International Trade Law News

Today marked the conclusion of the first U.S.-China Strategic and Economic Dialogue held in Washington, DC. At the conclusion of the meetings, the U.S. and China issued a Joint Fact Sheet summarizing the issues and action items agreed to during the two days of discussions.

The fact sheet contained several items of note on U.S. trade-regulatory issues.

Regarding foreign direct investment in the U.S., the fact sheet indicates that the U.S. "confirms that the Committee on Foreign Investment in the United States (CFIUS) process ensures the consistent and fair treatment of all foreign investment without prejudice to the place of origin."

On antidumping issues, the United States recognized "the continued progress China has made in its market reforms and will earnestly consider China's concerns, and will consult through the JCCT [US-China Joint Commission on Commerce and Trade] in a cooperative manner to work toward China's Market Economy Status in an expeditious manner." This has been an important issue for China, since for antidumping purposes China is treated as a non-market economy, a designation that typically leads to higher antidumping duty margins.

With respect to export controls, the U.S. and China agreed "to accelerate the implementation of "Guidelines for China-U.S. High Technology and Strategic Trade Development" and expeditiously formulate the Action Plan on Expansion of China-U.S. High Technology and Strategic Trade Cooperation in Priority Sectors.

The Guidelines referred to in the fact sheet were signed in December 2007 by former Under Secretary of Commerce Mario Mancuso and MOFCOM Vice Minister Wei Jiangguo. Under the Guidelines, the Commerce Department and MOFCOM agreed to jointly identify and carry out steps to enhance secure high technology and strategic trade. For example, the Commerce Department and MOFCOM will continue to review U.S. dual-use policy to identity and implement appropriate processes to streamline the licensing process for legitimate civilian trade. The Guidelines also recognized the critical role of end-use visits conducted by BIS in ensuring the protection of U.S. national security interests in the enhancement of high technology trade.

Labels: Antidumping, CFIUS, China;, Export Controls

The Treasury Department, as chair of the Committee on Foreign Investment in the United States (CFIUS), and as required by the Foreign Investment and the Foreign Investment and National Security Act of 2007 (FINSA), has for the first time issued guidance on the types of mergers, acquisitions and takeovers by foreign persons that CFIUS has reviewed and presented "national security considerations."

The guidance, published in today's Federal Register (pdf), also provides insight into how CFIUS identifies the national security effects of covered transactions.

Some of the types of covered transactions involving foreign control of U.S. businesses that have presented national security considerations include:

• Transactions involving U.S businesses that provide products and services—either as prime contractors or as subcontractors or suppliers to prime contractors—to agencies of the U.S. Government and state and local authorities, including, but not limited to, sole-source arrangements.

• U.S. businesses in the energy sector at various stages of the value chain. This includes the exploitation of natural resources, the transportation of these resources (e.g., by pipeline), the conversion of these resources to power, and the provision of power to U.S. Government and civilian customers.
  

• U.S. businesses that affect the domestic transportation system, including maritime shipping and port terminal operations and aviation maintenance, repair and overhaul.

• Transactions involving U.S. businesses that could significantly and directly affect the U.S. financial system.
  

• Transactions involving U.S. critical infrastructure, including major energy assets.

• U.S. businesses’ production of certain types of advanced technologies that may be useful in defending, or in seeking to impair, U.S. national security. Many of these U.S. businesses are engaged in the design and production of semiconductors and other equipment or components that have both commercial and military applications. Others are engaged in the production or supply of goods and services involving cryptography, data protection, Internet security, and network intrusion detection, and they may or may not have contracts with U.S. Government agencies.

• CFIUS stated that a significant portion of the covered transactions that it has reviewed and that have presented national security considerations have involved U.S. businesses that are engaged in the research and development, production, or sale of technology, goods, software, or services that are subject to U.S. export controls.

On November 21, 2008, the Treasury Department published in the Federal Register the final regulations implementing the new CFIUS reporting and review process.

Labels: CFIUS

The Treasury Department's Office of Investment Security published in Friday's Federal Register the long-awaited final regulation implementing the changes to the inter-agency Committee on Foreign Investment in the United States (CFIUS) reporting and review process relating to mergers, acquisitions and takeovers by foreign persons as required by the Foreign Investment and National Security Act of 2007 (FINSA) (Public Law 110-49).

FINSA, which was passed by Congress in July 2007 and became effective on October 24, 2007, was passed following the controversial proposed acquisition of certain U.S. port facilities by UAE-owned Dubai Ports World in early 2006.

The final regulation, which becomes effective on December 22, 2008, makes several changes to the proposed rule published in April 2008 based on the numerous public comments submitted in writing and at a public hearing held in Washington, DC.

Among other things, the final rule clarifies the scope of “covered transactions” by or with any foreign person, which could result in control of a U.S. business by a foreign person, that are subject to CFIUS review. For example, the new regulations states that:

• "Greenfield", or start-up investment, is not a covered transaction.
  
• Asset acquisition is not a covered transaction if the assets acquired by a foreign person do not constitute a “U.S. business.”
  
• Long-term leases may be a covered transaction only if a foreign lessee makes substantially all business decisions concerning operation of a leased U.S. business, as if it were the owner.
  
