Academic journal article Proceedings of the Annual Meeting-American Society of International Law

Economic Politics and National Security: A CFIUS Case Study

Academic journal article Proceedings of the Annual Meeting-American Society of International Law

Economic Politics and National Security: A CFIUS Case Study

Article excerpt

The panel was convened at 9:00 a.m., Friday, April 11, by its moderator, James Mendenhall of Sidley Austin LLP, who introduced the panelists: Stewart Baker of the Department of Homeland Security; Nova Daly of the Treasury Department; Christine Bliss of the Office of the U.S. Trade Representative; Scott Morris of the House Financial Services Committee; and Linda Menghetti of the Emergency Committee for American Trade (ECAT).


We have an impressive panel today to talk about CFIUS, the Committee on Foreign Investment in the United States. I am Jim Mendenhall from the law firm of Sidley Austin, formerly from the Office of the United States Trade Representative (USTR), and a former CFIUS Committee member. It is surprising to many people, but CFIUS has been around for several decades now, going back to the mid-seventies. It was created by Executive Order simply as a data collection mechanism, and it did not have a whole lot of responsibility apart from monitoring inbound investments.

That all changed in 1988 with the introduction of the Exon-Florio Amendment, which made CFIUS a much more operational mechanism. It gave CFIUS authority to block investments or to require modifications to investments that presented a credible threat to national security. That change took place in response to concerns, primarily economic concerns, over inbound investment from Japan. At the time there was a big fight about whether CFIUS should be designed to address broader economic issues or should be restricted to national security alone. We are still fighting that fight today. In 1988, the position that carried the day was that CFIUS would be targeted at national security alone.

For the next fifteen years or so, CFIUS remained a fairly sleepy entity, with only a couple of blips along the way, such as the controversial Japanese acquisition of Fairchild Semiconductor. There was another blip in the early 1990s regarding an acquisition by a Chinese company of a Washington State machine tools company, but other than that it was not very controversial. It did not get a lot of attention in the press or in discussions with trading partners.

That all changed in the early 2000s, where two trends started gaining momentum, coming together and affecting the way CFIUS operates. The first of those was, of course, September 11 and the aftermath of that tragedy, where national security, in particular domestic security, moved to the forefront of the U.S. policy agenda. The second trend was increased global economic integration through globalization increased cross-boarder M&A activity and so forth--which created a sense of economic insecurity. Globalization certainly led to much more foreign involvement in the U.S. economy and U.S. involvement in economies around the world. Those two trends, the economic integration trend and the national security trend, came together in a way that really changed the environment in which CFIUS operated.

The first sign of this was a transaction most people have forgotten about now, namely the Global Crossing transaction, in which a Hong Kong entity was involved in the potential acquisition of a U.S. telecom company. That was the first high-profile CFIUS review in this new era, and CFIUS forced a restructuring of that transaction. This was a sign of things to come. Then, of course, there was the earthquake of the Dubai Ports World transaction, followed by several other controversial transactions, including the CNOOC/Unocal transaction, an attempted Chinese acquisition of a U.S. oil company; the Alcatel/Lucent transaction; and the IBM/Lenovo transaction. There was a whole array of these higher-profile cases, culminating most recently in the 3Com/Huawei transaction, which was derailed by CFIUS. All of those transactions presented different problems to be resolved, and all of them were handled differently, both politically and within the context of CFIUS. …

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