Law on Foreign Investments in U.S. Upsets EC : Trade: The European Community takes issue with an American law banning direct investment deemed contrary to national security.

The European Community, stung by U.S. charges that it is protecting its farmers from foreign competitors, hit back Tuesday with a broadside against a U.S. law banning foreign direct investment deemed contrary to U.S. national security.

EC officials conceded that the Bush Administration had not used its authority under the 1988 trade act to reverse European investment in the United States. However, they said, the regulations adopted by the Treasury Department last December to implement the law defined national security so broadly as to leave potential European investors worried that their purchases could be blocked.

“The law has been implemented in a responsible way so far,” said David Tirr, the EC civil servant responsible for U.S.-EC relations. “But we’re worried about what this Administration or another administration might do. There are no safeguards for the future.”

Tirr said the EC also was concerned about election-year legislation that would extend the scope of the 1988 law. For example, Rep. Cardiss Collins (D-Ill.), who chairs an Energy and Commerce subcommittee on competitiveness, has proposed redefining national security to include the entire range of the U.S. industrial base.

“She believes you have to look at the broad supplier base as well as the private defense contractors themselves,” an aide said.

Such wide-ranging protectionist legislation has surfaced regularly in recent election years, although none was enacted in the last congressional election year of 1990.

Moreover, economic relations between the United States and Western Europe have become strained over the years-long impasse in the current round of international trade negotiations. The chief roadblock in the talks, which involve more than 100 nations, is the EC’s refusal to meet the U.S. demand that it slash its subsidies to farmers.

By contrast, the foreign direct investment provision of the 1988 trade law--the so-called Exon-Florio amendment, sponsored by Sen. J. J. Exon (D-Neb.) and former Rep. (and now Gov.) James J. Florio (D-N.J.)--is mostly a potential thorn in U.S.-EC relations.

So far, Tirr said, the United States has used the amendment only to block a Chinese company that sought to take over an American firm.

Meanwhile, the 12 nations of the EC have been on a buying binge in the United States, where the relatively cheap dollar makes investments look particularly attractive to foreigners holding German marks, French francs and British pounds.

EC foreign direct investment in the United States--ownership of companies, factories and real estate--nearly doubled from $127 billion in 1986 to $230 billion in 1990. EC investment represented 63% of all foreign investment in 1990, triple the Japanese level.

Tirr said the EC raised the issue of the Exon-Florio amendment when it did because of two events in the United States in December: the adoption of the Treasury Department regulations and a speech by Bush reaffirming his Administration’s support of free and open foreign direct investment.