to needed foreign investment here.

Although the White House was lukewarm about the measure when it was passed, the legislation was backed strongly by the Democratic leadership. It seemed in no danger of being killed this year.

But the measure was terminated accidentally when lawmakers, embroiled in disputes over other issues, failed to reauthorize the Defense Production Act, which expired Oct. 20. Since the Exon-Florio law was part of that legislation, it, too, went by the boards.

On Tuesday, the Treasury advised lawyers who represent foreign investors to continue to seek government clearance on potentially sensitive foreign acquisitions as though the Exon-Florio law were still in effect.

Once the law is renewed, expected early in 1991, authorities would again be empowered to order divestiture of mergers the Administration finds a threat to security--including mergers that are consummated during the period when the law is technically off the books.

The law has been controversial almost from the start. The Reagan Administration was unenthusiastic about the measure but eventually accepted it, in part to head off even stronger legislation.

The legislation, which technically strengthens the power of the government to block or roll back a foreign acquisition, has resulted in only one case in which Washington has ordered a foreign firm to divest itself of a U.S. acquisition.

In that case, the foreign buyer was an arm of the Chinese Defense Ministry, which had purchased control of a Seattle-based aircraft parts manufacturer. By contrast, almost 250 other foreign acquisitions have gone through unchallenged.

The interagency group that the Exon-Florio law empowered to review such acquisitions--known formally as the Committee on Foreign Investment in the United States (CFIUS)--actually has been in operation since 1975.

It was formed under an executive order of the Gerald R. Ford Administration, which sought to safeguard control of the U.S. economy from Arab oil exporters who were thought to be buying up U.S. corporations and real estate. Such concerns later proved unfounded.

Even under the Exon-Florio law, foreign investors were not required to submit information on their purchases here. The major impact of the law was to give the Administration authority to block any acquisition thought to jeopardize national security.

Foreign investment advocacy groups have endorsed the stand that the Treasury took Tuesday, arguing that moving to take advantage of the lapse in the Exon-Florio law might only encourage Congress to enact even more restrictive legislation.

“We are urging companies to continue to comply voluntarily with Exon-Florio,” said Elliot L. Richardson, former secretary of commerce and president of the Assn. for International Investment, an organization of foreign investment interests.

Brad Larschan, a spokesman for the group, said his organization believes that the Administration is taking the only practical course.

“The Administration is aware that the pace of mergers steps up in the fourth quarter,” Larschan explained. “If there are no reviews under CFIUS, all of those mergers would probably be put on hold, anticipating reviews later on, when Exon-Florio is reauthorized.

“The key is not to make it perfect, but workable in the interim,” Larschan said.