Treasury officials are looking at ways to impose tougher conditions on Chinese firms using legislation that underlies CFIUS, which currently vets foreign takeovers on a case-by-case basis. But they are also weighing the use of a law that enables the president to regulate commerce in a national emergency, according to two of the people.
The International Emergency Economic Powers Act, enacted in 1977, allows the president to declare a national emergency in response to an “unusual and extraordinary threat.” After declaring such an emergency, the president can block transactions and seize assets.
“It’s never been used in connection with unfair trade practices, but it’s broad enough that you could put restrictions on a wide variety of transactions,” said Christian Davis, an international trade lawyer at Akin Gump Strauss Hauer & Feld LLP in Washington.
Strict Reciprocity
The Trump administration is considering enforcing strict reciprocity on Chinese acquisitions, meaning U.S. regulators would only approve deals in sectors in which American companies are allowed to invest, according to two of the people familiar with the matter. China restricts or bans foreign investment in a range of industries, from car manufacturing to telecoms providers and rare-earth exploration.
The Trump administration hasn’t finalized its plans, and the options under consideration could still change, the people familiar with the matter cautioned.
Enforcing sweeping bans on Chinese investment would mark a major departure from the existing CFIUS process, which reviews individual transactions to determine if it threatens U.S. national security. The administration could use CFIUS legislation to declare a policy that Chinese investment won’t be allowed in entire industries deemed sensitive, such as microchips and telecommunications, said Davis, the Akin Gump lawyer.
“The question is how different is that from what CFIUS is doing already with respect to Chinese investments in sensitive sectors. Depending on how these restrictions are implemented, the answer may be not much,” he said.
Republican Senator John Cornyn and Republican House member Robert Pittenger have introduced legislation that would expand the power of CFIUS to review foreign investments. Mnuchin has been supportive of the bill, which would broaden the scope of reviewable technologies to include investments in “critical” technologies.
Acquisitions by Chinese firms in the U.S. fell to $31.8 billion last year from $53 billion the year before, according to Bloomberg data.
This article was provided by Bloomberg News.