The Committee on Foreign Investment in the United States Says Chinese Investment in North Dakota Agricultural Land Is Outside Its Jurisdiction

• Jurisdiction: United States,Federal
• Publication year: 2023
• Citation: Vol. 1 No. 3

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Antonia I. Tzinova, Robert A. Friedman, Marina Veljanovska O'Brien, and Sarah K. Hubner ^*

In this article, the authors discuss a recent decision by the Committee on Foreign Investment in the United States and its implications.

Fufeng USA Inc., a subsidiary of Chinese food manufacturer Fufeng Group Ltd., announced on December 13, 2022, that after an "extensive two-phase review," the Committee on Foreign Investment in the United States (CFIUS) had determined that Fufeng USA's acquisition of Grand Forks, North Dakota, agricultural land is not a "covered transaction" under Section 721 of the Defense Production Act of 1950. As a result, CFIUS will not be taking any further action on the deal. The CFIUS decision comes as lawmakers urge scrutiny of Chinese investment in U.S. agriculture, with approximately 14 states passing laws that specifically forbid or limit nonresident aliens, foreign business entities, or foreign governments from acquiring an interest in private agricultural land within the boundaries of their state. ¹ Substantial media coverage and concerns raised by prominent Republican legislators and the U.S.-China Economic and Security Review Commission (USCC) prompted the U.S. government to further examine the transaction.

Transaction Background

Fufeng Group announced ² on November 8, 2021, that it had selected Grand Forks as the location for its first U.S.-based manufacturing facility. Through its U.S. subsidiary, Fufeng Group purchased a 370-acre site in Grand Forks to build a $700 million

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wet corn milling facility where Fufeng Group intends to extract high-valued amino acids, lysine and threonine, which are essential ingredients in animal nutrition feed formulations. The Grand Forks City Council gave Fufeng Group initial approval for the proposed facility in February 2022.

Despite this initial approval, the land purchase sparked great concern among officials at the federal, state, and local level due largely to the land's close proximity to Grand Forks Air Force Base and Cavalier Space Force Station. The proposed site is located 12 miles from the base. In May 2022, the Fufeng purchase was cited as a risk in a USCC report ³ on Chinese interests in U.S. agriculture, noting that Grand Forks Air Force Base "houses some of the United States' top intelligence, surveillance, and reconnaissance capabilities." Likewise, in July 2022, Senators Marco Rubio, John Hoeven, and Kevin Cramer called on CFIUS to review the acquisition, sending a letter ⁴ to U.S. Defense Secretary Lloyd Austin and U.S. Treasury Secretary Janet Yellen.

It was reported ⁵ on October 17, 2022, that Fufeng Group had filed a voluntary notice with CFIUS. In a statement on December 13, 2022, Fufeng USA Chief Operating Officer Eric Chutorash announced that CFIUS had concluded its review and determined that the land purchase was not a "covered transaction" under CFIUS jurisdiction. In a rare look into CFIUS operations, Grand Forks City Administrator Todd Feland noted that the lead federal agencies in the review were the U.S. Departments of the Treasury, Defense, and Agriculture.

CFIUS Statutory Authority Over Real Estate Transactions

Calls to block the Grand Forks land acquisition were based primarily on CFIUS's expanded jurisdiction under the Foreign Investment Risk Review Modernization Act (FIRRMA) to review certain U.S. real estate transactions, including the purchase of undeveloped land (or greenfield investments in land). ⁶ FIRRMA authorized the review of certain real estate transactions, that is, purchase, lease, or concession of both developed and undeveloped real estate, within close proximity of designated sensitive sites such as airports, maritime ports, military installations, or other sensitive U.S. government facilities. To be considered a covered real estate transaction, the foreign person would have to obtain a combination

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of certain property rights (e.g., such as the right to exclude others from accessing the property). Real estate parcels in an urbanized area or cluster and certain other real estate are exempt from the rule. Until FIRRMA, the mere acquisition of undeveloped land—that did not qualify as a U.S. business or a going business concern—was outside of the scope of CFIUS jurisdiction.

CFIUS Decision

CFIUS deliberations and decisions are not public. However, in a rare occurrence, Fufeng's counsel released the letter the company received from the CFIUS staff chair explaining that, based on the information received in the October 2022 notice and the answers the transaction parties provided in response to CFIUS follow-up questions, CFIUS concluded that it did not have jurisdiction under 31 C.F.R. Part 800. ⁷ The letter also reveals that Fufeng filed its notice under Part 800 of CFIUS regulations, that is, as a covered transaction where a foreign person acquires a U.S. business (and not under Part 802, as purchase of real estate). The letter, however, stated that CFIUS reserved all rights and authority under Sec. 721 to initiate a new review of the matter as permitted by law.

The proposed site of Fufeng's wet corn milling plant is undeveloped land; as such, it cannot be deemed to be a going concern to trigger CFIUS jurisdiction over the acquisition of a U.S. business under Part 800. Interestingly, while not located in any urbanized area or...