OPEN INVESTMENT

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OPEN INVESTMENT and the Committee on Foreign
Investment in the United State (CFIUS)

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• Foreign Direct Investment
• In the United States

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The United States is a Staunch Supporter of Open
Investment
The United States unequivocally supports
international investment in this country and is
equally committed to securing fair, equitable,
and nondiscriminatory treatment for U.S.
investors abroad - President George W.
Bush May 10, 2007

• Foreign Direct Investment into the United States
• Equals 15 of U.S. GDP (1.9 trillion stock in
  2005)
• Employs 4.5 of U.S. private sector (5.1 million
  in 2005)
• - provides for 4.6 million additional U.S. jobs
  indirectly
• Pays 30 higher compensation than the U.S.
  average
• Generates 13 of RD spending (30 billion)
• Accounts for 19 of U.S. exports (153.9 billion)

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FDI in the U.S. Committed to a Level Playing
Field

• Non-discrimination Committed to national
  treatment and most-favored-nation treatment
  across nearly the entire economy
• Transparency Administrative Procedures Act
  provides for notice comment on proposed
  regulations and publication of final regulations
• Administrative-judicial process Efficient,
  predictable, and transparent

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FDI in the U.S. Key Legal Prohibitions
Exceptions to U.S. nondiscriminatory treatment of
FDI are few, transparently disclosed, and
generally cannot be expanded, per our trade
commitments

• Energy Prohibition on licenses for nuclear
  energy enrichment operations
• Communications 25 foreign equity cap for
  broadcast, common carrier, and radio licenses
• Air Carriers 25 foreign equity cap
• Maritime Transport No majority share in US
  vessels 25 foreign equity cap for coastal
  shipping companies

Also Several exceptions to U.S. WTO commitments
for state-level measures, but these apply only
to purely intra-state commerce

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FDI in the U.S. Non-Discriminatory Business
Regulations

• Doing business Both foreign-owned domestic
  businesses are subject to nondiscriminatory
  federal regulations, depending on their
  activities/sector
• Key regulatory clearances that are relevant to
  FDI transactions
• Antitrust DOJ and FTC conduct 30-day reviews of
  large mergers
• Securities SEC requires disclosure of
  information about registered debt and equity, as
  well as about public companies and their sale
• Defense DOD issues facility security
  clearances and, clears foreign acquisitions of US
  firms with classified contracts
• Cross-border flows Commerce State regulate
  dual-use and military-use exports, and DHS
  regulates imports and immigration visas
• Communications FCC approves telecom mergers and
  licenses
• Financial Federal Reserve, OCC, SEC issue
  bank/brokerage licenses and review mergers
  impose non-discriminatory prudential regulations
• Other sectoral clearances Depending on the
  sector, other agencies may require licenses or
  clearance, including DOT, DOE, FERC, etc.

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• U.S. Government Roles in
• Investment Policy

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Role of the Congress

• Congress addresses broad investment policy
  issues
• Trade Agreements Congress (1) sets negotiation
  objectives and approves trade agreements with
  other countries and (2) ratifies bilateral
  investment treaties
• Investment Review By statute, Congress
  authorized the Executive Branch to conduct
  reviews through CFIUS
• Oversight Congress conducts oversight of
  particular Executive Branch actions
• Compliance with Free Trade Agreement objectives
• CFIUS reports to Congress on transactions only
  after they have been reviewed

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Role of the Executive Branch

• The Executive Branch conducts U.S. trade policy
  and implements trade investment laws enacted by
  Congress
• Trade Agreements Negotiates trade agreements
  and investment treaties with other countries
• Investment Reviews Conducts reviews of certain
  foreign investment transactions to identify
  national security concerns
• Reports Reports to Congress on meeting trade
  objectives and the results of concluded CFIUS
  reviews

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• Committee on Foreign Investment
• in the United States (CFIUS)

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CFIUS Purpose

• Review of foreign acquisitions of U.S.
  businesses, to resolve any national security
  risks
• Limited to acquisitions that result in foreign
  control
• Does not consider U.S. national economic
  interests
• President alone has power to prohibit
  transactions
• CFIUS may recommend that President prohibit
• President has prohibited only one transaction (in
  1990)
• Foreign Investment National Security Act of
  2007 (FINSA)
• Signed into law July 26 becomes effective
  October 24
• Amends 1988 Exon-Florio legislation under which
  CFIUS operates
• Maintains CFIUS fundamental open-investment
  characteristics

