Will CFIUS Regulate Foreign Direct Investment in the U.S. Auto Industry?
Foreign direct investment into the United States has generally grown in the aftermath of prior recessions and economic downturns. As the U.S. economy was entering the current downturn in mid-2007, however, the U.S. Congress enacted the Foreign Investment and National Security Act, known as FINSA. FINSA empowered an existing multi-agency regulatory body in the Executive Branch, the Committee on Foreign Investment in the United States, to regulate inbound acquisitions and investments that might impair U.S. national security. In the ongoing discussion over the destiny and direction of the U.S. automotive industry, there seems to be little discussion of what the Obama Adminstration's policy is with respect to foreign ownership of or investment in key U.S. industries. The conversation is dominated by the need to maintain or restructure the businesses, without regard to ownership of the industry's participants. There is no doubt that a vigorous economic rebound will require full international participation in the form of inbound investment. It is critical, however, for the Administration to articulate its stance on inbound investment so that foreign buyers and investors know what regulatory hurdles and consequences they may face. So it now seems opportune for CFIUS to address publicly the question of how the welfare of the U.S. automobile industry, in particular, relates to U.S. national security.
According to The Wall Street Journal of May 7, 2009, international buyers are showing strong interest in purchasing businesses, assets and subsidiaries of both Chrysler and GM. The interest of Italy's Fiat, France's Renault and China's Geely Automotive suggests that these transactions, if they come to fruition, would be "covered transactions" as defined by FINSA and therefore potentially subject to CFIUS review.
Daimler's newly-announced investment in Tesla Motors might also be a covered transaction. Although Daimler is acquiring 10% of Tesla's shares, a board seat has been set aside for a Daimler executive. Under CFIUS rules, a board seat indicates a control position. There is a strong suggestion that Daimler is making its investment to gain access to Tesla's highly regarded advanced battery technology, arguably a major U.S. strategic asset.
Will these purchasers and their U.S. investees make voluntary notice filings with CFIUS? Will CFIUS review and investigate the filings? If so, will the review require the full 30 days? If there is an investigation, will the investigation require the full 45 days? Will CFIUS pass the application on to President Obama for him to decide?
CFIUS operates under complete confidentiality. Prospective investors and buyers may not know what regulatory filings may be required and how their filings, if made, will fare. The Freedom of Information Act is not available as a means for gaining access to those notices that parties have filed with it. None of the press surrounding the proposed Fiat transaction with Chapter 11- embedded Chrysler has mentioned any role for CFIUS. Similarly, Barclay's purchase of the brokerage business of Lehman Brothers out of Chapter 11 proceedings may not have been accompanied by a filing with CFIUS.
The principal question is whether the connection between the U.S. automobile industry and U.S. national security is sufficiently strong for Treasury and Homeland Security policymakers to consider. One might well begin by assessing what portion of the tanks, armored personnel carriers, other transport vehicles or parts that the Department of Defense purchases are made by Chrysler or GM. The U.S. automobile industry today is a distant cry in many ways from the Second World War. But those with long memories will recall that the Roosevelt Administration turned to our domestic automobile manufacturers to produce tanks as well as airplanes during that war. There are alternative sources for production today, to be sure, including defense contractors whose core business it is to manufacture the equipment that our armed forces rely on. But, with two ongoing wars and the world far from peaceful, is it prudent to assume no risk of impairment to U.S. national security from the transfer of these assets into foreign hands?
It would be interesting to know whether CFIUS expects to receive filings for these deals if, as and when they mature.
Readers who may not be familiar with FINSA, its regulations and the regulatory regime that CFIUS oversees can find resources and informative analysis on these and related topics at the page in the Sullivan & Worcester LLP Web site that describes its U.S. Inbound Investments Group.
This post is the first on this blog. It is the mission of this blog to generate discussion on topics relating to inbound acquisitions and investments into the United States economy at all levels and become a forum on this topic. Readers are encouraged to comment.
The above picture is reproduced from Volume II of American Military History by the U.S. Army.
