Try To See It My Way

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Presidential races in the United States are always characterized by the classic principle connecting domestic to foreign affairs: conjure a foreign foe against whom disparate domestic interests can coalesce. For a very long time, the Cold War provided the Soviet Union. Political campaign disagreement was never about how best to get along. Instead, it was always about which candidate would be tougher on the Soviet Union, which meant asking which one would amass more arms, spend more money on defense, deploy forces to more corners of the globe to combat the Communist threat driven from Moscow. Debates were not about whether to build more missiles, but whether there was a dangerous “missile gap” requiring immediate attention.


The end of the Cold War presented a strategic problem for Americans. Some even imagined it was the “end of history.” Yet, everyone can always find a foreign foe. Even Canada, under Pierre Trudeau, in the early 1980s, thought it could rally domestic unity (meaning committing Québec to Canadian unity) by complaining about the United States. The National Energy Program and the Foreign Investment Review Act were legislative initiatives making the United States Canada’s bogeyman.


During the 1980s, Americans tried out Japan as a potential substitute for the Soviet Union, specifically with regard to Japan’s apparent (and, as it turned out, somewhat illusory) economic rise. Soviet proxies, such as Cuba, remained available, but threatening as instigators, not themselves a danger to Americans. Bitter critics, such as Hugo Chavez, were not taken very seriously. Implacable enemies, such as the Iranian Ayatollahs, were more of a threat to Americans’ friends, such as Israel, than to the United States itself.


September 11, 2001 delivered a new kind of foe and threat, an enemy without a state. Al Qaeda filled a critical gap that President Bush felt impelled to invoke when declaring his war on terrorism as a war with Iraq. But then, the war in Iraq wound down and Osama Bin Laden was eliminated. The United States had gone from the Cold War with the Soviet Union to an economic war with Japan and military conflict with Al Qaeda, Iraq, and Afghanistan.
 

And then came China, the perfect potential foe against whom all political candidates could agree. The decision-making of the Middle Kingdom was inscrutable, and China obliged the American need for a foe by alternating between pleas for understanding as a developing country and bluster as a rising star and emerging global power.


It has not been enough to conjure China as an economic challenge. Americans have made much of growing Chinese military might, even though China remains decades behind American military capability. Unlike the Soviet Union, there is no talk of missile gaps, but like the Soviet Union, China champions a centrally-controlled economy and a suppression of individual freedoms and free speech. If not a threat to American military security, China is seen by many as somehow a long-term threat to the American way of life.


China bashing has become as commonplace in American presidential campaigns as pledges of fidelity to Israel and hosannahs for the capacities of the American armed forces.  It is assumed, within American politics, that post-election the rhetoric and apparent hostility will fade, with the brickbats of campaign promises shaved into chopsticks for shared culinary celebrations.


These assumptions require Chinese to absorb the insults, recognizing them as little more than populist appeals for votes in a democratic society that may exaggerate respect for the ignorant and willfully ill-informed. Yet, now and again diplomacy ought to require a response to the Beatles’ refrain, pleading, “Try to see it my way,” and “We can work it out.”  Were Americans to hear comparable criticism from China—if they routinely were called cheaters and pirates, refusing to play by the rules, stealing Chinese jobs, stacking the legal deck—they might not respond with the equanimity and good humor they seem to expect of the Chinese. There may come a point where, as the rhetoric translates into consequential acts, the electoral benefits of escalating attacks on China may be more far-reaching and damaging than the politicians begging for understanding may ever have foreseen.


Giving Substance To Chatter


Prior to the presidential debate of October 16, Republican candidate Mitt Romney thundered that, “on Day One” of his presidential term he would declare China a currency manipulator. His action would be insulting, and probably inaccurate (tying one’s currency to the U.S. dollar is hardly manipulative, especially as the ties do not bind and the RMB has floated cautiously upward, as much as eleven percent in the last twenty-four months). And the threat is oblivious to the Brazilian allegation that the United States is a currency manipulator, printing dollars to drive down their value and enhance American exports. Yet, Romney decided to add lightning to the percussion, and whereas the sound might be harmless, the electric bolt of trade sanctions based on the currency manipulation tag could do palpable harm to Chinese trade. During the debate, Romney not only repeated the promise, but added that he would use the new label to impose tariffs unilaterally on Chinese exports to the United States. His amended promise ignored the trade laws, but then the trade laws have not much informed presidential debates.

Just prior to the first presidential debate (October 3), on September 28, President Obama exercised powers granted pursuant to the Defense Production Act of 1950 to order a Chinese wind power industry out of Oregon.  It seemed not to matter that he and President Hu Jintao had agreed in 2009 to cooperate in the promotion of wind power.It seemed not to matter that the Chinese enterprise apparently had reached accommodation directly with a neighboring naval facility and had express clearance from the Federal Aviation Administration (which had included Department of Defense review). Instead, the order was swift and abrupt, demanding that the Chinese abandon immediately, without compensation, this investment in the United States. Coinciding with final antidumping and countervailing duty determinations against Chinese solar cells, it seemed that multiple branches of the United States Government were acting in concert against Chinese economic interests.


