A Few Suggestions For CFIUS Reform

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Here’s a weekend recommendation for those of you interested in China outbound investment to the United States. As you know, the national security gatekeeper in the U.S. is a body called the Committee on Foreign Investment in the U.S., or CFIUS.

CFIUS has made many prominent appearances on this blog, including in several posts in 2012 concerning the Ralls wind farm purchase by a group associated with Sany, a deal that ultimately had to be unwound. There are many critics of CFIUS, including quite a few in China, and no shortage of opinions on how the body should be reformed.

Derek Scissors, a China scholar at the U.S. Heritage Foundation, has a great post on the topic of CFIUS reform that includes an easily digestible summary of the problems with CFIUS and a list of suggested changes.

To whet your appetite, here is the list of policy fixes:

  • The CFIUS mandate should be extended to all types of transactions involving foreign entities. As part of this expansion, it should be extremely easy for investors to contact specific CFIUS personnel to ask questions and, if necessary, provide information.
  • CFIUS should keep salient foreign firms apprised on a regular basis and whenever there is a material development.
  • CFIUS should regularly provide to Congress classified and declassified lists of transactions it is currently reviewing and has recently reviewed. In turn, initial congressional communication with CFIUS should be kept confidential, since these are matters of national security.
  • With its expanded mandate, CFIUS should retain a maximum time by which any action should be taken. There should be public performance metrics for CFIUS, including average time to complete a review.
  • The U.S. should formulate a more precise definition of “national security” for use by CFIUS, thus offering a solution to a major global issue.

I’m pretty much on board with everything Scissors says in his article, in particular his calls for greater transparency and discussion on the role of Congress in initiating CFIUS reviews. Scissors’ notes that the U.S. government, on behalf of U.S. companies, routinely calls on foreign nations to meet certain standards when it comes to transparency and open markets. The fact that with CFIUS, America fails to live up to those standards, is an uncomfortable truth.