• Lending transactions are not a covered transaction unless the foreign person acquires financial or governance rights characteristic of an equity investment, but not of a loan. Imminent default giving a foreign person actual control of collateral that constitutes a U.S. business is a covered transaction – but lenders in the ordinary course may qualify for an exception.
  

The regulations indicates that CFIUS will continue to consider all relevant facts and circumstances, rather than applying a bright-line test, to determine whether a transaction results in foreign control. Under the regulations, "control" is defined as the “power, direct or indirect, whether or not exercised . . . to determine, direct, or decide important matters affecting an entity.”

With respect to private equity investments, the final rule adds examples to clarify that certain structures create ownership interests but not control, clarifying that CFIUS focuses on person’s powers, not the transaction form.

The final rule also revises treatment of joint ventures to ensure that using a JV to acquire a U.S. business is a covered transaction to the same extent as a direct acquisition. In addition, the final rule clarifies that there is no automatic exclusion for acquisitions of ten percent or less.

The final rule also adds new examples and expand others to clarify the difference between “control” and mere “influence.”

With respect to the CFIUS notification and review process, the final regulation:

• Encourages pre-filing consultations to aid parties in preparing notices and to ensure efficient reviews.
  
• Requires prompt action throughout the review process by the Staff Chair and by parties to transactions, within the context of the strict deadlines established by statute for reviews (30 days) and investigations (45 days).
  
• Extends confidential treatment to information pre-filed with CFIUS, including if no notice is ultimately filed.
  

The final rule also imposes significant civil penalties for parties involved in the CFIUS process. A civil penalty of up to $250,000 per violation can be imposed against persons that "intentionally or through gross negligence, submits a material misstatement or omission in a notice or makes a false certification" during the CFIUS process. In addition, a civil penalty of up to $250,000 or the value of the transaction, whichever is greater, can be imposed on those that "intentionally or through gross negligence, violates a material provision of a mitigation agreement entered into with, or a material condition imposed by, the United States."

Labels: CFIUS

The Treasury Department yesterday issued the long-awaited proposed regulations to implement the changes in the Committee on Foreign Investment in the United States (CFIUS) review process as required by the Foreign Investment and National Security Act of 2007 (FINSA) (Public Law 110-49).

FINSA, which was passed by Congress in July 2007 and became effective on October 24, 2007, was passed after the furor over the proposed acquisition of certain U.S. port facilities by UAE-owned Dubai Ports World in early 2006.

The proposed regulations will be published in the Federal Register later this week, but in the meantime a copy of the document can be found here (this document is 90 pages).

Treasury is requesting comments on the proposed regulations and the public comment period will end 45 days after the notice is published in the Federal Register.

Treasury will be holding a public meeting on the proposed regulations on May 2, 2008 in Washington, DC. Details on the meeting can be found in the "Supplementary Information" section in the Federal Register notice.

UPDATE: The proposed changes to the Treasury Department's Regulations Pertaining to Mergers, Acquisitions, and Takeovers by Foreign Persons that was published in the Federal Register on April 23, 2008 can be found at the following link: edocket.access.gpo.gov/2008/08-1172.htm.

Labels: CFIUS, Treasury Department

The House Committee on Financial Services has unanimously (64-0) approved H.R. 5337 the National Security Foreign Investment Reform and Strengthened Transparency Act of 2006 ("National Security FIRST Act"), legislation that would reform the process by which the Committee on Foreign Investments in the United States (CFIUS) reviews acquisitions of US companies by foreign companies under the Exon-Florio provision of U.S. law. Among other things, H.R. 5337 would make the following changes to the CFIUS review process:

• Require an additional 45-day review period when the acquiring company is controlled by a foreign government;
  
• Require signatures by the Secretary of the Treasury and the Secretary of Homeland Security or their deputy secretaries on all transactions;
  
• Require an analysis of any potential threat on each transaction by the Director of National Intelligence;
  
• Establish a process to monitor and enforce post transaction compliance with mitigation agreements;
• Ensure that all appropriate factors are considered by CFIUS and add "critical infrastructure" as a factor;
  
• Require CFIUS to conduct roll call votes;
• Require the President’s approval if there is a single dissent on a decision after the investigation;
• The bill would provide additional funding to CFIUS.

This bill was a direct result of the issues raised by Congress earlier this year after CFIUS approved Dubai Ports World's acquisition of operations at six U.S. ports operated by U.K.-based P&O.

Labels: CFIUS

The Treasury Department issued a rare Sunday press release stating that "the Committee on Foreign Investment in the United States (CFIUS) today welcomed the announcement by Dubai Ports World that it will submit for review its proposed acquisition of control of U.S. port terminal operations." The press release states that Dubai Ports World "asked for a CFIUS review, including the 45-day investigation under the Exon-Florio amendment, based on a restructured transaction that the company intends to file with the Committee. Upon receipt of the new notification, CFIUS will promptly initiate the review process and fulfill DPW's request for a full investigation."

For those interested in the CFIUS process, see the Treasury Department's website for detailed information on the Exon-Florio law and the CFIUS process.

