Transcript Foreign Investment and National Security Act of 2007

Foreign Investment and
National Security Act of 2007
Phil Baxter
Chris Pelkey
James Turner
Law, National Security & Public Policy
George Mason University, Spring 2008
Professor Malawer
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Issue:
Does the Foreign Investment & Security Act
of 2007 [“FINSA”] strike an appropriate
balance between:
the economic benefits of foreign
investment in the United States
and
national security concerns about
technology and critical infrastructure?
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Big Business
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FDI
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Foreign Acquisitions
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Chronology
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1950……. Defense Production Act of 1950
1975…….“CFIUS” -- Committee on Foreign
Investment in the United States
1980’s……Foreign Investment jumps
1988……..Exon-Florio Amendment of 1988
1992……..Byrd Amendment
2001……..Sept 11 attack
2006……..Dubai Ports Controversy
2007……..FINSA
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th
110
Congress
1/18/07 --
HR 556 introduced by
Rep Carolyn Maloney (D.NY)
with 58 bipartisan cosponsors
2/28/07 --
passed House 423-0
6/29/07 --
passed Senate passed by unanimous consent
[S1610 Sen. Dodd (R. CT)]
7/26/07 --
Signed by President
10/24/07 --
Effective Date
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CFIUS – Composition of the Committee
-- Pre FINSA--- FINSA 2007 -
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Treasury – Chair
Homeland Security
Commerce
Defense
State
Justice
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Executive Office of President
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-- Management & Budget
-- Trade Representative
-- Council of Economic Advisors
-- Office of Science & Technology Policy
-- National Security Council
-- National Economic Council
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Treasury -- Chair
(new Assist Secty Created)
Homeland Security
Commerce
Defense
State
Justice
Energy
Labor (non-voting)
Director Nat’l Intelligence (nonvoting)
Others, Case by Case -- per
President
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Key Text
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In General -- … with respect to any covered transaction, the
President, acting through the committee (i) shall review the
covered transaction to determine the effects of the transaction on
the national security of the United States and (ii) shall consider
the factors specified…
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Control by Foreign Government – If the Committee determines
that the covered transaction is a foreign government-controlled
transaction, the Committee shall conduct an investigation…
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“Covered Transaction” means any merger, acquisition, or
takeover that is proposed … by or with any foreign person which
could result in foreign control of any person engaged in interstate
commerce in the United States
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Factors
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Exon-Florio
1.
Domestic production needed for projected national defense requirements,
2.
The capability and capacity of domestic industries to meet national
defense requirements, including the availability of human resources, products,
technology, materials and other supplies and services,
3.
The control of domestic industries and commercial activity by foreign
citizens as it affects the capability and capacity of the United States to meet the
requirements of national security
4.
The potential effects of the proposed or pending transaction on sales of
military goods, equipment, or technology to any country identified [as supporting
terrorism, proliferating missiles or chemical/biological under designated
statutes.]
5.
The potential effects of the proposed or pending transaction on United
States international technological leadership in areas affecting United States
national security
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Factors – additions
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FINSA
5.– addition ..posing a potential regional military threat to US interests
6.The potential national security-related effects on United States critical infrastructure,
including major energy assets,
7.The potential national security-related effects on United States critical technologies
8.Whether the covered transaction is a foreign government-controlled transaction [as
defined]
9.[the foreign country’s a.) adherence to arms control and non-proliferation treaties and
b.) cooperation in counterterrorism, c.) risk of transshipment or diversion]
10.The long term projection of United States requirements for sources of energy and
other critical resources,
11. Other factors, as President and Committee determine
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CFIUS Process
Withdrawal
Committee Review
Approval – Mitigation
Committee Investigation
Reporting to Congress
Presidential Decision
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CFIUS Process, Expanded
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CFIUS Actions
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Totals through 2005
Notifications
1,500 +
Investigations Withdrawals Presidential
Denials
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1
Accessibility of Data and Confidentiality
The one Presidential Denial – Undoing a settled Merger –
Pres. George H.W. Bush 1990 -- China and Seattle
based MAMCO, Inc. metal fabricator for aircraft
Approval -- Lucent acquired by French Alcatel 2006
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2007 FINSA Features
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Process now based on Statute
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Additional Reporting to Congress
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“Critical Infrastructure” added
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Mandatory “investigation” of “foreign
government controlled transactions”
[yet, exception]
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Economic Considerations
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CFIUS and the Economy
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Past Experiences
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CNOOC
Dubai Port Deal
3Com/China
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FINSA Changes and Economic Concerns
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Issue Group Positions
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Sovereign Wealth Funds
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What are they?
