United States: Food For Thought: SAFE Act Would Add The USDA To CFIUS

On July 12, 2016, Senator Chuck Grassley (R-IA) introduced legislation1 to add the U.S. Department of Agriculture ("USDA") as a full member of the Committee on Foreign Investment in the United States ("CFIUS" or the "Committee"). If enacted, the "Securing American Food Equity Act of 2016" (or the "SAFE Act of 2016") would ensure that the USDA has a permanent seat at the CFIUS table. CFIUS, a multi-agency committee chaired by the Secretary of the Treasury, reviews the impact of foreign acquisitions on U.S. national security. Acquisitions deemed a threat to national security may be blocked by the President if they are not modified or withdrawn in response to Committee concerns.

Since 2007, CFIUS reviews have been required to consider the impact of foreign acquisitions on "critical infrastructure," or "systems and assets, whether physical or virtual, so vital to the United States that the incapacity or destruction of such systems or assets would have a debilitating impact on national security."2 The bill would add agricultural assets to the factors that may be considered by CFIUS in assessing the impact of a transaction on critical infrastructure, thereby increasing the likelihood of CFIUS reviews involving agricultural assets, even transactions that do not otherwise implicate U.S. national security.3

The SAFE Act of 2016 comes in the wake of China National Chemical Corp.'s bid to take over Syngenta AG, a Swiss pesticide and seed company with significant operations in the U.S. The transaction is the second high-profile Chinese purchase of a U.S. agriculture company in the last few years. In 2013, CFIUS cleared Shuanghui International Holdings Limited's (China) purchase of Smithfield Foods, Inc., the largest pork producer and processor in the world. The approval came despite Congressional concerns, as well as widespread skepticism concerning the nexus between food and national security.

This new legislation should not come as a surprise. In the past several years, U.S. Government officials, including President Obama, have made clear that food security can be a critical component of national security and an element of U.S. critical infrastructure.4 Others have also made this argument, including current Secretary of Agriculture Tom Vilsack.5 In connection with the Smithfield transaction, Senator Debbie Stabenow (D-MI), then Chairwoman of the Senate Committee on Agriculture, Nutrition and Forestry, stated "We believe that our food supply is critical infrastructure that should be included in any reasonable person's definition of national security." (Emphasis added.)6 On introducing the new legislation, Senator Grassley noted that

We're seeing more and more foreign investment in our agriculture assets, and it's something we need to be very aware of. The transactions that are occurring today will shape the food industry for decades to come. We need to be thinking strategically about who will control our food supply tomorrow. Food security is national security.7

Government officials and Congress are not, however, the only parties who have publicly questioned the Syngenta deal. A July 21, 2016 letter to the Secretaries of the CFIUS agencies from Food & Water Watch (a consumer rights non-governmental organization) and the National Farmers Union (a federation of state farmers unions) urged that the Syngenta transaction be blocked on national security grounds. The letters noted the proximity of Syngenta's domestic facilities to sensitive U.S. military assets and vulnerabilities deemed likely to result from Chinese chemical companies' weak "safety and security culture."8 Further, U.S. military leaders have publicly identified a link between agriculture and national security. Several retired senior military officials recently testified on this subject before Congress.9 In his statement, Major General Darren G. Owens (US Army, Retired) stated "America's first line of defense is our ability to feed and clothe the people."

Congress has a history of proposing new CFIUS legislation on the heels of high profile transactions – the acquisition in 2006 by Dubai Ports World Limited of the Peninsular & Oriental Steam Navigation Company (including its U.S. port operations) spurred subsequent revision of the CFIUS statute and regulations. Representative Rosa DeLauro (D-CT) was so concerned about potential food contamination following the Smithfield deal that she proposed a bill that incorporated a "net benefit test" in reviews of cross-border acquisitions.10 That bill did not receive serious consideration in Congress, but did highlight perceived gaps in CFIUS jurisdiction – among them, acquisitions that implicate food safety but do not implicate traditional national security concerns.

It is worth noting that, under current law, the CFIUS chairperson already has the ability to consult informally with the head of any Federal department, agency, or independent establishment in connection with any particular transaction. In fact, when a transaction implicates issues (such as food safety) that are within the purview of agencies that are not members of CFIUS, the Committee routinely reaches out to the affected agencies to solicit their views. In addition, the President has the authority to add voting members to the Committee, either as permanent members or on a case-by-case basis, although this is rarely done. (President George W. Bush added the Office of the U.S. Trade Representative and the Office of Science and Technology Policy through Executive Order 13456 on January 23, 2008.) Rather than rely upon the discretion of the President, the new legislation would ensure that the Secretary of Agriculture is included in all CFIUS reviews, including transactions that do not involve agricultural assets.

