Committee on Foreign Investment in the United States

The Committee on Foreign Investment in the United States ( CFIUS ) is an inter-ministerial committee of the U.S. government to control foreign investment in the United States. It examines the impact of foreign investment in American companies on national security. The Committee is chaired by the U.S. Treasury and composed of nine representatives from various ministries and departments. The statutory provisions governing CFIUS can be found in Section 721 of the Defense Production Act of 1950.

Background

The U.S. has basically an open investment policy. They are of the view that the private foreign investors for the growth of the U.S. economy is crucial and the U.S. is losing its competitive position, if foreign investors are prevented or deterred from investing in the United States. Therefore, foreign investors play an important role in the U.S. economy: ( The following figures for the calendar year 2007)

• U.S. investment abroad: approx. $ 17.64 trillion.

• Foreign investment in the U.S.: approx. $ 20.08 trillion.

• Proportion of foreign investment in the U.S. gross domestic product: approx. 25 v.H.

• Foreign R & D investment in the U.S.: approx. $ 13 billion

• Foreign infrastructure investment in the U.S.: approx. $ 109 billion

• U.S. tax revenue due to foreign investment: $ 20 billion ( 5 - 6 per cent of all corporate taxes )

• No. of employees of foreign subsidiaries U.S. citizens: approx. 5 million

Development of the CFIUS

For security reasons, the U.S. does not want left entirely to the free market foreign investment. 1975, when one of the aftermath of the Arab oil embargo, President Gerald Ford decreed by the Executive Order 11858 establishing the CFIUS as inter-ministerial oversight board. CFIUS had time to monitor primarily the task of the effects of foreign investment and in this regard the President to report.

In the 1980s, in the wake of increased Japanese investment in the U.S., calls for greater investment control were loud. Catalyst for the adoption of appropriate rules eventually became the (failed ) takeover of the American company Fairchild Semiconductor Corp.. ( Fairchild ) by the Japanese company Fujitsu Ltd.. (Fujitsu ). Fujitsu proposed in 1987, 80 v.H. Fairchild by its French owner Schlumberger SA to take over. Fairchild was a leading U.S. manufacturer of computer chips with high military importance. Opposition to the deal was progressing rapidly, as a representative of the defense sector were concerned that the U.S. industry could be dependent in terms of semiconductor technology from Japan. As the Justice Department brought an antitrust concerns and also the U.S. Secretary of Commerce announced its opposition, Fujitsu gave up his acquisition plan. Critics complained at the time that the President lacked sufficient authority to prevent such ( unwanted ) acquisition. Remedy took place in 1988 with the Exon -Florio provision. With the new law, also called Exon-Florio Amendment, Section 721 of the Defense Production Act of 1950 was created. The president was formally charged with certain foreign direct investment (ie, mergers or takeovers could occur with or by a foreign investor, the foreign control of national trade in the U.S.) also from the standpoint of national security issues to consider. President Ronald Reagan delegated in the same year they entrusted to him by Section 721 mission to the CFIUS by Executive Order 12661 of 1988.

To a tightening of the Exon-Florio provision - it came in 1992, after the attempted takeover of LTV Missile Operations by the Carlyle Group and the French company Thomson. LTV subject since 1986, the U.S. Bankruptcy Code ( Chapter 11 Bankruptcy Proceedings ) and was forced to its missile and aircraft range ( missile and aircraft division ) for sale. As bidders were left Martin Marietta and Lockheed on the one hand and the Carlyle Group and Thomson on the other side. Thomson was planning to acquire the LTV missile division with Hughes Aircraft as a minority shareholder. Carlyle should buy the aircraft division of LTV with Northrop as subordinated investor. Creditors of LTV and the bankruptcy judges ( bankruptcy judge ) rejected the Lockheed / Marietta iH offer iH of $ 385 million in favor of the offer by Thomson of $ 450 million since the French State 60 v.H. belonged to Thomson's parent company, an Exon-Florio - application has been made. Instead of an increase in supply Martin Marietta and Lockheed began a lobbying campaign against the acquisition plans of Thomson. During the Exon-Florio exam several congressional committees held highly publicized hearings in which Martin Marietta and Lockheed, as well as their expert portrayed the Thomson offer a serious threat to national security. At the end of the study, there were reports that CFIUS would recommend to the President to prohibit the acquisition. Considering the almost safer presidential rejection Thomson drew its offer.

