On October 18, 2017, Senators Chuck Grassley and Sherrod Brown proposed legislation (S.1983) entitled

United States Foreign Investment Review Act of 2017” that amends The Trade Act of 1974. The bill creates a new screening procedure to vet economic implications for the United States of particular foreign investments. This new procedure, which would be operated in parallel to the long-standing national security screening process chaired by the Secretary of the U.S. Department of the Treasury (Treasury Secretary), would authorize the Secretary of the U.S. Department of Commerce (Commerce Secretary) to block or require the restructuring of transactions that could result in foreign control of U.S. businesses. In making his decisions, the Commerce Secretary would consider “economic factors” including “long-term strategic economic interests,” “the history of distortive trade practices” of the country from whence the foreign investor comes, and “any other factors the Secretary considers appropriate.”

If enacted, the Grassley-Brown bill would represent a significant change to the long-standing open investment policy of the United States. In the lead up to the passage of the 1988 Exon-Florio legislation that created the national security review process operated by the Treasury-led Committee on Foreign Investment in the United States (CFIUS), President Reagan opposed proposals that would have provided similarly open-ended economic benefits tests. His opposition was based on a recognition of benefits for the United States derived from the market allocation of capital and skepticism of government officials’ abilities to determine economic benefits. The current context is complicated, however, by the sense of a lack of reciprocal access in the Chinese market, as well as a growing concern about foreign government directed investments in the United States.

In brief, this Grassley-Brown procedure would, for the first time, impose mandatory notification requirements for foreign investments that meet certain monetary thresholds. The review process would be completed within a maximum of 60 days. The process would be run by the Commerce Secretary, a significant change as investment policy is traditionally managed by the Treasury Department which is thought to be more supportive of free markets than the Commerce Department. Moreover, unlike CFIUS which ultimately depends on Presidential authority, decisions would be made solely by the Commerce Secretary, who would have broad authority to make decisions about foreign investment on virtually any economic basis. Interested parties such as disgruntled competitors would be able to comment on proposed transactions, and Congressional leadership could mandate reviews of foreign investments that otherwise do not meet the monetary notification thresholds. Opportunities for politicization of investments would be substantially expanded.

Senators Grassley and Brown have circulated this proposal at a time when other members of Congress are working on proposals to expand the scope of the existing national security-focused CFIUS process, as the Trump administration begins to develop its own investment policy, and other advanced markets such as Germany, the United Kingdom, and the European Union assess their own screening processes. While it is unclear whether the Grassley-Brown proposal will progress through the legislative process, it certainly reflects a broader change in the international investment environment spurred by the technology transfer policies and state-directed investment policies of major emerging markets.

Key Elements of Grassley-Brown

  • Relationship to CFIUS: This bill would work in tandem with CFIUS. Unlike CFIUS, the bill is not focused on the national security aspects of foreign investment, but on the “economic effect” of foreign investments. National security reviews would continue to be managed by CFIUS.
  • Mandatory notification thresholds: The Commerce Secretary must be notified of transactions that could result in “foreign control” of U.S. businesses meeting transaction value thresholds
    • The foreign buyer is a state-owned enterprise – $50,000,000 or more
    • Any other foreign buyer – $1,000,000,000 or more
  • Reviews:
    • The Commerce Secretary is to review notified transactions to determine the “economic effect” and may require a notification where a transaction meeting the notification thresholds has not been notified.
    • The Commerce Secretary must initiate a review, if requested by the chairman and ranking member of (1) the Senate Finance Committee, or (2) the House Ways and Means Committee.
    • NB: It appears that the Commerce Secretary may not require a notification for transactions below the thresholds absent a Congressional request.
  • Timing and decisions – maximum of 60 days:
    • Initial review – 15 days: Not later than 15 days after receiving a notification of a transaction or initiating a review, the Secretary shall (1) approve the transaction, or (2) inform the parties that he needs additional time.
    • Additional time – 45 days total: The Secretary may extend the review for up to 45 days from the notification of the transaction before (1) approving, (2) prohibiting, or (3) requiring modification the transaction.
    • Extension – 15 days in addition: The Secretary may extend the deadline of the review of a transaction by not more than an additional 15 days. Sixty days is the maximum time for any review.
    • NB: The bill, unlike the CFIUS legislation, does not specifically exclude judicial review of the Secretary’s decisions. As noted below, the bill would provide broad discretion in terms of economic factors to consider, but it seems likely that decisions would be subject to judicial review under the Administrative Procedures Act.
  • Criteria: In conducting his review, the Secretary may consider “any economic factors the Secretary considers relevant, including:
    • the long-term strategic economic interests of the United States;
    • the history of distortive trade practices in each country in which a foreign party to the transaction is domiciled, as informed by the report of the United States Trade Representative… .;
    • control and ownership of each foreign person that is a party to the transaction;
    • impact on the domestic industry, taking into consideration any pattern of foreign investment in the domestic industry; and
    • any other factors the Secretary considers appropriate.”
    • NB: National security concerns are explicitly excluded as the existing procedures under the Defense Production Act of 1950 are to address those issues.
  • Input:
    • U.S. Trade Representative (USTR) report: Within 10 days of initiation of a review, the USTR shall submit a report that includes, with respect to any country in which a party to the transaction is domiciled (1) a description the trading relationship between the United States and that country, and (2) an assessment of the extent to which that trading relationship is reciprocal.
    • Other agencies: The Commerce Secretary may consult with any other government agencies he determines appropriate.
    • Public: The Commerce Secretary is to provide an opportunity for public comment on transactions under review, a process that would invite disgruntled competitors and others to intervene.