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CFIUS Membership

• Eight Executive Departments
• Treasury Department (chair)
• State Department
• Commerce Department
• Defense Department
• Justice Department
• Homeland Security Department
• Energy Department
• Labor Department (ex-officio)

• Seven White House Agencies
• U.S. Trade Representative
• Office of Science Technology
• Office of Management Budget
• Council of Economic Advisors
• National Economic Council
• National Security Council
• DNI (ex-officio)

New member per FINSA
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CFIUS Overview of a Disciplined Process

• Selective CFIUS reviews less than 7 of MA
  transactions in the U.S. involving a foreign
  acquirer and a domestic target
• Seeks to resolve any concerns, not prohibit
  transactions
• Only 16 of 113 cases in 2006 resulted in
  mitigation agreements, most of which imposed only
  minor burdens on the companies
• Efficient Over 80 of transactions reviewed by
  CFIUS are approved within 30 days, without any
  requirements imposed
• Narrow focus Reviews are limited to national
  security risks posed by the specific transaction
  not broader factors like national interest,
  economic security, or industrial policy

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CFIUS Reviews Only Select Transactions
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CFIUS Efficient Process

• 113 filings in 2006

• 7 cases in 2006 (6 of caseload)

• 2 cases in 2006 (1.8 of caseload)
• Neither transaction was prohibited

Transactions reviewed by CFIUS receive safe
harbor if CFIUS or the President takes no action
against them within the specified time limits
(with only limited exceptions, for certain
material misconduct by the filing parties)
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CFIUS Narrow Focus on National Security

• CFIUS considers only transaction-specific effects
  on national security, not broader national
  security policy or other priorities
• 1988 law enumerates several national security
  factors
• FINSA enumerates additional national security
  factors that CFIUS already considers when
  relevant

• 1988 Exon Florio statute
• Domestic production and capability for projected
  defense needs
• Capability of U.S. to meet national security
  needs
• Sale/diversion of military technology to certain
  countries
• U.S. technology leadership in areas affecting
  national security

• FINSA adds
• Security-related impact on critical
  infrastructure/technology
• Greater emphasis on foreign-government control
• Whether acquisition by SOE poses risk, given
  states record on nonproliferation,
  counter-terrorism, technology diversion
• Impact on long-term energy/ critical resources
  needs

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FINSA Improves CFIUS Process While Maintaining
its Open Investment Orientation

• Maintains CFIUS fundamental open-investment
  orientation
• Maintains very selective focus on cases that
  raise genuine national security issues (with no
  mandatory filing)
• Formalizes current practice of seeking to resolve
  concerns, rather than prohibit transactions
• Maintains current strict deadlines for CFIUS and
  Presidential action
• Reaffirms Congressional trust in CFIUS
• No reporting to Congress is required until after
  a case is concluded
• And Congress is subject to confidentiality laws
• Significant post-decisional and annual reports to
  Congress
• Improves high-level accountability
• Deputy Secretary must sign off on closure of any
  second-stage investigation, all cases involving
  foreign government control, and certain cases
  involving critical infrastructure
• Assistant Secretary must sign off on closure of
  all other cases
• Treasury Department and any lead agency it
  appoints for a case have formal accountability to
  Congress

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FINSA Key Dates

• July 26, 2007
• October 23, 2007
• October 24, 2007
• April 22, 2008
• April 22, 2008

• President signs FINSA into law
• Treasury hosts public meeting to seek comments on
  CFIUS process
• FINSA becomes effective
• Final regulations must be published
• Guidance must be published on the types of cases
  that have raised national security considerations

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CFIUS Foreign Government Control

• Foreign government control requires higher-level
  accountability
• 1988 law and FINSA both require 2nd-stage
  investigation of such cases unless CFIUS
  affirmatively determines there are no national
  security concerns
• FINSA requires Deputy Secretary to close out such
  cases, whereas Assistant Secretary closes out
  other cases
• CFIUS clears vast majority of foreign
  government-control cases
• 157 transactions reviewed since 1992 (14 of
  CFIUS caseload)
• 20 included mitigation agreements (13)
• 11 proceeded to investigation (7)

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CFIUS Companies Best Practices

• Prefiling Providing information to CFIUS before
  filing a formal notice, to ensure that the notice
  is complete
• Stakeholder briefing Increasingly discussing
  potentially controversial transactions with
  Congress
• Business purpose Demonstrating that the
  transaction is driven by a commercial rationale
• Problem-solving mentality Seeking to address
  national security concerns proactively