The change in the CFIUS skills in 1992 concerned investment by state-owned foreign companies. All acquisitions of U.S. companies by state-owned foreign companies, which may endanger the national security of the United States, must be checked by CFIUS since then. State- controlled foreign company was also prohibited to acquire certain contractors of the Department of Defense ( DoD ) and Department of Energy ( DoE).

In early 2007, there was a discussion about a reorganization of the procedure for examination of foreign investment in the United States. Prompted by the takeover of the company Peninsular and Oriental Steam Navigation Co. by Dubai Ports World and the transition associated the port management of six U.S. ports to a state-controlled companies in the UAE in 2006. Dubai Ports World is owned by the Holding Company Dubai World, the control of Sheikh Mohammed bin Rashid Al Maktoum, Prime Minister of the United Arab Emirates, is subject. The finance committees of the Senate and House of Representatives designed to reform the Exon -Florio provision and CFIUS remains significantly divergent bills. Bone of contention was next process length and Notifizierungserfordernissen the reporting requirements and the scope of reporting to Congress, a case classification, the term "critical infrastructure " as well as any introductory authorization of Congress.

Outcome of the discussions was the "Foreign Investment and National Security Act of 2007" ( FINSA ) of the Defense Production Act revised by Section 721 and structure, role, work process and responsibility of the CFIUS were reformed.

In January 2008, President Bush transferred the duties assigned by FINSA skills to the CFIUS. By Executive Order 13456, he delegated large parts of the CFIUS -related cooperation between the President and Congress of the Minister of Finance as chairman of CFIUS.

Based on the FINSA amendment enacted the Department of Treasury a new regulation implementing Section 721 (DPA Regulations Pertaining to Mergers, Acquisitions, and Takeovers by Foreign Persons). It entered into force on 21 March 2008. Core elements of the new implementing Regulation

• Clarification of the term " corporate governance "
• Identifying those to earlier more extensive compared information obligations of the applicant
• Encouraging preliminary consultations, setting a deadline for replies additional information sought by the CFIUS
• Introduction of a fine of up to $ 250,000 U.S. for intentional or grossly negligent misstatements or omissions in the display of the transaction

According to the guidelines of the FINSA CFIUS also published on December 1, 2008 Procedure Notes ( Guidance Concerning the National Security Review Conducted by the Committee on Foreign Investment in the United States ). However, they lack legal force. This guidance included in addition to the actual instructions on the procedure and notes on the interpretation of the term "national security" ( threat and vulnerability analysis) as well as the content and scope of any risk mitigation agreements ( " mitigation agreements" ).

Structure

Members of CFIUS are the representatives of six ministries:

• Department of the Treasury - Ministry of Finance ( chair and secretariat )
• Department of Justice - Ministry of Justice
• Department of State - Ministry of Foreign Affairs
• Department of Defense - Defense
• Department of Commerce - Department of Commerce
• Department of Homeland Security - Department of Homeland Security,

And the representatives of six offices in the area of the White House:

• Office of Management and Budget - coordinate cooperation between the federal
• Office of the United States Trade Representative - coordinates the international trade relations of the United States
• National Security Advisor - advise the President on matters of foreign and security policy
• National Economic Council - coordinate the economic policies of the President
• Council of Economic Advisers - advise the President on issues of economic policy
• Office of Science and Technology Policy - coordinates the scientific and research policy of the President.

Representatives of the intelligence services take part in an advisory capacity. Chairman of CFIUS is the Minister of Finance. He may, if he considers it necessary, representatives of other ministries and public agencies inviting them to participate in the meetings.

Method

The Exon -Florio provision provides for a multi-step testing procedures and allows a process lasting up to 90 days ( 30 45 15). The process is secret. Only the Congress will be briefed by the Minister of Finance. After the beginning of a process ( at the request of a company involved in the transaction or ex officio ) begins a 30-day preliminary period. If CFIUS during this review (review) leads to the result that

• The transaction threatens to impair the national security of the United States,
• The lead agency recommends an investigation and CFIUS agrees,
• The transaction would lead to control by a foreign government, or
• The transaction would lead to the control of a critical infrastructure sector, which * the U.S. national security could be compromised, and this threat has not been mitigated,

Then CFIUS shall, within 45 days by a comprehensive examination ( investigation ) of the transaction. Only under special condition shall be submitted for final assessment to the President the transaction.

The circumstances described in Executive Order 13456. A template must be made when

• The Committee comes to the conclusion that the transaction should be suspended or prohibited or
• The Committee is unable to make a decision to give a recommendation to suspend or prohibit the transaction to the President.