President Obama persistently has boasted throughout the campaign that he saved 1000 jobs by exercising presidential powers against imports of low-cost tires, largely manufactured by American companies relocated in China. Because the consequence of his action was not to restore the production of these tires in the United States, the claim of saved jobs is doubtful (and no one seems to care where those jobs may be). But imagining them to be real, the Peterson Institute for International Economics has calculated them to have cost consumers, in higher prices caused by the presidentially-imposed tariffs, $1.1 billion, or more than $1 million per job.


There is no debate over any of these developments. Candidate Romney would hardly question an anti-China presidential action, any more than President Obama would denigrate directly the Romney promise on the currency – even though for four years Obama has resisted prudently calls to classify China the way Romney now promises he will, and the U.S. Department of the Treasury has postponed until after the election its statutorily required biannual pronouncement on China’s currency. Instead, there is a soft arms race of anti-China actions and promises. Obama claims to have been tougher on China than any of his predecessors, claims which, in the implementation of Section 421 of the Trade Act of 1974 (the safeguard against tires); the invocation of Section 721 of the Defense Production Act of 1950 (to order abandonment of the Oregon windfarms); and the number of complaints brought to the WTO, are undeniable. Romney, however, promises to be even tougher, particularly as he declares impatience with international organizations and would prefer to act unilaterally.


These economic confrontations are particularly important because both Chinese and Americans identify trade as the single greatest interest they have in common (a majority of the Chinese public, according to the Committee of 100’s recently published Opinion Survey of 2012, and a plurality of Americans). American protectionism threatens Chinese jobs, just as Americans believe unfair Chinese trade practices threaten American jobs. Asked, “What are the two most likely sources of conflict between the U.S. and China in the near future?” a plurality of all American respondent groups (general public, opinion leaders, business leaders, and policymakers) said “trade” first. For every Chinese group, the plurality’s first answer was Taiwan.
 

Tempering The Rhetoric


By the third and final presidential debate of 2012, on October 22, Romney was retreating from the stridency of his earlier statements. He still insisted upon declaring China a currency manipulator “on Day One,” but he no longer threatened to act further, and his surrogates told the press that the declaration would have little meaning or impact. Perhaps someone had advised him that the President does not have the power to impose trade sanctions unilaterally based upon a presidential declaration of currency manipulation. Or perhaps, as he began believing he might be President on January 20, 2013, he was reflecting on exactly what he was promising.


Romney’s retreat ran deeper. He talked of China as an economic partner, even as he again characterized China as a competitor and adversary.


Obama was not retreating. China continued to test him, not only in trade but in strategic issues. He dispatched his Secretary of State to the Asia Pacific region in September, in the midst of the campaign, reassuring putative allies even as he was not characterizing China as a foe. And he emphasized his WTO complaint over autoparts while reinforcing the actions of the Committee on Foreign Investment in the United States against the Ralls Corporation’s Oregon windfarm (a subsidiary of China’s Sany Corporation).


Both candidates continued, on and after October 22, to campaign against China almost as much as against each other, but with a new tone and direction. In the October 22 debate, Romney recast his pronouncements on foreign policy to become more an echo of the Obama Administration than a choice. He concurred generally with Obama on the Arab Spring, on Israel and Iran, on North Africa, Afghanistan and Pakistan. And, in the end, on China.

What It May Mean


According to the Committee of 100 survey, Chinese and Americans admire one another, profess to like one another, but do not trust each other. Americans and Chinese see themselves as trading partners, to each other’s advantage, but as competitors with different long-term visions of their place in the world. Chinese generally accept the United States as a lone superpower for many years to come, but also expect one day to surpass the United States.


These views may be more enlightened than those of leaders in both countries. The leaders tend to see the competition as more intense and immediate. They see as much threat as friendship. They perceive a need to speak regularly to what divides China from the United States, perhaps more than what may unite them. The general public in both countries appears more favorable toward one another than their elites, and less ambitious for superiority.


Fortunately for the health and well-being of Chinese-U.S. relations, Chinese leaders are preoccupied with their own imminent leadership change. They respond publicly and vigorously to American slights, of which there have been many, especially during the presidential campaign. But they are likely sensitive to nuance. They will have detected the change in tone in the October 22 debate and the rhetoric thereafter.


By the end of the second presidential debate there was reason to believe that a Romney presidency would cast China as a cold war adversary, changing course from the sophistication of the Obama Administration balancing many Asian and global interests. In the final weeks of the presidential campaign, the Romney strategy has been to seem more experienced by seeming to endorse Obama’s foreign policies. The strategy is designed to reassure Americans that a change in the White House would not mean a radical change in foreign policy.


Romney, despite this strategy, is burdened by advisers who populated the most prominent positions in the Bush Administration. It is difficult to imagine a President appointing advisers with whom he is known to disagree, yet the Romney positions on and after October 22 sound a lot more like Obama, and a lot less like Bush. Should Romney win, the first test will be in whom he appoints, not what he has said. What he was saying before October 22 was consistent generally with the views of his advisers. What he has said since seems closer to what he must believe Americans want to hear. Whether he would govern as he imagines Americans would want, or as his more experienced advisers would tell him, is a question that ought to be of grave concern to China.


