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CONTENTS Overview of CFIUS and the National Security Implications of Investment

The Committee on Foreign Investment in the United States (CFIUS) – Foreign Investment & National Security. CONTENTS Overview of CFIUS and the National Security Implications of Investment Legislation and Key Provisions Case: Huawei’s Failed Attempts to Enter the U.S. Market Policy Proposal.

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CONTENTS Overview of CFIUS and the National Security Implications of Investment

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  1. The Committee on Foreign Investment in the United States (CFIUS) – Foreign Investment & National Security CONTENTS • Overview of CFIUS and the National Security Implications of Investment • Legislation and Key Provisions • Case: Huawei’s Failed Attempts to Enter the U.S. Market • Policy Proposal

  2. CFIUS & Foreign Investment: An Overview • CFIUS is an interagency entity chaired by the Secretary of the Treasury, charged with review of foreign investment (direct & portfolio), its impacts on the U.S., and policy coordination. • CFIUS can investigate a case and propose to prohibit the investment. The president has the final authority. • Historically, CFIUS has made over 200 investigations, prompting only two presidential decisions to block an investment (1990 and 2012); however, several deals have gone south for certain reasons in the midst of an investigation.

  3. Legislation, Regulation, and Executive Orders • Executive Order 11858 (Issued by Ford in 1975; establishes CFIUS) • Exon-Florio Amendment (Passed by Congress in 1988 under the Omnibus Trade & Competitiveness Act) *National Security Component becomes explicit • Executive Order 12661 (Issued by Reagan in 1988, amends E.O. 11858) • Foreign Investment and National Security Act (Passed by Congress in 2007) *Amends the Defense Production Act of 1950; Strengthens CFIUS and Exon-Florio • CFIUS is also regulated by 31 C.F.R. Part 800 (Regulations Pertaining to M&A, and Takeovers by Foreign Persons; outlines CFIUS procedures, deadlines, etc.)

  4. Specific Issue: Huawei Case • The U.S. government has been concerned with Huawei for years. • The Huawei case can be broken down into 4 instances: • 2008: Huawei abandoned a bid for 3Com • 2010: Huawei’s bid to sell equipment to Sprint Nextel • 2011: Huawei divested from purchases of 3Leaf patents • 2014: NSA accused of hacking into Huawei’s network (extra note - not CFIUS-related) • Major Problems: • There is a need to assess the “major implications” of foreign investment where it concerns national interests. *original mandate • There is a need to investigate the national security implications of foreign investment. *expanded mandate • Other Experiences

  5. Policy Proposal There are two competing interests when reviewing foreign investment in the national security context: the economic benefit of the investment vs. a potential breach of national security. Policy can find a better middle ground by: • Establishing a mechanism to remove politics from decisions. • Achieving a fair balance of security and commercial interests on CFIUS. • Making CFIUS more transparent. As for Huawei, a decision on the grounds that the company is tied to the CCP and the PLA ignores the fact that there are extensive ties in similar fashion with other Chinese firms investing in the U.S. However, a decision on the grounds that access to the telecomm sector would provide the preconditions for a breach is logical.

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