The global colony: a comparative analysis of national security-based foreign investment regimes in the Western hemisphere.

Author:Stapleton, Colin
 
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  1. INTRODUCTION

    "National security" is an ambiguous term. (1) This ambiguity is purposeful (2) as the time when warfare only consisted of guns and bullets has passed. Most anything can be turned into a weapon and the harm it may cause is not necessarily corporeal. Especially now, with the integration of local economies into the global market, nations are beginning to realize the most destructive weapon may be money. (3) Countries throughout the world face a pecuniary paradox as they want to not only reap the benefits of international trade but also protect themselves against economic hegemony.

    The American solution to this puzzle of balancing investment with security was illustrated by the acquisition of Smithfield Foods ("Smithfield") (4) by Shuanghui International Holdings Ltd. ("Shuanghui") in 2013. (5) At $4.7 billion, this acquisition was the largest investment a Chinese company had made in the United States at the time. (6) While the size of the transaction alone was enough to court controversy from antitrust regulators, there were a variety of other concerns about the acquisition. (7) The Committee on Foreign Investment in the United States ("CFIUS") reviewed the transaction as most of these concerns involved national security. (8)

    CFIUS is an interagency committee meant to review and approve mergers and acquisitions of companies that have a relation, however tangential, to national security. (9) Most reviewed transactions involve companies that sell products and services related to the military, information technology, or critical infrastructure. (10) But the Smithfield review signaled a more expansive role for CFIUS by including industries outside those commonly associated with national security, such as the meat-processing industry, within its purview. (11) This expansion is well within CFIUS's powers as there are virtually no limits on what it can review. (12) These powers are amplified by the secrecy that shrouds CFIUS reviews because most of the information analyzed is either classified government intelligence or confidential business information. (13) Granting CFIUS this seemingly plenary power is the answer the United States has supplied for the problem of balancing investment with national security. Although the creation of a CFIUS-like regime is one potential solution, some countries have taken a different tack while others have outright ignored the problem altogether.

    This Note will survey several Latin American ("LATAM") countries and the regulatory regimes used to protect their economies to see how they compare with CFIUS. This comparison will provide insight into the differences between LATAM and American concepts of national security and the factors taken into account when deciding whether to allow a foreign investment to take place. This Note will show that these differences may have played a role in the establishment of nationalization policies in the past and that the U.S. government should encourage the development of robust regulatory regimes in LATAM to prevent future nationalizations. While these regimes may discourage some American investment in the region, they will also discourage investment from competing economic powers such as China. By reducing the ability of other countries to establish hegemonic relationships with LATAM countries, these regimes will increase the independence and security of the Western Hemisphere as a whole.

    Part II of this Note provides a background on CFIUS. Part III involves an analysis of CFIUS decisions to determine the factors that are considered important to national security. Part IV provides a necessary background on the importance of natural resources in LATAM to show the effect of these resources on the region's economies. Part V provides a survey of the investment regulations of select LATAM countries, specifically Mexico, Chile, and Brazil. (14) Part VI is an examination of nationalization as a national security policy and its prevalence in LATAM. The Note then argues in Part VII that the United States should support the establishment of CFIUS-like legal regimes in LATAM, despite the potential limiting effect on American investment, as these regimes reduce the chance of nationalization and encourage security in the Western Hemisphere as a whole.

  2. CFIUS BACKGROUND

    President Gerald Ford created CFIUS through an Executive Order (15) in 1975 amid concerns other nations were investing in the United States for political reasons. (16) In its original form, CFIUS was solely a reviewing committee since it did not have any power other than to consolidate and review information regarding a contested transaction. (17) The power to block a transaction was not bestowed upon CFIUS until the passage of the Exon-Florio (18) Amendment in 1988. (19) The original purpose of this Amendment was to prevent the export of technology in a bid to ensure the United States had a competitive advantage in the world economy. (20) The next step after granting CFIUS some teeth was to further define its role. Through the Byrd Amendment, (21) CFIUS was required to review transactions where "the acquirer is controlled by or acting on behalf of a foreign government; and ... the acquisition results in control of a person engaged in interstate commerce ... that could affect the national security of the United States." (22) This Amendment turned CFIUS into an effective tool for the government to achieve national economic security in corporate transactions. (23) CFIUS remained untouched until 2007 when Congress passed the Foreign Investment and National Security Act (FINSA). (24) This Act "required CFIUS to conduct more investigations, guided those investigations by providing more detailed congressional instruction about what to look for, authorized the Committee to impose sanctions on foreign companies that failed to comply with CFIUS requirements, and mandated that additional, extensive, and detailed reports be provided to Congress." (25) Like the Byrd Amendment, FINSA's expansion of CFIUS's power amplified its ability to be used as a weapon when it comes to national security. Since 2007, CFIUS's powers have not been substantially adjusted.

    CFIUS's authorizing legislation provides guidelines for the scope of its powers, although this scope might be different in practice due to the discretion CFIUS has in ordering a review. (26) The Executive Order authorizing CFIUS's creation did not include any reference as to what it could review except limiting its reach to transactions involving foreign investment. (27) This scope became more focused with the passage of the Exon-Florio Amendment, which listed eleven factors for CFIUS to consider. (28) These factors include whether the business is related to national defense or the military, either through the business' industry or its downstream production; the technology the business may have; the effect of the transaction on critical infrastructure; the role of a foreign government in the transaction; and how the transaction may affect future energy and resource demand by the United States. (29) As is clarified in the text of the eleventh factor, these are merely guidelines, (30) and any "covered" transaction (31) may be reviewed at CFIUS's discretion. (32) The most recent amendment to the original Executive Order, made in 2008, continued the tradition of vagueness regarding CFIUS's scope as its predecessor. (33) Thus, the only definitive statement that can be made about CFIUS's scope is that it is limited to transactions involving foreign entities attempting to gain control over American assets.

    While the authorizing legislation is vague as to CFIUS's scope, it provides more guidance on CFIUS's membership. CFIUS is composed of members from different federal executive departments. The original Executive Order authorizing the creation of CFIUS stated the members were to be representatives from the Departments of Treasury, State, Defense, and Commerce, as well as the Assistant to the President for Economic Affairs and the Executive Director of the Council on International Economic Policy. (34) Later, the Exon-Florio Amendment added the Attorney General and the Director of the Office of Management and Budget to CFIUS. (35) Within five years, another amendment added the Director of the Office of Science and Technology Policy and the Assistant to the President for National Security Affairs. (36) CFIUS membership went untouched for almost fifteen years when, in 2008, another amendment added the United States Trade Representative, the Chairman of the Council of Economic Advisers, and the Assistant to the President for Homeland Security and Counterterrorism. (37) The Executive Order authorizing CFIUS established the Secretary of the Treasury Department as the chair and permits him or her to include other departments "as he [or she] deems appropriate." (38) Although CFIUS's core membership revolves around departments or personnel that focus mainly on national security or the economy, CFIUS has a flexible structure that permits other interested parties to be included in the review process, depending on the subject matter of the transaction. (39) This flexibility, when combined with its almost plenary review power, makes CFIUS a potentially effective weapon to prevent many of the significant economic threats to the United States from transpiring.

    The review process itself is also structured to make CFIUS an adaptable and effective weapon. Transactions can be voluntarily submitted to CFIUS by providing written notice or CFIUS can unilaterally initiate the review. (40) Once CFIUS receives notice, it has thirty days to make a determination of the transaction's effect on American national security. (41) The review ends once all CFIUS members decide that the transaction does not threaten national security. (42) But if any members decide there is a threat, CFIUS can take an extra forty-five days to investigate. (43) Once a review is complete...

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