If there be a change in course in the Obama view of China during the campaign, it has been to harden positions, but then the 2008 campaign was full of rhetoric about NAFTA that never meant anything for the Obama presidency. China is an almost inevitable target, both because of the international relations principle of identifying a foreign foe, and because China is a soft target in what Americans see as the zero-sum game of jobs. For Obama, protecting the U.S. economy against China – using whatever legal weapons may be in the arsenal – is foremost a campaign necessity designed to reassure Americans that the economy, and employment in particular, are the President’s leading priorities.


Obama must hope that China hears the rhetoric of the campaign – and policy actions during the campaign -- his way, as part of the American electoral process. Romney must hope China sees and hears his way, with shifting positions more the product of campaign necessity than a forecast of untrustworthy or unpredictable conduct. And China must hope that both candidates, at least occasionally, see things the Chinese way, as insulting, presumptuous, but not a threat to a long-term and mutually valuable partnership. All must conclude that “we can work it out,” or leadership in both countries could move the bilateral relationship in unpredictable directions.
 

美国总统大选的传统特色是将国内政策与外交相结合:树立国外假想敌,并利用这一假想敌把国内利益整合在一起。冷战时期,苏联一直是最好的假想敌。这期间,政治竞选的争议话题不是如何更好和平共处,而是哪位候选人将更严厉地对待苏联——武器竞赛、增加军备开支、增兵海外…….辩论的焦点不是是否应当建造更多导弹,而是导弹配置是否落后、需要立即提升装备。


冷战结束
为美国人带来战略难题。一些学者甚至担心这是“历史终结”。但是,每个人都可以随时找到外国假想敌。例如,1980年代初期加拿大总理皮埃尔•特鲁多相信可以通过抱怨美国紧密团结包括奎北克民众在内的全国人民。他推出国家能源计划和外资审查法案妖魔化美国。
同在1980年代,美国试图用利用日本逐渐增长的经济地位取代苏联敌人。苏联爪牙古巴等国依然存在,但是它们并不真正造成威胁。委内瑞拉前总统查维斯的尖锐批评并未引起重视。伊朗等冷酷无情的敌人只对美国友邦造成威胁。


2001年9.11事件制造了新型敌人和威胁——没有国家的敌人。基地组织推动布什总统向伊拉克宣战。现在,伊拉克战争接近尾声,拉登也被消灭。美国从对苏联的冷战进入与日本的经济战,最后卷入与基地组织、伊朗和阿富汗的武装冲突。

 

中国的崛起使之成为所有候选人共同的潜在敌人。东方大国的决策机制令人费解,中国又在寻求理解的发展中国家和咆哮的、冉冉上升的世界强国两个角色间徘徊,这为美国的敌对论提供了最佳借口。


但是将中国视为经济对手还不足气候。虽然中国的军事实力落后美国十多年,美国却对中国的军事发展忧心忡忡。与苏联不同,美国没有讨论导弹装备差异;和苏联相同,中国也奉行中央控制经济同时限制个人自由和言论自由。即使不把中国视为美国的军事威胁,很多人也把中国视为威胁美国生活方式的长期威胁。


和誓死保卫以色列、祈祷上帝保卫美国军事实力一样,抨击中国的言论成为美国总统大选中的家常便饭。美国政治圈内认为针对中国的敌意论调都将在大选后消退,竞选中许诺的大棒将变成品味美味佳肴的筷子。


这些假设要求中国面对侮辱隐忍不发,将这些言论视为民主社会中为吸引选票而对无知的敬意。但是,外交应响应甲壳虫乐队歌曲《试图用我的方式看世界》(Try to see it my way)和《我们可以解决》(We can work it out)寻求共同点。如果,美国人听到中国不断发出同样的负面批评 ——骗子、海盗、不遵守游戏规则、窃取工作机会,他们会象中国人一样平和、风趣地对待这些指责吗?很可能在不久的将来,攻击中国的言论将带来政客们不曾预料的巨大负面作用。

National Security And Chinese Investment In The United States

This text is based on presentations on this subject made recently by Mr. Burke to the American Chamber of Commerce in Beijing, the American Chamber of Commece in Shanghai, and the CCH/Wolters Kluwer conference for in-house legal counsel in Beijing.

 Some Chinese Mistakenly Think They Are Unwelcome

Chinese direct investment in the United States is increasing. Last year Chinese companies doubled the amount of money they invested in the United States compared to 2009.

There are many reasons why Chinese companies would want to acquire or set up operations in the United States. Most costs of doing business in the United States, other than labor, are now cheaper than in areas of China with the advanced infrastructure that modern industrial operations need. Production in the United States often provides better access to customers; allows companies to take advantage of Buy American provisions when selling to government agencies; and enables companies to avoid trade barriers, such as antidumping or countervailing duties assessed on imports from China.

Notwithstanding these reasons for investing in the United States, many Chinese companies are hesitant to do so because of media reports on national security reviews of foreign investment that have given the impression the United States is hostile to foreign investment, or at least investment from China. The media have created the impression that Chinese companies are forced to abandon acquisitions in the United States because of political opposition and national security reviews by the Committee on Foreign Investment in the United States (“CFIUS”).

