Toward a multilateral framework for identifying national security threats posed by foreign acquisitions: with special reference to Chinese acquisitions in the United States, Canada, and Australia

Abstract

This article presents a framework for differentiating between foreign acquisitions of companies that might plausibly pose a national security threat to the home country of the target acquisition and those that do not. This framework originally derives from the experience of the United States. The framework is then shown to be relevant and useful for foreign acquisitions in Canada and Australia. In each case, Chinese acquisitions of US, Canadian, or Australian firms are highlighted. The article concludes by arguing that this framework can serve as an effective nondiscriminatory basis for separating genuine from implausible national security threats from foreign acquisitions across OECD states, to include all countries around the world.

Keywords:

• multinational firms and international business
• globalization and finance
• policies to deal with the impacts of globalization
• regulation and business law

JEL codes:

• F23
• F65
• F68
• K23

Notes

^1. The analysis here draws on Moran and Oldenski (2013) and Moran (2009). In the interest of full disclosure, it should be noted that Theodore Moran serves on the International Advisory Council of Huawei Technology Company.

^2. ‘The authority of the President to suspend or prohibit certain transactions was initially provided by the addition of section 721 to the Defense Production Act of 1950 by a 1988 amendment commonly known as the Exon-Florio amendment. The Foreign Investment and National Security Act of 2007 (FINSA), which became effective October 24, 2007, substantially revised section 721. Section 721 of the Defense Production Act of 1950 is codified at 50 U.S.C. App. 2170.’ (http://www.treasury.gov/resource-center/international/foreign-investment/Pages/cfius-legislation.aspx).

^3. An Act to Enhance the Competitiveness of American Industry, and for Other Purposes, and Hr 4848 100th Congress (1988).

^4. Foreign Investment and National Security Act of 2007, HR 556 110th Congress, and Public Law No: 110–49 (2007), Public Law No: 110-49.

^5. Regulations Pertaining to Mergers Acquisitions, and Takeovers by Foreign Persons, Final Rule. 31 Cfr Part 800. Federal Register/Vol. 73, No. 226/(2008).

^6. E.g., ports administration.

^7. E.g., telecom.

^8. E.g., petrochemical plant.

^9. Press statements on CNOOC’s proposed acquisition of Unocal by Representative Joe Barton (R-Texas) and Representative Duncan Hunter (R-CA).

^10. Datang and Zhongxing were also named in the report.

^11. This section draws on Moran (2013).

^12. Woodside Energy, BHP-Billiton, BP Australia, Chevron Australia, Japan Australia, and Shell Australia.

^13. The larger equity stake allowed Chinalco to exercise veto power over the ‘Great Acquisition’.

^14. Days after making the 2009 offer to increase Chinalco’s stake in Rio Tinto, Chinalco’s President XiaoYaqing was ‘promoted’ to a new post in China’s cabinet.

^15. Available at http://www.riotinto.com. Accessed June 30, 2013.

^16. In the event, the proposed joint venture between Rio Tinto and BHP-Billiton did not proceed.

^17. Lynas was targeted by CNMC in 2009, but CNMC ultimately withdrew its offer as it saw conditions imposed by the Foreign Investment Review Board as intolerable: see for example http://www.abc.net.au/lateline/business/items/200909/s2695949.htm.