This article is being republished as part of our daily
reproduction of WSJ.com articles that also appeared in the U.S.
print edition of The Wall Street Journal (May 18, 2018).
Legislation seeks to tighten the vetting of investments
involving foreign companies
By Kate O'Keeffe
As President Donald Trump sought to forge a delicate China trade
deal on Thursday, lawmakers from both sides of Congress looked set
to advance a bill that would give the U.S. greater power to block
deals between American and Chinese companies that could risk
national security.
The legislative initiative is part of a complicated effort to
confront China on both economic and security issues, while also
seeking Chinese cooperation on such matters as North Korea. On
Thursday, Mr. Trump hosted Chinese Vice Premier Liu He as part of
an effort to negotiate concessions in the face of U.S. threats to
impose tariffs on up to $150 billion in Chinese imports.
China, too, has been calibrating its responses, alternating
between retaliatory threats and conciliatory gestures. China's
antitrust division had delayed for months U.S. private-equity firm
Bain Capital's $18 billion deal for Toshiba Corp.'s memory-chip
unit, but on Thursday the Japanese firm said regulators had allowed
the deal to proceed. China has yet to approve U.S. chip maker
Qualcomm Inc.'s $44 billion bid for NXP Semiconductors NV.
The Trump administration on Thursday seemed determined to
continue putting pressure on China, with the president using harsh
terms to describe Chinese trade practices: "We have been ripped off
by China," Mr. Trump said, speaking to reporters in the Oval
Office. "That's not going to happen anymore."
The bill -- which has prompted debate among lawmakers and U.S.
businesses active in China -- would affect both foreign firms
seeking deals in the U.S. and American companies doing business
abroad by tightening the processes for vetting inbound and outbound
investment.
The congressional effort to strengthen U.S. defenses would
expand both the remit and resources of the Committee on Foreign
Investment in the U.S. CFIUS is an interagency committee that
reviews proposed foreign takeovers of U.S. businesses. It can
advise the president to block them on national-security
grounds.
The proposed legislation spells out CFIUS's authority to vet the
purchase or lease of real estate near sensitive U.S. facilities,
and its right to review any deal structured to evade its
jurisdiction, such as transactions that use shell companies to
obfuscate the would-be buyer's ownership, for example.
The latest version of the bill seeks to settle the question of
how Washington would monitor the overseas transactions of U.S.
companies, a significant source of contention from the business
community. In a compromise, the revised bill, according to drafts
circulated as recently as Wednesday night and reviewed by The Wall
Street Journal, would have the government vet domestic and overseas
transactions through separate processes.
Though the new rules would apply to many transactions involving
foreign companies, the bill is particularly aimed at curbing
certain Chinese deals. Critics have long singled out Chinese deals
as posing disproportionate risks to national security because the
companies may be directed and subsidized by the government of
China, which is an economic and military rival.
The CFIUS bill has bipartisan congressional support and was
earlier endorsed by the president and the heads of the departments
of Defense, Treasury and Justice -- which are all part of CFIUS --
among other senior officials. It was first introduced by Senate
Majority Whip John Cornyn (R., Texas) and Rep. Robert Pittenger
(R., N.C.) in November.
Both the Senate Banking Committee and the House Financial
Services Committee, whose free-market chairmen had long resisted
advancing the legislation due to opposition from the business
community, now plan to mark up the bill's text as soon as next week
after reaching the compromise.
The bill's initial proposal to grant CFIUS the authority to
review joint-venture deals struck abroad was a step too far for
some U.S. firms with interests in China such as IBM and General
Electric Co. Companies criticized the bill as being overly broad
and said CFIUS should stick to reviewing inbound foreign investment
only.
Instead, the bill now proposes to review the overseas deals
through a bolstered export controls process. It proposes the
creation of a new interagency process involving the Commerce,
Defense, State and Energy departments, as well as the intelligence
community, to identify critical technologies and determine where
they can be exported, according to the Senate and House drafts.
U.S. firms often agree to joint ventures in China because it is
the only way to get access to the country's enormous market. They
typically say the deals don't present national-security risks
because they aren't giving Chinese firms any cutting-edge
technology in return. And they have said they would prefer such
joint-venture deals be governed by the export-control regime as
opposed to CFIUS. The export-control process is run in a relatively
transparent fashion by the Commerce Department, whereas CFIUS makes
decisions on a case-by-case basis largely hidden from public
view.
Just last month, Mr. Cornyn in a speech on the Senate floor
appeared to shoot down prospects for a compromise on the issue.
"These joint ventures are essentially acquisitions by another name,
which is why CFIUS should be able to review them for
national-security risks," he said, adding that those criticizing
his proposal were only doing so "so they can bolster their bottom
line."
In an interview Thursday, Mr. Pittenger rejected any
characterization of the bill revisions as a concession to U.S.
companies. "To the contrary, many believe this legislation will
provide the Department of Defense and intelligence even greater
oversight to protect American interests and provide coverage over
outbound joint ventures."
One prominent lawyer who represents companies in CFIUS cases
agreed that it might be too early for U.S. businesses to celebrate,
as it is unclear how the new proposed interagency group to regulate
overseas joint ventures would operate in practice.
The bill's proposal to allow for additional parties to weigh in
on overseas investment injects new uncertainty into the process
because it would in effect create a "mini CFIUS" to review the
deals, the lawyer said.
Write to Kate O'Keeffe at kathryn.okeeffe@wsj.com
(END) Dow Jones Newswires
May 18, 2018 02:47 ET (06:47 GMT)
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