The reality is that the United States welcomes most Chinese investment. The United States has no restrictions on greenfield investment by foreigners, except for some state (non-federal) laws that limit the ability of foreign persons to purchase farmland. Thus, foreigners may create new U.S. businesses on the same basis as Americans. Recent examples of Chinese greenfield investments in the United States include Tianjin Pipe’s steel pipe mill in Texas; Suntech Power’s solar panel assembly plant in Arizona; and American Yuncheng’s gravure cylinder plant in South Carolina.

CFIUS national security reviews apply only to the acquisition of existing U.S. businesses. Even in those circumstances, only three to seven percent of foreign acquisitions each year go through the CFIUS process. Blocked acquisitions are rare; projects blocked presented unique challenges.

Chinese Transactional Failures Have Been Exceptions

A handful of Chinese acquisitions have been abandoned as a result of CFIUS review, or political opposition. However, circumstances unique to each transaction, not general hostility to Chinese investment, caused those deals to fail.

One failure was Northwest Non Ferrous International Investment Co. Ltd.’s attempted acquisition of Firstgold Corp., a gold mining company in Nevada. That acquisition was abandoned just before the end of a CFIUS review due to the expectation of an unfavorable CFIUS recommendation. Questions had been raised because of sensitive military and intelligence installations adjacent to the mines. Had those mines been located elsewhere, the acquisition likely would have sailed through the national security review.

The failed acquisitions receiving the most press attention recently include Huawei Technologies Co. Ltd.’s attempt to acquire 3Com and, more recently, assets from 3Leaf Systems. Huawei bought intellectual property rights from 3Leaf Systems, a developer of cloud computing, without filing a notification with CFIUS. CFIUS learned about the transaction and self-initiated a national security review that resulted in a recommendation that Huawei be ordered to divest.

There were several reasons why the 3Leaf transaction ended badly for Huawei. The Pentagon had serious concerns about the technology that were magnified by a lingering mistrust of Huawei following the 3Com transaction and its mishandling of the CFIUS process in the 3Leaf case. The more important reason, however, was a more general mistrust of Huawei in the U.S. Government due to allegations of close corporate connections to the People’s Liberation Army, espionage, intellectual property theft, and support for terrorist regimes (Iran, Iraq and the Taliban). These circumstances were peculiar to Huawei. The Huawei transactional failure does not indicate any general hostility to Chinese investment.

The Legal Framework And Its Operation: CFIUS And FINSA

Congress enacted the Foreign Investment National Security Act Of 2007 (“FINSA”) on July 26, 2007 in reaction to Dubai Ports World and other controversies to improve accountability and transparency in the CFIUS process. FINSA provides that the President may “suspend or prohibit any covered transaction” whenever the President finds credible evidence “that the foreign interest exercising control might take action that threatens to impair the national security.” However, the purpose of FINSA set out in the preamble to the legislation is “[t]o ensure national security while promoting foreign investment ....” Thus, FINSA reinforces that, notwithstanding the need to protect national security, promoting foreign investment in the United States remains the policy of the U.S. Government. The following statistics on CFIUS reviews in the three years (2008 to 2010) since FINSA became law demonstrates that this law is not an impediment to the vast majority of foreign acquisitions of U.S. business:

  •      National security reviews                                                                                313
  •      Extended investigations                                                                                    83
  •      Voluntary withdrawals (most re-filed and subsequently cleared)             42
  •      Cases submitted to the President                                                                    0

To be governed by FINSA a transaction must be a covered transaction, which means that the transaction must involve a foreign person obtaining control over an existing US business. A covered transaction can be blocked only if it would impair national security and that impairment cannot be remedied through some other means.

FINSA defines “covered transaction” to mean “mergers, acquisitions, or takeovers . . . by or with foreign persons which could result in foreign control of persons engaged in interstate commerce in the United States.” It only covers transactions involving an existing US business. As noted previously, greenfield investments, such as the Tianjin Pipe project in Texas, are not covered. It covers an acquisition of one foreign company by another if control of a U.S. business were to change.

The regulations implementing FINSA, which the Treasury Department published for CFIUS, define “control” as:

the power, direct or indirect, whether or not exercised, through the ownership of a majority or a dominant minority of the total outstanding voting interest in an entity, board representation, proxy voting, a special share, contractual arrangements, formal or informal arrangements to act in concert, or other means, to determine, direct, or decide important matters affecting an entity . . . .

A ten percent passive investment in a U.S. company generally would not be enough to meet this definition of control. However, contractual arrangements that give a foreigner control of important matters can cause a transaction in which the foreign entity does not obtain any equity to be a “covered transaction.”

CFIUS’s implementing regulations define “foreign person” to be “(a) Any foreign national, foreign government, or foreign entity; or (b) Any entity over which control is exercised or exercisable by a foreign national, foreign government, or foreign entity.” This definition includes US subsidiaries of foreign companies.

