Congresswoman Rosa DeLauro (D-CT), who strongly opposed the Chinese acquisition of Smithfield, has introduced legislation that would radically overhaul the review of foreign investment by the Committee on Foreign Investment in the United States (CFIUS), the governmental panel that assesses the impact of foreign acquisitions on national security.
The DeLauro bill, HR 5581, would extend the scope of CFIUS reviews to include not only an assessment of the national security impact of a merger, takeover, acquisition by or with a foreign person, but also the "net benefit" of the transaction – namely, the effect of the transaction "on the level of economic activity" in the United States, including "the level and quality of employment" (among other factors) and "the effect of the proposed or pending transaction on productivity, industrial efficiency, technological development, technology transfers, and product innovation," as well as the compatibility of the proposed action with U.S. "cultural policies," and the "effect on the public health, safety, and well-being of United States consumers." HR 5581 would also, for the first time, extend reviews to "construction of a new facility in the United States by any foreign person," regardless of whether the investment entailed a merger, acquisition, or takeover.
On introducing the bill, Congresswoman DeLauro stated that
[f]oreign investment in the United States is critical to creating jobs, bolstering innovation and enhancing America's global competitiveness, but we need to ensure that foreign transactions provide a net benefit to America. That is not the case, as we saw with last year's purchase of Smithfield Foods by Shuanghui. [HR 5581] is necessary to ensuring American workers are not sacrificed for foreign profits.
The bill would establish a net benefit review panel comprised of the Secretaries of Labor, Commerce, and Treasury, together with the Attorney General and the U.S. Trade Representative. As determined by the President, cases involving public health would include the Secretary of Health and Human Services, and cases involving agriculture would include the Secretary of Agriculture – both if an acquisition involved food safety. Missing from the panel, however, are the national security agencies – State, Defense, Homeland Security, and the Director of National Intelligence.
Although CFIUS filings are ostensibly voluntary under current law, CFIUS has always had the authority to initiate reviews, in its discretion, when the Committee or a member agency believes a transaction merits review. Neither the current law nor the DeLauro bill provides a de minimis threshold for filings. Unlike current law, however, the DeLauro bill would mandate a net benefit review for any transaction that meets the threshold for Hart-Scott-Rodino antitrust reviews. Less clear, however, are the circumstances under which construction of a new facility would be subject to review, given that the definition of "foreign person" under CFIUS regulations includes any entity controlled by a foreign entity. (Arguably, the legislation could be read to authorize "net benefit" reviews of new construction by long-established, but foreign-owned U.S. companies.)
Net benefit reviews of acquisitions by "foreign government-influenced" entities would include an analysis of whether the foreign acquirer adheres to U.S. standards of corporate governance, and "will likely operate on a commercial basis" if the transaction is completed, including such factors as "the impact of the investment on productivity and industrial efficiency in the United States" and "the appropriate level of capital expenditures to maintain the United States business in a globally competitive position." Notably, the legislation sweeps in not only entities that are owned or controlled by foreign governments, directly or indirectly, but also entities "influenced" by a foreign government, which arguably could reach acquisitions by major suppliers to foreign governments, even though the companies are privately held or publicly-owned.
The late date on which the bill was introduced and its controversial scope ensure that there is no realistic chance that it will be enacted in the current Congress. It is likely, therefore, that the bill is intended to revive debate over the scope of CFIUS reviews, including whether, when, and how to expand review to factors other than national security.
Only a few days before Congresswoman DeLauro introduced her bill, the U.S. Senate Committee on Agriculture, Nutrition and Forestry announced that Chairwoman Debbie Stabenow (D-MI) "is drafting legislation to overhaul the American government's review process for foreign acquisitions." The statement quoted Senator Stabenow as stating that it is "crucial that the government's review process for foreign acquisitions of American companies [consider] the impact that the purchase could have on a broad array of national priorities and interests," including food safety. Senator Stabenow's bill had not been introduced as of the date of this Stroock Special Bulletin. As with HR 5581, timing considerations make enactment of a Stabenow bill unlikely this year. Nevertheless, Senator Stabenow's senior position may provide a platform for consideration of new legislation when Congress convenes in 2015.
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