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What role do they play on US economy?
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Threat to National Security?
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Future of SWFs
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Economic Policy Implications
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Increased risk and uncertainty for investing
companies/governments
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Global repercussions
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Foreign Relations
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How will SWFs and CFIUS affect foreign
relations?
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National Security vs. Foreign Affairs
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Global development of other “CFIUS” groups
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National Security - Pros of FINSA
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FINSA provides broader oversight into
transactions and M&A
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Tighter grip on security
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Greater ability to probe foreign interests
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Evergreen clause
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National Security - Cons of FINSA
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Difficult to maintain
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Not enough structure for compliance review
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Increased Congressional oversight
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Political vendettas
Subject to 3rd party interests
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Policy recommendations
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More specific guidelines for the involved
parties to follow
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Limit the ability of Congress to politicize the
transactions
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Not use as an excuse for protectionism
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Keep eye on global retaliation
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th
109
Congress – Policy Alternatives
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--CFIUS should be a part of Dept of Homland Security, not under
Treasury's Supervision
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--Congress, by joint resolution, should be able to block deals even if
the President has approved
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--Specified Congressional Committee Chairs should be able to
require an "investigation" even if the CFIUS doesn't think so.
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-- "Economic Security" of US should be a factor considered in
national security
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--Certain foreign transactions (with foreign gov’t control) should be
presumed disallowed until a finding of safety is made
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109th Congress – Policy Alternatives
(cont.)
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-- Create a defined list of critical infrastructure and only a narrowly
defined type of U.S. Corporation (with US officers and US majority
shareholders) could own them
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--Require foreign corporations involved in certain transactions to
create U.S. subsidiaries with U.S. controlling officers
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--Greater Role for DNI such as having to actually certify the
transaction is safe.
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-- More frequent and more detailed reporting by President to
Congress
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References
Dion, Maeve. "Foreign Direct Investment in Critical Infrastructure: An Update on the New CFIUS Law." The CIP Report [Critical
Infrastructure Protection Program, George Mason University Law School] vol. 6, no. 7 (January 2008): 6-21 [available from
http://cipp.gmu.edu/archive/cip_report_6.7_REVISED.pdf ].
Exon-Florio Amendment. codified at 50 App. U.S.C. §2170 (2006)
Foreign Investment and National Security Act of 2007. Pub. Law 110-49, 121 Stat 246, July 27, 2007 [50 App U.S.C.A. §2170
(October 2007 Pamphlet No. 2].
Jackson, James K. "The Exon-Florio National Test for Foreign Investment." In CRS Report for Congress. Washington, DC:
Congressional Research Service, 2006.
[available from http://digital.library.unt.edu/govdocs/crs/permalink/meta-crs-9704:1 ]
Larson, Alan P and David M. Marchick. "Foreign Investment and National Security; Getting the Balance Right." In Council Special
Report No 18, Appendix A. Washington, DC: Council on Foreign Relations, 2006.
Lee, Ronald D. "The Dog Doesn't Bark: CFIUS, the National Security Guard Dog with Teeth." The M & A Lawyer, February 2005,
5.
Malawer, Stuart S. "Global Mergers and National Security." Virginia Lawyer, December 2006, 34-39.
Nibley, Stuart B. "Companies Called Up." Legal Times, April 1, 2002.
Thomas Library of Congress, 2008 [cited March 1, 2008. Available from http://thomas.loc.gov/cgibin/bdquery/z?d110:HR00556:@@@R|TOM:/bss/d110query.html|
Youngstown Sheet & Tube Co. v. Sawyer, 343 U.S. 579 (1950).
Hall, Jessica and Sophie Taylor, “Bain, 3Com deal stalled on Chinese stake.” Washington Post, February 21, 2008.
McCormick, David H. “Wealth Funds and the U.S. Economy.” Testimony before Committee on Senate Joint Economic, February
13, 2008.
Davis, Bob. “Americans see Little to Like in Sovereign-Wealth Funds.” The Wall Street Journal, February 21, 2008.
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Questions?
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