Neither FINSA, nor the implementing regulations, defines “national security.” Consequently CFIUS has broad discretion to define national security on a case-by-case basis. Other provisions in FINSA, the implementing regulations, the legislative history and CFIUS’s subsequent actions indicate the following key areas in which national security concerns are likely to arise:

  1. Defense industries, which would include companies that provide “defense articles” or “defense services” that are subject to heightened export controls under the International Traffic in Arms Regulations (“ITAR”) and the defense industrial base, which provides products needed for making military items;
  2. Proximity to critical government facilities, as shown in the Firstgold case;
  3. Critical infrastructure, defined in the implementing regulations as “a system or asset, whether physical or virtual, so vital to the United States that the incapacity or destruction of the particular system or asset . . . would have a debilitating impact on national security.” The company’s system or assets have to be big enough to make a difference under this definition.
  4. Critical technologies, which would include (a) items controlled under the ITAR, (b) items controlled under Export Administration Regulations for national security, chemical and biological weapons proliferation, nuclear proliferation or missile proliferation reasons (probably only if the item needed a license to be exported to the acquiring company’s home country), (c) items controlled under the Export and Import of Nuclear Equipment and Materials Regulations, and (d) items controlled under the Export and Import of Select Agents and Toxins Regulations (threats to plant, animal or human health);
  5. Energy and other critical resources, including essential raw materials for defense industries and critical infrastructure.

FINSA requires heightened review of proposed transactions in which a foreign government would obtain control of a U.S. business. There is a presumption that transactions by foreign governments or entities controlled by foreign governments receive an additional 45-day extended investigation beyond the initial 30-day review under which CFIUS clears most transactions. This presumption can be waived if the Treasury Secretary and the head of the other agency designated as the lead for the particular CFIUS review “jointly determine . . . that the transaction will not impair the national security of the United States.”

When a transaction is considered to be foreign government-controlled, FINSA requires CFIUS to consider the adherence of the country to non-proliferation control regimes, the U.S. relationship with the country, specifically on cooperation with counter-terrorism efforts, and the potential for diversion of technologies with military applications.

Conclusion

The United States is open to investment, but potential investors do need to pay attention to legitimate national security concerns. For the vast majority of foreign investors, including investors from China, the CFIUS review process is not an impediment. Greenfield investments do not require a CFIUS review. Most cross-border mergers and acquisitions do not require a CFIUS review. Most CFIUS reviews clear the transaction within 30 days. Only a handful of transactions have been abandoned as a result of national security concerns.

 

Media Mentions

      Washington, D.C., partner Elliot J. Feldman, leader of Baker Hostetler's international trade practice, recently was interviewed by China’s National Economic Weekly regarding how to invest in the United States. The National Economic Weekly is a Xinhua News Agency affiliation that has a circulation of 200,000 and a very large online readership.

      Feldman highlighted several important issues that were unknown to most Chinese business leaders but were emphasized in Mergers & Acquisitions in the United States: A Practical Guide for Non-U.S. Buyers, a treatise for CCH/Wolters Kluwer/Aspen coauthored by a team of 27 Baker Hostetler attorneys under his direction. First, he recommended potential Chinese investors to start Greenfield projects, and carefully select origination and destination of their investment to fully utilize preferential tax treatments offered by bilateral investment treaties and U.S. tax laws.

       Episodes of failed Chinese investment initiatives in the United States have persuaded many Chinese that national security is a post 9/11 excuse to restrict China in the U.S. economy. However, in Feldman’s view, China’s business leaders have no reason to be deterred by the Committee on Foreign Investment in the United States’ review process. The United States is the most open major economy in the world, and the treatise demystifies how to navigate through this process by providing specific and detailed guidance, through real-world examples.

      Additionally, he reminded the Chinese investors not to miss the forest for the trees. For instance, they need to evaluate carefully intellectual property rights, which could be the most valuable asset to be acquired in a deal for a U.S. company. Also, it is prudent and wise to retain the best lawyers and other professionals in conducting due diligence. Although expenses might seem high, it pays off in the long run to engage the best. He alerted the Chinese business community that minimizing potential legal risks is as important as maximizing financial profits in investing in the United States.

      At the end of the interview, Feldman advised the Chinese business leaders to adopt the German management model once they set up facilities in the United States. In order to win the hearts and minds of U.S. politicians and people, he suggested Chinese companies hire more U.S. workers and actively engage them in operations.
 

The United States Remains Open To Chinese Investment 美国仍对中国投资敞开大门

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This blog posted an article titled “Setting The Record Straight: The U.S. Is Open For Chinese Business; Don't Worry Too Much About National Security Reviews” on December 12, 2009. Two weeks later Northwest Non Ferrous International Investment Co., Ltd. (“Northwest”) dropped its plans to acquire a Nevada mining company because a national security review under the Foreign Investment National Security Act “FINSA” was coming to an unfavorable conclusion. We do not stand corrected.

The rejection of the Northwest acquisition was based on unique facts and not because of opposition to Chinese investment generally. Chinese companies should not let this case dissuade them from acquiring companies and otherwise investing in the United States.