The future of the legislation is not clear at this writing. No hearings have yet been scheduled, and the proposal could well revive the debate over making the Secretary of Labor a voting member of CFIUS. Opponents may question why the Secretary of Agriculture should get a vote on all transactions – and the Secretary of Labor a vote on none. Nevertheless, it is fair to say that the prospects for the bill are good, especially if (for example) its scope is narrowed to give the Secretary of Agriculture a seat on the Committee only when the CFIUS chairperson determines a transaction implicates the U.S. agricultural industry or the food supply chain. If nothing else, the legislation is certain to revive the debate over the nexus between national security and food supply, and the proper role of the Secretary of Agriculture in CFIUS proceedings.

Footnotes

1. Securing American Food Equity Act of 2016, S. 3161, 114th Cong. § 2 (2016). Available at: http://www.grassley.senate.gov/sites/default/files/constituents/Agriculture%2C%2007-12-16%2C%20USDA%20in%20CFIUS%20bill%20text.pdf.

2. 50 U.S.C. app. §§ 2170(a)(6); see also 31 C.F.R. § 800.208.

3. This change puts agriculture on a par with other critical infrastructure assets, such as major energy assets.

4. The White House, Office of the Press Secretary. "Presidential Policy Directive – Critical Infrastructure Security and Resilience," PPD-21 (February 12, 2013). Available at: https://www.whitehouse.gov/the-press-office/2013/02/12/presidential-policy-directive-critical-infrastructure-security-and-resil. See also U.S. Department of Homeland Security. NIPP 2013: Partnering for Critical Infrastructure Security and Resilience, at 9 (2013). Available at: https://www.dhs.gov/sites/default/files/publications/NIPP%202013_Partnering%20for%20Critical%20Infrastructure%20Security%20and%20Resilience_508_0.pdf.

5. See Jacob Bunge, "Lawmakers Raise Concerns About ChemChina's Purchase of Syngenta," Wall Street Journal, Mar. 23, 2016. Available at: http://www.wsj.com/articles/lawmakers-raise-concerns-about-chemchinas-buy-of-syngenta-1458753212. See also U.S. Senate Committee on Agriculture, Nutrition, & Forestry, "Senators Call On Treasury Department To Review ChemChina's Acquisition of Syngenta," Mar. 24, 2016. Available at: http://www.agriculture.senate.gov/newsroom/dem/press/release/senators-call-on-treasury-department-to-review-chemchinas-acquisition-of-syngenta-.

6. Office of Sen. Debbie Stabenow (D-MI), "Bipartisan Group of Senators Urge Appropriate Oversight of Proposed Smithfield Purchase," June 20, 2013. Available at: http://www.stabenow.senate.gov/news/bipartisan-group-of-senators-urge-appropriate-oversight-of-proposed-smithfield-purchase#sthash.OiyujdHt.dpuf.

7. Office of Sen. Chuck Grassley (R-IA), "Grassley: Food Security is National Security," Jul. 12, 2016. Available at: http://www.grassley.senate.gov/news/news-releases/grassley-food-security-national-security.

8. Letter from Food & Water Watch and the National Farmers Union to Sec'y Jacob Lew, et al. "Re: China National Chemical Corporation proposed purchase of Syngenta AG," July 21, 2016. Available at: http://nfu.org/wp-content/uploads/2016/07/FWW-NFU-letter-to-CFIUS-on-ChemChina-Syngenta-7-21-2016-2.pdf.

9. U.S. House Committee on Agriculture, "Former Military Leaders Highlight the Importance of Agriculture and National Security Available," July 7, 2016. Available at: http://agriculture.house.gov/news/documentsingle.aspx?DocumentID=3480.

10. See Christopher Brewster, "DeLauro Legislation Would Broaden Reach of CFIUS Reviews to Assess 'Net Benefit' of Foreign Investment," Stroock Special Bulletin, (Sept. 22, 2014). Available at: http://www.stroock.com/siteFiles/Pub1538.pdf.

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