Asia Investment In The United States – Preparation Brings Opportunities - Inward/ Foreign Investment

CFIUS filings are now no longer voluntary but mandatory for (1) investments in US businesses that deal in "critical technologies," and (2) the acquisition of a "substantial interest" (i.e., a voting interest of 25% or more) in a TID US business by a non-US person in which a foreign government has a "substantial interest" (i.e., a voting interest of 49%).¹ CFIUS also now permits a short-form filing called a Declaration, in addition to the longer-form Notice, and recently imposed a filing fee for Notices that is based on the dollar size of the transaction (See CFIUS Institutes Filing Fees for Notices, Effective May 1, 2020.)

In addition to FIRMMA, trade agreements between China and the US further restrict technology transfer transactions. Specifically, China agreed that it would not support or direct US investments with the objective of acquiring foreign technology to reach its industrial policies, pursuant to the US-China Economic and Trade Agreement, effective by February 14, 2020.² Similar to the rules under FIRMMA, trade restrictions and guidelines continue to be in development. (See, e.g., US Department of Commerce Announces Rules to Restrict Exports to China and Other Countries of Concern.)

CFIUS and US technology transfer restriction rules are key threshold issues in evaluating a US expansion opportunity. However, if addressed early on, these issues can oftentimes be managed or, at a minimum, identified early in the deal process prior to significant costs being incurred or the existence of a possible transaction being publicly disclosed. Many US investment and expansion opportunities do not pose US national security concerns or can be managed by proactively taking steps to address the concerns of US governmental and private parties. In these cases, expanding operations in the United States and investing in US companies can be welcomed by US parties and local governments, especially where the project will lead to more US jobs and economic growth and/or create opportunities for US companies to expand in Asia.

Key Considerations for Potential Investments in US Companies

From the perspective of a US company or stakeholder, one of the primary reasons to work with an international party over a US domestic party on a transaction is the potential for greater value creation. Oftentimes, this means that the international party is willing to pay a higher price than a US party. However, beyond the purchase price, a US party that is continuing to be part of the business going forward may also be considering other value creation drivers such as entering into a strategic alliance whereby new businesses and markets are jointly developed or risks shared. In light of the various business challenges arising from volatile geopolitical, economic and public health issues, US and Asia parties collaborating on alliances – whether they be in the form of strategic (but non-controlling) investments, partnership arrangements or joint ventures – may become more prevalent.

Below are some considerations for an Asia company or investor in evaluating and successfully implementing a US expansion initiative.

Footnotes

1 See "CFIUS Proposes Rule to Refine Mandatory Filing Requirements and Tie the Critical Technologies Requirement Solely to Export Control Authorizations" (Mayer Brown, May 22, 2020); "Regulations Expanding Review of Foreign Investment in the US Are Now Effective" (Mayer Brown, February 14, 2020); "CFIUS Annual Report Further Demonstrates Scrutiny of Foreign Investments Is on the Rise" (Mayer Brown, December 3, 2019) and "Technology, Investment and Security: The Modernization of CFIUS - What Does it Mean for the Global Investor?" (Mayer Brown, November 7, 2018).

2 See "US-China Phase One Trade Deal—Key Provisions" (Mayer Brown, January 16, 2020).

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Originally published Mayer Brown, May 2020

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