Northwest proposed to acquire control over a mining company, Firstgold Corp., all of whose operations are adjacent to Naval Air Station Fallon, the U.S. Navy’s premier tactical air warfare training center. The Navy opposed a company owned by the Chinese Government having control of property from which its most sensitive training activities might be monitored. Also in that area are other security and military assets so sensitive that the U.S. Government treats even their identities as classified information.

Due to the sensitive nature of the government installations, any acquisition by a foreign company, including companies based in NATO countries, would have raised national security concerns. Whether China created more concern is entirely speculative and ultimately unknowable. However, Chinese companies should not view the CFIUS result in this case as based on an objection focused on China, but rather as based on the serious national security concerns it definitely presented regardless of the foreign country. FINSA requires CFIUS to consider whether the acquiring company is state-owned. However, given the serious national security concerns raised by the location of Firstgold’s facilities, the result likely would have been the same even had the acquirer been a private company.

Northwest’s lawyers have described extraordinary but failed efforts to make the acquisition compatible with national security concerns. Their memorandum to Northwest, published on the New York Times website, reports that the Committee on Foreign Investment in the United States (“CFIUS”) looked closely at all kinds of scenarios to mitigate the national security concerns, but concluded that none of them would be feasible because all four of Firstgold’s properties are located adjacent to Naval Air Station Fallon or other military sensitive locations.

The lawyers’ report demonstrates that CFIUS’ goal is not to block investments. Instead, CFIUS seeks to mitigate national security concerns. The exceptional facts in this case are that all of the operations to be acquired raised concerns. When national security is at issue, it usually affects some part of the deal and can be mitigated. Here, all of the deal was implicated; mitigation (such as spinning off some part of the deal while preserving the essential economic value) apparently was impossible.

Northwest acted wisely in this case, seeking a CFIUS review before investing because of uncertainties about national security. Reportedly, Firstgold did not want to request CFIUS review. Northwest could have invested, only to have CFIUS recommend and the President of the United States undo the deal, not because of animus toward Chinese investment, but because of the serious implications for national security.

It is important not to misinterpret the Northwest case. It proves the utility and wisdom of early CFIUS review, not an objection to Chinese investment. Notwithstanding CFIUS’ rejection of Northwest’s proposed acquisition of Firstgold, the United States remains one of the economies most open in the world to foreign investment, including from China.
 

        2009年12月12日,本博客刊登了《美国向中国企业敞开大门,请勿过分担心国家安全审查》。两周后,Northwest Non Ferrous International Investment Co., Ltd. (简称Northwest)因在根据《外国投资和国家安全法》展开的国家安全审查中面临不利裁决,而被迫放弃并购位于内华达州一矿产公司的计划。

        拒绝Northwest的并购计划有其特殊背景,并非反对所有中国投资。中国企业不应因为这一事件而放弃在美投资、并购企业的计划。

        Northwest提议并购Firstgold Corp.矿产公司,而这一公司的作业地点紧邻海军的Fallon飞行基地,这是美国海军最重要的飞行作战训练中心。不出意料,海军反对中国政府拥有的企业控制这一产业,此处可监控美国海军最敏感的训练活动。此外,这一地区还有其他属于美国政府列为保密信息的军事、安全设施。

         因为这些政府设施非常敏感,所以即使是北约国家的公司并购这一产业也会引发国家安全担忧。中资企业是否引来更多担忧则纯属猜测、无法得知。但是,中国公司不应视这一国家安全审查建立在反对中国基础之上,而是建立在不分国别的国家安全考虑基础之上。《外国投资和国家安全法》要求国家安全审查考虑收购企业是否为国有企业。但是,因为Firstgold处于敏感地点,即使是私营企业试图并购这一公司也会受阻。

        Northwest的律师称为通过国家安全审查他们付出很多努力,最终仍然失败了。《纽约时报》刊登的律师备忘录指出外国投资委员会仔细审查了各个可减轻对美国国家安全威胁的方案的每个细节,但是认为没有一个方案可行,因为Firstgold的四处产业都紧邻海军Fallon基地或是其它敏感军事设施。

         律师的报告显示外国投资委员会的目标不是为了阻碍投资。相反,外国投资委员会寻找减弱对国家安全造成不利影响的措施。此并购的特殊情况在于并购涉及的所有的产业都影响国家安全。通常,如果只有并购的某一部分涉及国家安全,且可减弱其不利影响。但是这一并购却不是这样,减弱不利影响(如除去并购的某一部分、仅保留关键部分)也不可行。

        Northwest采取了明智的处理方式,因为对是否能通过国家安全审查感到不确定,而在投资前就寻求国家安全审查。据报道,Firstgold不想申请国家安全审查。Northwest可以买下Firstgold产业,但最终美国总统在外国投资委员会的建议下还是会否决这一并购。否决不是因为仇视中国,而是因为并购将对国家安全造成负面影响。

        避免错误理解Northwest案件非常重要。它证明了先前的国家安全审查的重要性和明智性,而且这些审查并非反对中国投资。虽然外国投资委员会否决了Northwest并购Firstgold的计划,美国仍是世界上对外资最开放的国家,仍欢迎中国投资。

 (翻译:朱晶)

Setting The Record Straight: The U.S. Is Open For Chinese Business; Don't Worry Too Much About National Security Reviews 美国向中国企业敞开大门,请勿过分担心国家安全审查

中文请点击这里

Chinese and other foreign companies considering investments in the United States often are confused about the degree to which the United States is open to foreign investment. They hear terms such as CFIUS, Exon-Florio and FINSA and claims that the United States is now hostile to foreign investment, especially from China and the Middle East.

