Karl P. Sauvant, PhD
Resident Senior Fellow

Columbia Center on Sustainable Investment
Columbia Law School - The Earth Institute, Columbia University
435 West 116th St., Rm. JGH 825, New York, NY 10027
p(212) 854 0689 | cell: (646) 724 5600 e: [log in to unmask] | t: @CCSI_Columbia

"International Investment Facilitation: By Whom and for What?", "Moving the G20's Investment Agenda Forward", "Emerging Markets and the International Investment Law and Policy Regime", "Sustainable FDI for Sustainable Development", "Towards an Investment Facilitation Framework: Why? What? When?", "Beware of FDI Statistics!", "Towards an Indicative List of FDI Sustainability Characteristics", “The Importance of Negotiating Good Contracts", "A New Challenge for Emerging Markets: the Need to Develop an Outward FDI Policy”, "China Moves the G20 toward an International Investment Framework and Investment Facilitation", "The Next Step in Governance: The Need for Global Micro-regulatory Frameworks", and "The Evolving International Investment Law and Policy Regime: Ways Forward" are available at and

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Columbia FDI Perspectives

Perspectives on topical foreign direct investment issues
No. 231  July 30, 2018

Editor-in-Chief: Karl P. Sauvant ([log in to unmask])
Managing Editor: Marion A. Creach ([log in to unmask])
The Committee on Foreign Investment in the United States (CFIUS) screens proposed takeovers of US companies by foreign companies to assess whether such acquisitions might threaten US national security.
Principal CFIUS concerns are: 1) leakage of sensitive military or intelligence or dual-use technology to foreign companies or their home country governments; 2) provision of information technology (IT) access so that foreigners might conduct surveillance or sabotage via back-doors in IT systems; and 3) offering foreign companies or their home country governments quasi-monopoly control over goods and services that they may deny to US users.
Foreign investment in the US—including foreign investment via acquisitions—is generally very beneficial to the US. Foreign companies bring good jobs, cutting edge technology and high quality-control procedures to the US economy. The US-based employees of foreign-owned MNEs earned an average income of US$79,979 in 2013.[1] 12% of all US productivity increases over the past two decades have come from spillovers from foreign companies investing in the US domestic economy.[2]
The CFIUS process is chaired by the US Treasury, which is disposed to welcome inward FDI in all forms unless plausible threats to US national security can be clearly identified. CFIUS rejections of foreign acquisitions are quite rare—only four in the past twenty years—although companies sometimes withdraw their acquisition proposals when they are unable to mitigate CFIUS concerns.
Congress and the White House are now proposing a fundamental “reform” of CFIUS regulations, via the Foreign Investment Risk Review Modernization Act (FIRRMA). These new “reform” recommendations would change CFIUS in three problematic areas.
First, FIRRMA would replace CFIUS’s traditional narrow approach to identifying potential national security threats from specific acquisitions within industries to identifying entire sectors of the US economy where foreign acquisitions from countries such as China and Russia should be prohibited. For example, CFIUS has previously rejected Chinese acquisitions of semiconductor companies that possessed technology crucial to improving anti-missile radar systems (gallium nitride technology). Under FIRRMA, the entire semiconductor industry could be placed out of bounds for Chinese or Russian acquisitions.
Second, FIRRMA directs CFIUS to investigate “the potential effects of the covered transaction on United States international technological and industrial leadership in areas affecting United States national security, including whether the transaction is likely to reduce the technological and industrial advantage of the United States relative to any country of special concern” (italics added).[3]
Excluding whole sectors, industries and areas of the US economy from foreign acquisitions, even if limited to foreign investment from a handful of specific countries (China, Russia, possibly others), so as to prevent erosion of US industrial and technological superiority, would unavoidably put the US government in the business of designing a national industrial policy.  This approach would require the US government to select some sectors to be protected, while designating other sectors to be open to foreign acquisitions.   Such a move opens the door to a political process for which there is no logical end in sight.
Not only would the prevention of foreign acquisitions within whole industries exclude valuable technological and managerial inputs from external investors from entering broad segments of the US economy, but the change in the US approach would justify copycat sector-wide or area-wide exclusions on the part of other countries. Government authorities in Europe and Asia might well adopt mirror-image policies to avoid loss of industrial or technological leadership.  Once the rationale to prevent the erosion of industrial or technological leadership becomes accepted as legitimate, could the effort be limited to foreign acquisitions involving only a few countries?
Third, FIRRMA proposes an extremely dangerous expansion of CFIUS authority to review commercial sales, joint venture arrangements and normal business licensing of intellectual property by US companies to foreigners.  FIRRMA permits CFIUS to screen commercial practices even if the sales and licenses involved are not covered for national security reasons by the US export control regime.
It is important that Congressional revisions of CFIUS authority be refocused on specific national security threats that might plausibly arise from individual acquisitions rather than excluding entire industries and sectors of the US economy from foreign acquisitions, even if initially limited to China and Russia.  At the same time, the objective of protecting US industrial supremacy across the entire frontier of technologies in a zero-sum manner should be rejected as the basis for US FDI policy.
Finally, CFIUS should be removed from interfering in normal sales and licensing of US intellectual property, and joint venture business relationships, when there is no national security rationale for prohibiting such.
In the end, a reformed-CFIUS should mirror the old-CFIUS, perhaps embedded in a bit of non-substantive nationalistic rhetoric.
The result would be an appropriately calibrated balance between keeping the US economy open to the benefits from foreign investment without jeopardizing US national security in the process. 
* The Columbia FDI Perspectives are a forum for public debate. The views expressed by the author(s) do not reflect the opinions of CCSI or Columbia University or our partners and supporters. Columbia FDI Perspectives (ISSN 2158-3579) is a peer-reviewed series.
** Theodore H. Moran ([log in to unmask]) is Nonresident Senior Fellow, Peterson Institute for International Economics. The author is grateful to Mark Kantor, Daniel Rosen and David van Boven for their helpful peer reviews.
[2] Ibid. p. 5.
[3] FIRRMA, section 15.
The material in this Perspective may be reprinted if accompanied by the following acknowledgment: “Theodore H. Moran, ‘CFIUS reforms must be reformed,’ Columbia FDI Perspectives, No. 231, July 30, 2018. Reprinted with permission from the Columbia Center on Sustainable Investment (” A copy should kindly be sent to the Columbia Center on Sustainable Investment at [log in to unmask].
For further information, including information regarding submission to the Perspectives, please contact: Columbia Center on Sustainable Investment, Marion A. Creach, [log in to unmask].
  • No. 230, Carlos A. Primo Braga, “Foreign direct investment and ‘peak globalization’,” July 16, 2018
  • No. 229, John Gaffney, “Could BITs and BATs be combined to ensure access to human rights remedies?” July 2, 2018
  • No. 228, Felipe Hees and Pedro Barreto da Rocha Paranhos, “Investment facilitation: moving beyond investment promotion,” June 18, 2018
All previous FDI Perspectives are available at

