In recent years, many companies around the world have felt that the US government's scrutiny of foreign investment has become increasingly tight, and even generalized the concept of national security, unreasonably suppressed specific fields and enterprises in other countries, and

In recent years, many companies around the world have felt that the US government’s censorship of foreign investment is becoming increasingly tight, and they have even generalized the concept of national security, unreasonably suppressed specific fields and enterprises in other countries, and disrupted the international economic and trade order.

Freshfields released its annual Foreign Investment Monitoring Report (hereinafter referred to as the "Report") on the 15th. Due to the increase in mergers and acquisitions and the increase in review by the Commission on Foreign Investment (CFIUS), the number of cases reviewed by the agency this year has increased sharply. It is estimated that the number of cases discussed by CFIUS this year will be about 40% to 50% more than last year. Meanwhile, the report believes that in the future, CFIUS may gain access to the power to review broader non-controlled investments involving sensitive technologies. Donald F. McGahn II, head of government rules at Zhongda Law Firm and Trump , Trump , legal counsel during the administration, wrote in an article that traditionally unacceptable "national security" industries such as medicines and medical devices, personal finance, education, entertainment and social media are now within the sight of CFIUS.

At the regular press conference of the Ministry of Foreign Affairs on the 15th, Foreign Ministry spokesman Zhao Lijian said that China has always opposed the US's generalization of national security concepts and unreasonable suppression of Chinese companies. At the same time, he said that he will continue to resolutely defend the legitimate and legitimate rights and interests of Chinese companies.

review scope is getting wider and wider

On the 13th of this month, Magnachip, a US and Korean company listed in the United States, issued an announcement stating that due to the failure to pass CFIUS's security review, Zhilu Capital's acquisition transaction was terminated, and this market-driven corporate acquisition cooperation was disrupted by CFIUS.

Brandon L. Van Grack, co-director of national security and crisis management at Morrison Foerster, USA, commented that the substantive elements of Megner's business, such as management, sales activities, production and R&D, are outside the United States, and there are no tangible assets or information technology systems located in the United States. The U.S. government ignores CFIUS's history and past statements about jurisdiction. "The U.S. government seems to have taken a more aggressive understanding of its jurisdiction to achieve the expected results," Van Glake said. Aimen Mir, partner of Fuerde antitrust business, told the Finance reporter: "The concept of national security has been covering a wider range in the past few years. In the past, there were many discussions on the differences between the concepts of national interests, national economic interests, and national security. However, the past two U.S. governments have been emphasizing that economic security is national security. Of course, this is also because the structure of the entire economy has changed greatly in the past decade."

Mir told the

Mir that in the past, CFIUS's view was that the assessment of the issue of national security should be based on the specific situation of each transaction, not just focusing on a specific industry. He also confessed that in the past few years, foreign investment in areas such as key technologies, critical infrastructure and sensitive personal data has indeed been under strong scrutiny, and now the attention may only increase. Moreover, specific measures and methods regarding these areas have been written into the law.

He said that the United States is now reviewing not only cases in the technology field, but also paying attention to related transaction categories of supply chain problems caused by the epidemic. In particular, whether self-control and self-sufficiency can be achieved in some areas has also aroused the concern of the US government.

McGarn also said that the COVID-19 pandemic highlighted supply chain problems. Therefore, it can be expected that when CFIUS evaluates and reviews foreign investment transactions, the review of some US industrial supply chain-related transactions will be more stringent.

CFIUS review authority increases

Mill told the First Financial Daily reporter: "The phenomenon of increasing CFIUS resources that everyone is seeing is originated from 2018. From 2019 to 2021, CFIUS has indeed gained more and more resources in the past three years. This trend has continued and continued to this Biden administration."

In 2018, the US "2018 Foreign Investment Risk Review Modernization Act" was implemented, and more stringent and specific restrictions were imposed on foreign investment in some specific fields.Brent Connor, shareholder partner at Vedder Price, commented: "Due to the complexity and ever-changing regulations, parties often do not know that their transactions should be reported to CFIUS. The 2018 bill greatly expanded CFIUS's power to review transactions, including some non-controlled transactions and foreign investments." The

report pointed out that shortly after the new regulations came into effect at the end of 2018, the resources obtained by CFIUS began to increase and brought about a series of changes, many of which may have a greater long-term impact than the developments in legislation in 2018. However, despite the increase in staffing, CFIUS has a much less workload in the last two years of 2018 than many expected. The number of reviewable documents rose from just 250 in 2018 to 313 in 2020. According to the report, CFIUS has established a new accelerated declaration process during this period.

"In 2021, the total number of CFIUS review cases may increase by 50% compared with the previous year." Mill explained, "On the one hand, this is because the number of cases entering the United States for mergers and acquisitions has increased. On the other hand, CFIUS has also gained more resources, especially CFIUS staffing has increased significantly."

According to statistics from 2020, the overall proportion of CFIUS issued notifications (12% to 14%) in the past few years, but CFIUS has greatly lowered the threshold for action, far lower than most non-U.S. jurisdictions, and there are few substantial "mitigation" or "ban" measures in other regions.

mil told the First Financial reporter that there should be no greater changes in the CFIUS authority or its review process in the future. But the report also pointed out that regulatory changes may move with changes in the international economic environment. The U.S. Congress has proposed some suggestions to modify CFIUS authority, including granting the agency the authority to review Greenland's investment in , and requiring it to review transactions involving sensitive personal data, as well as paying attention to risks in food and agricultural investment.