The reality is that the United States remains one of the economies most open in the world to foreign investment. When it comes to greenfield investments creating new businesses in the United States, foreigners are as free to invest as domestic concerns. The United States does have procedures for reviewing foreign acquisitions of existing businesses under the Foreign Investment National Security Act of 2007 (“FINSA”), conducted by the inter-agency Committee on Foreign Investment in the United States (“CFIUS”), presided over by the U.S. Treasury Department. However, as the Treasury Department noted when it published its CFIUS guidance, “CFIUS focuses solely on any genuine national security concerns raised by a covered transaction, not on other national interests.”

Notwithstanding today’s difficult economic climate and the confusion over national security reviews of foreign investment, Chinese companies obviously remain interested in acquiring U.S. companies. For example, on October 23, 2009 BGP Inc., a subsidiary of China National Petroleum Corporation, agreed to a joint venture with ION Geophysical Corporation, a Houston, Texas based company specializing in seismic products used in oil and gas exploration. According to ION’s press release, the transaction, which would result in the Chinese company owning 16.66% of ION, is contingent upon obtaining clearance of the transaction from CFIUS. This proposed acquisition is likely to face an exhaustive and extended CFIUS review because it is in a particularly sensitive sector, energy, and the ultimate acquirer is a Chinese state-owned enterprise. Although CFIUS may require some conditions designed to mitigate national security concerns, the transaction probably will be approved.

Congress passed FINSA in 2007 following controversies over the China National Offshore Oil Corporation’s attempted acquisition in 2005 of Unocal, a U.S. energy company, and Dubai Ports World’s acquisition in 2006 of a British company that managed several major seaports in the United States. These controversies focused congressional attention on CFIUS; the earlier Exon-Florio procedures for review of foreign acquisitions; potential harm to U.S. national security that could arise from foreign control of energy, infrastructure and critical technologies; and on investments by state-owned entities. The public debate over these cases and a new law, however, was not one-sided and the Administration convinced Congress to balance national security concerns with the need for the United States to remain open to foreign investment. FINSA, legislated on July 26, 2007, is not a barrier to foreign investment, but a balance of investment with national security.

FINSA covers any transaction that “could result in control of a U.S. business by a foreign person.” It covers transactions that could result in the switch of control from one foreign person to another. However, it does not cover greenfield investments or a strictly real estate transaction. Control over an existing U.S. business must be at stake. “Control” is defined very broadly. Thus, even the acquisition of a relatively small minority stake in a company could be covered by FINSA.

FINSA does not pose a significant barrier to the vast majority of foreign acquisitions of U.S. businesses because, although all such acquisitions are covered transactions, the President’s authority under FINSA to suspend or prohibit a covered transaction can be exercised only when the President finds that “the foreign interest exercising control might take action that threatens to impair the national security.” Neither the statute, nor its implementing regulations, defines “national security” and Congress intended CFIUS to interpret that term broadly to include, among other things, energy, critical materials, critical technologies, homeland security and infrastructure. Nonetheless, where there is no plausible connection between the business conducted by the U.S. company to be acquired and national security, FINSA will not be an issue.

Whenever a transaction covered by FINSA might affect national security, FINSA provides a review process whereby the parties to the transaction can seek clearance from CFIUS before they have invested a great deal. A CFIUS review is not mandatory, but companies generally seek one whenever there is a possibility that the transaction could be considered to affect national security. Once a transaction has been cleared by CFIUS, it cannot subsequently be challenged under FINSA unless one of the parties to the transaction submits false or misleading material information.

Companies take advantage of the CFIUS safe harbor – the preclearance -- by submitting a voluntary notice of a proposed transaction providing the detailed and extensive information that CFIUS’ regulations require for such notices. The filing of the notice commences a 30 day initial review process. Most transactions are cleared within this initial 30 day period.

When any of the CFIUS member agencies have unresolved national security concerns with a proposed transaction, a formal 45 day investigation begins. The parties typically resolve transactions that go through this second stage by agreeing with the government to mitigate the agencies’ national security concerns.

Mitigation agreements can involve modifications to the transaction, certain limitations on the new foreign owner’s exercise of control, or extra protections for critical technologies or facilities. A very small number of transactions pose national security concerns that cannot be mitigated successfully. Those transactions usually are abandoned before the completion of the CFIUS process. It is rare for CFIUS to complete its review with a recommendation to the President that a transaction be blocked.

The United States remains committed to an open investment environment, treating foreign investors on an equal footing with their domestic competition. It was for this reason that Congress set the initial CFIUS review deadline at 30 days, to coincide with the 30 day antitrust review period for mergers and acquisitions. The expanded view of national security mandated by FINSA does mean that CFIUS national security reviews are a crucial part of transactions involving foreign investment, but it is no more onerous than an antitrust examination.

