Global Courant
A Chinese private equity firm, Primavera Capital Groupin May purchased the well-known test preparation company Princeton review and an online learning platform, Tutor.com.
The move, like other Chinese investments in technology and those dealing with personal information, is drawing increasing attention politicians, the US government and national security experts – especially now that tensions between the US and China are rising.
What remains unclear, however, is whether this seemingly routine business takeover has been reviewed by the Committee on Foreign Investment in the USauthorized to investigate foreign investment transactions.
The committee is largely prohibited from appearing in public disclosing any information submitted with itincluding whether it is reviewing a transaction or if one has been referred for review.
While the committee is hardly a household name, its mission and its expand supervision have important implications for the US economy and national security.
Government oversight
Congress strengthened the powers of the Committee on Foreign Investment, allowing it to scrutinize foreign investment in areas such as cybersecurity, microelectronics and artificial intelligence. Photo: Joshua Sukoff for Unsplash.com, CC DOOR through The Conversation
The Foreign Investment Committeean umbrella committee of the United States government established in 1975 by President Gerard Fordis in charge of studying and coordinating the implementation of the policy on foreign investment in America.
Investments from abroad many advantages the US, supporting 10.1% of the total labor force in 2019. Nevertheless, from the 1980s, the federal government became increasingly concerned about the potentially harmful effects of foreign investment in the US. For example, if a foreign company takes control sensitive technologiesit can harm national competitive advantages or even threaten national security.
The commission’s primary purpose is to review selected foreign investments and some real estate transactions by foreigners in the U.S. for their implications for national security. Real estate transactions are generally only investigated if a transaction involves land that is either close to a military base or near an airport or seaport.
Foreign investment screening
In the 1980s, political concern grew Japanese investment and in particular the proposed purchase by the Japanese computer giant Fujitsu from chip maker Fairchild semiconductor. Semiconductors were considered a sensitive industry with potential defense applications, so the purchase prompted Congress in 1988 to Exon-Florio Amendment to the Defense Production Act of 1950.
This amendment gave the committee the power not only to review foreign investment agreements, but also to recommend that they be rejected. Acting on his recommendation, a US president could block a foreign transaction on grounds of “national security”.
In 1990, for example, President George HW Bush declared the sale void from MAMCO Manufacturing, which made metal parts for aircraft, to a Chinese agency, which commissioned the China National Aero-Technology Import & Export Corporation to to divest from the Seattle-based company.
In the context of a committee review, the term national security typically refers to foreign transactions that can lead to significant outsourcing of jobs, a loss of control over agricultural supply chains, sharing of sensitive technologies, control over a company that meets needs defenseor the degradation of critical infrastructure.
Strengthening the committee
In 2006, Dubai Ports World, owned by the government of the United Arab Emirates, was about to take control of six US ports in a major deal. Because of terrorism-related concerns, Senator Chuck Schumer led one campaign against this proposal and the transaction was eventually called off, even though it was initially approved by both the committee and President George W. Bush.
Political concerns sank a deal with the United Arab Emirates to manage U.S. ports and empowered the Committee on Foreign Investment. Photo: Damian Kamp for Unsplash.com, CC DOOR through The Conversation
In the aftermath of this controversypassed the legislators Foreign Investment and National Security Act in 2007, giving Congress greater oversight of the committee to ensure potential acquisitions were adequately reviewed. In addition, it required the committee to scrutinize any foreign investment deal in which the relevant overseas entity is owned or controlled by a foreign power.
Concerns about national security
Over time, the Committee on Foreign Investment has gained more power to think about and act on US political and economic concerns.
China, for example, seems to have that global ambitions to replace the World order led by the US. As it gains geopolitical power, China has fallen increased control by the US, with public support for it working hard with China on economic issues. In response to these concerns, U.S. lawmakers have taken concrete steps to broaden the scope of what the commission can do.
2018, then-President Donald Trump signed the Modernization Act Foreign Investment Risk Assessmentgiving the commission new powers over certain types of foreign investment that affect many Chinese investors. In the two-year period after the passing of the law, transaction records of Chinese investors decreased by 43%.
2022, President Joe Biden signed an executive order directing the commission to tighten it research on foreign investment agreements that can negatively impact cybersecurity, quantum computing, biotechnology and sensitive data.
Foreign investment scrutinized by the US can range from agricultural supply chains to biotechnology and quantum computing. Photo: Adi Goldstein for Unsplash.com through The Conversation
The Foreign Investment Committee is now more powerful than it ever has been, and it’s a gatekeeper about major foreign investment deals.
The US is not alone in examining foreign investment deals for national security implications. In recent times, the United Kingdom, the European Union and Australia have drawn up or tightened up existing regulations Police with more care foreign investment deals, especially those originating from China.
It remains to be seen what the long-term consequences will be of these growing powers of the Committee on Foreign Investment in the US.
Amitrajeet A. Batabyal is a distinguished professor, the Arthur J Gosnell Professor of Economics and Interim Head of the Department of Sustainability at the Rochester Institute of Technology.
This article has been republished from The conversation under a Creative Commons license. Read the original article.
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