(see Section 6 of Executive Order 11858 c ).

The President has another 15 days to decide whether he wants to prohibit the transaction. The parties allow it usually not a decision by the U.S. president, which is not justiciable, arrive. In such cases, the application is withdrawn regularly.

To avoid bans to CFIUS endeavor during a procedure to solve emerging issues together with the companies involved. This should CFIUS bear the ultimate aim of bill to allow investment and to create jobs, income and fees. Before a negative recommendation is pronounced, CFIUS must therefore always consider how U.S. security concerns could be worn in a more appropriate way than by a prohibition bill, such as completion of security agreements.

In view of the complexity of corporate takeovers is also crucial to the success of Exon -Florio process, that the undertakings concerned will be in operation before the formal process with CFIUS contact, prepare documents and clarify for yourself which security policy significance could have their planned business, even with regard to approval or disapproval by Congress.

The Exon -Florio provision will be applied by the CFIUS case by case basis. An example is the approval of 18 November 2007 concerning the merger of Lucent Technologies Inc., Alcatel. The transaction was approved, after the companies were obliged to implement within a specified period, a National Security Agreement and a Special Security Agreement. Had the companies of the obligation is not fulfilled, so a negotiated exclusively for this case resumption agreement would have used that breaks the principle of final legal force of Exon -Florio decisions. The background to this was that President Bush proposed merger on the one hand did not want to block out the company on the other hand, however, could not be realized before the expiry of 90 days to complete the process above agreements.

Notable cases

• 2005 acquired Lenovo, China's largest computer manufacturer, the PC and laptop division of IBM. The acquisition was approved.
• 2005 tried to buy the oil company Unocal, the state-owned China National Offshore Oil Corporation ( CNOOC ). After vociferous protests in the U.S. Congress and the press CNOOC gave to the project.
• The state's Dubai Ports World acquired P & O in 2006, a company that operates a number of ports in the United States. CFIUS was in favor of the transaction and President Bush approved it. It broke a controversial debate in Congress threatened legislation against the takeover make. After attempts at mediation had no effect, DPW bowed to public pressure and sold P & O to an American investor.

Statistics

Since 1992, CFIUS has approx. 1,850 transactions ( as of 2007) viewing and it blocks a. In 32 cases testing ( investigation ) was performed, including seven in 2006. In 24 of the above-mentioned studies it was the case of an investment by a controlled or controlled by a foreign government enterprises.

CFIUS Notifications and Investigations, 1988-2007

The number of notifications and inspections has (again) increased significantly in recent years. The percentage of withdrawals of applications has also increased significantly. The total value of the reviewed transactions in 2006 was $ 189 billion. The transactions take place in a variety of industry sectors, including real estate, leasing and automotive industry. Almost half of all notifications between 2005 and 2007 concerning the processing industry, more than a third of the information sector.

The involved foreign companies in the period 2006 to 2007 come from 57 different countries. Were dominated by companies from five countries ( in descending order): the United Kingdom, Canada, Japan, Germany and France.

Debate

The U.S. decision-making in terms of investment control based on the criteria of national security and economic development. To give this and their relationship to each other a respective current shape is difficult. The to CFIUS and Exon -Florio provision experienced turmoil are an expression of the difficulty. Here in the U.S. it does not lack the insight that development and security are not off against each other, but are complementary. The challenge is rather the practical action, with differences in time horizons, addressees and instruments. This led to frictions and contradictions between investors, administration and Congress. However, since neither the meaning was provided by development or security in question, or re-weighted, the recorded stress relief is not to be regarded as reorientation of the USA in the field of investment control.

The work of the administration to implement the " FINSA legislation" seem initially completed. The main changes since the beginning of the discussions in 2005 are of a formal nature CFIUS is in the review of foreign investments continue to fall back on vague legal terms ( "National Security "; " Critical Infrastructure "), whose interpretation may be strongly influenced by current political events. The increased formalization and documentation of the decision-making process should contribute to the independence of the CFIUS in making decisions about "sensitive investments " and the defense of these decisions, inter alia, opposite the Congress to strengthen.

The fear that the CFIUS discussion has led to a loss of image of the U.S. market for foreign investors so far not fulfilled. Likewise, it is not possible between the U.S. debate about investment control and corresponding measures in China or in India or Mexico considerations establish a link. In order to obtain globally favorable conditions for foreign investment and investment freedom, the U.S. Treasury is ready the topic bilaterally and multilaterally further deepen such as the OECD Directorate for Financial and Enterprise Affairs.