Most important for success in a CFIUS review is understanding in advance the concerns of CFIUS member agencies, creative thinking about how to demonstrate that those concerns are not threatened, and where perceived threat may be reasonable, creative proposal to mitigate them. In most cases early attention to the CFIUS process and to the legitimate concerns of the member agencies, Congress, and the public, can ensure smooth and timely proceedings that result in CFIUS clearance without restrictions, or on terms that preserve the value of the transaction for all parties.

        中国及其他国家的企业常常不清楚美国对外资的开放程度。他们常听到国家安全审查等词句,以及美国对外资尤其是中国及中东投资不友善。

        事实上美国是世界上最欢迎外资的国家。就可增加美国就业机会、对新兴领域的投资而言,外资和美资享受同等待遇。《2007年国外投资国家安全审查法》建立了审查程序,审查购买美资公司的外资,这一程序由多个部门组成的美国外国投资委员会(“CFIUS”)负责。美国财政部是这一委员会的牵头部门。美国财政部在刊登外国投资委员会指引时明确指出:“外国投资委员会关注于国家安全,而不是国家利益。”

        虽然当前经济不景气,而且外资对国家安全审查困惑重重,中国公司仍然对美国公司感兴趣。例如,2009年10月23日,中国石油天然气集团公司(CNPC)的子公司BGP公司与德克萨斯州休斯敦市、对主要生产用于石油天然气开发中的地震产品ION Geophysical Corporation 达成建立合资公司的协议,BGP公司将拥有ION公司百分之16.66的股权。根据ION的新闻公告,这一协议仍有待外国投资委员会批准。因为是中国国有企业投资敏感的能源领域,外国投资委员会很有可能进行严格审查。虽然外国投资委员会可能要求两家公司采取措施减少美国国家安全隐患,但这一协议应该可以得到批准。

        美国国会于2007年通过《2007年国外投资国家安全审查法》,这是美国国会继2005年中国海洋石油总公司试图收购美国能源公司UNOCAL;2006年迪拜世界港口公司收购一家管理多个美国港口的英国公司后采取的行动。这些争议使美国国会开始关注以下领域:外国投资委员会,先前的Exon-Florio 审查外资机制,外资对能源、基础设施以及关键技术的控制对美国国家安全可能产生的危害,以及国有企业对美投资。

        《2007年国外投资国家安全审查法》涵盖任何可能导致“国外人士控制美国企业”的情况,也包括企业从某一外国人士转移至另一外国人士的情况,但是并不涵盖对新项目和房地产业的投资。审查重点是对美国企业的“控制”将发生转移,因为控制一词定义很广,所以即使收购少数股份,这一收购仍被《2007年国外投资国家安全审查法》涵盖。

        《2007年国外投资国家安全审查法》对绝大多数收购美国公司的商业行为并不构成障碍,因为虽然它们属于法案涵盖范围;但是根据这一法案,只有当总统认定“外资利益行使控制将危害国家安全”的情况下才能推迟或是禁止这一收购。这一法案以及相应的法规并没有对“国家安全”做出界定,国会则希望外国投资委员会将这一词界定得非常广泛,包括能源、关键材料、关键技术、国土安全和基础设施等。但是,如果被收购的美国企业与国家安全没有关联,则无须担忧《2007年国外投资国家安全审查法》。

        但当某一经济并购可能与国家安全有关时,《2007年国外投资国家安全审查法》提供了审查机制,使公司在获得外国投资委员会后再投入大笔资金。外国投资委员会审查并不是强制性的,但是当公司认为并购可能会对国家安全产生影响时,都自动申请。外国投资委员会批准一并购后,除非其中某一公司提供了虚假信息,这一并购将不再面临任何《2007年国外投资国家安全审查法》指控。

        许多公司充分利用外国投资委员会审查提供的安全港——事先批准:它们根据外国投资委员会审查规定主动向委员会提出申请、提供详尽信息。第一阶段非正式审查为期30天。大多数审查将在30天内获得批准。 

        如果外国投资委员会的任何机构对某一商业交易有任何疑问,为期45天的正式审查开始。涉及的公司通常通过与政府签订缓解协议,缓解政府对国家安全担忧的方式使这一商业交易得到批准。

        缓解协议包括修改已签订的协议、限制新外资拥有者的权利、对关键技术或是设备的额外保护等。只有极少数商业转让带来的国家安全威胁不能减缓。但这些商业活动通常在审查结束前就中止了。外国投资委员会极少建议总统禁止某一商业转让。

      美国仍然承诺开放的投资环境,对国内外投资者一视同仁。因此,国会把初审期限设为30天,与并购中的反垄断审查期限相同。《2007年国外投资国家安全审查法》对外国投资委员会审查的规定并不意味着这一审查是国外投资的重要组成部分,也不比反垄断更繁琐。

        取得外国投资委员会审查批准的关键是事先了解委员会各部门的担忧,富有创意的表明这些担心是多余的,并在需要的时刻递交富有创意的缓解计划。通常,尽早准备,充分考虑政府部门、国会以及公众的意见可保证外国投资委员会审查的顺利进行、确保公司利益。 
 

(翻译:朱晶)