Customs and Border Protection (CBP) also posted information on its web site with facts on U.S. port security and the DP World transaction. Contrary to the reports in the mainstream press stating that DP World "take over six U.S. ports" the CBP website states that under the proposed transaction DP World operate the following terminals at the following six ports that are currently operated by U.K.-based P&O:

• Baltimore - 2 of 14 total
• Philadelphia - 1 of 5 (does not include the 1 cruise vessel terminal)
• Miami - 1 of 3 (does not include the 7 cruise vessel terminals)
• New Orleans - 2 of 5 (does not include the numerous chemical plant terminals up and down the Mississippi River, up to Baton Rouge)
• Houston – 3 of 12 (P&O work alongside other stevedoring contractors at the terminals)
• Newark/Elizabeth – 1 of 4
• (Note: also in Norfolk - Involved with stevedoring activities at all 5 terminals, but not managing a specific terminal.)

It's also worth taking a look at the fact sheet entitled DP World: Myth Vs. Fact" issued by the White House.

Labels: CFIUS

Mr. Fu Chengyu, Chairman and CEO of the China National Offshore Oil Corporation (CNOOC) Ltd., said Friday that his company is ready to participate in an investigation conducted by the Committee on Foreign Investment in the United States (CFIUS) if its offer to purchase Unocal is accepted by Unocal's board of directors.

According to Mr. Fu, CNOOC anticipated that its merger with Unocal would be reviewed by the CFIUS and they are fully prepared to participate in such a review. CNOOC indicated that it is ready to provide assurances to Unocal to address concerns relating to energy security and ownership of Unocal assets located in the U.S. CNOOC also stated that it is open to placing non-exploration and production assets under U.S. management through arrangements that CFIUS has approved in the past and are prepared to sell or take other actions with respect to Unocal's minority pipeline interests and storage assets.

The Exon-Florio provision of U.S. law (Section 5021 of the Omnibus Trade and Competitiveness Act of 1988, which amended Section 721 of the Defense Production Act of 1950) gives the President the authority to suspend or prohibit any foreign acquisition, merger or takeover of a U.S. corporation that is determined to threaten the national security of the United States. The President can exercise this authority under Exon-Florio to block a foreign acquisition of a U.S. corporation only if he finds:

(1) there is credible evidence that the foreign entity exercising control might take action that threatens national security, and

(2) the provisions of law, other than the International Emergency Economic Powers Act do not provide adequate and appropriate authority to protect the national security.

CFIUS, the organization designated by law to receive notices of foreign acquisitions of U.S. companies and to investigate whether an acquisition may implicate national security issues, is composed of representatives from a number of U.S. government agencies and is chaired by the Secretary of the Treasury. Other CFIUS members include representatives from the Departments of State, Homeland Security, Defense, Justice and Commerce, the Office of Management and Budget and the Council of Economic Advisers.

Labels: CFIUS

The U.S. Government's Committee on Foreign Investments in the United States (CFIUS) will conduct an extended review of China-based Lenovo Group's planned $1.75 billion acquisition of IBM's personal computer (PC) business. The extended review by CFIUS will last 45 days and will result in a report submitted to President Bush on whether the sale threatens U.S. national security interests. The President will then have 15 days to announce a final decision on whether the transactions should proceed or not.

The Exon-Florio provision of U.S. law (Section 5021 of the Omnibus Trade and Competitiveness Act of 1988, which amended Section 721 of the Defense Production Act of 1950) gives the President the authority to suspend or prohibit any foreign acquisition, merger or takeover of a U.S. corporation that is determined to threaten the national security of the United States. The President can exercise this authority under Exon-Florio to block a foreign acquisition of a U.S. corporation only if he finds:

(1) there is credible evidence that the foreign entity exercising control might take action that threatens national security, and

(2) the provisions of law, other than the International Emergency Economic Powers Act do not provide adequate and appropriate authority to protect the national security.

CFIUS, the organization designated by law to receive notices of foreign acquisitions of U.S. companies and to investigate whether an acquisition may implicate national security issues, is composed of representatives from a number of U.S. government agencies and is chaired by the Secretary of the Treasury. Other CFIUS members include representatives from the Departments of State, Homeland Security, Defense, Justice and Commerce, the Office of Management and Budget and the Council of Economic Advisers.

Earlier this week, three members of Congress sent a letter to U.S. Treasury Secretary John Snow calling for an extended review of the IBM-Lenovo transaction. In their letter, they expressed concerns that the IBM-Lenovo deal could transfer advanced technology and corporate assets to the Chinese government, along with licensable or export-controlled technology, and may result in some U.S. government contracts involving PCs being fulfilled by the Chinese government.

The terms of the transaction call for IBM to receive at least $650 million in cash and up to $600 million in Lenovo Group common stock, subject to a lock-up period expiring periodically over three years. IBM will become Lenovo's second-largest shareholder, with an 18.9% interest in Lenovo. Additionally, Lenovo will assume approximately US$500 million of net balance sheet liabilities from IBM. Lenovo Group will locate its PC business worldwide headquarters in New York, with principal operations in Beijing and Raleigh, North Carolina, and sales offices throughout the world.

Labels: CFIUS