Other relevant CCSI news and announcements
  • On September 27-28, 2018, CCSI will hold its Annual Columbia International Investment Conference (CIIC) on “Multinationals in the Age of Sustainable Development: New Thinking on the Role of International Investment Agreements.” The Conference, taking place alongside the 73rd Session of the UN General Assembly in New York, will build on a multi-year effort to identify guiding principles and practical approaches for aligning international investment treaties with the Sustainable Development Goals (SDGs). Registration is free but required...for more information, and to register, please visit our website here.
  • On September 26, 2018, CCSI and the UN Sustainable Development Solutions Network (SDSN), under the guidance of Prof. Jeffrey Sachs, Special Advisor to the UN Secretary-General on the SDGs, and Laurent Fabius, President of the Constitutional Council of the French Republic, will host a conference to discuss the Global Pact for the Environment. The Global Pact for the Environment aims to unify international environmental governance and codify a human right to the environment in international law. For more information, and to register, please see our website here.
  • On September 26, 2018, CCSI and the Sabin Center for Climate Change Law will host a conference on "Climate Change, the Courts, and the Paris Agreement." In recent years citizens, sub-national governments and NGOs have turned to litigation to hold governments and corporations accountable for their contributions to climate change. For more information about this event, including registration, please see our website here.
Karl P. Sauvant, Ph.D.
Resident Senior Fellow
Columbia Center on Sustainable Investment
Columbia Law School - Earth Institute
(212) 854-0689
Fax: (212) 854-7946
Copyright © 2018 Columbia Center on Sustainable Investment (CCSI), All rights reserved.
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