Incorporating the third branch of government into U.S. national security review of foreign investment.

• Author: Wang, Yang

1. INTRODUCTION II. THE HISTORY OF FINSA AND THE EXECUTIVE POWER A. The Evolution of the CFIUS Review; From Exon-Florio to FINSA B. The Procedure of the CFIUS Review and Investigation III. "UNCHARTED WATERS": THE RALLS CASE AND ITS CHALLENGES TO FINSA'S NO-JUDICIAL-REVIEW PROVISION A. The Ralls Case B. Ralls's Constitutional Challenges to the No Judicial-Review Provisions IV. THE SCOPE OF JUDICIAL REVIEW A. Ralls's Strategy; The Jurisdiction Over Constitutional Rights B. Antitrust Review C. The Jurisdiction Over Agency Procedure V. COMPARATIVE ANALYSIS OF COURTS' INTERPRETATIONS OF NO-JUDICIAL-REVIEW PROVISIONS IN OTHER TRANSNATIONAL STATUTES A. The Military Commissions Act B. The NAFTA Implementation Act (NIA) and the Uruguay Round Agreements Act (URAA) C. U.S. Export Regulations' Judicial Review Ban VI. THE PURPOSE OF JUDICIAL REVIEW IN SHIELDING THE CFIUS PROCESS FROM POLITICIZATION VII. CONCLUSION I. INTRODUCTION

   In March 2012, the Ralls Corporation (Ralls), a Delaware corporation owned by a private Chinese company, Sany Group (Sany), bought four wind farms in Oregon. (1) Planning to construct its wind turbines (2) on the farms and demonstrate their "quality and reliability" to the U.S. wind energy industry, (3) the company believed in its ability to bring renewable energy to the United States and to create jobs for American workers. (4) However, following a national security review by the Committee on Foreign Investment in the United States (CFIUS), Ralls received an order from President Obama commanding the company to divest its acquisition of the wind farms. (5) Other than citing a broad concern for "national security," the U.S. government refused to divulge the basis of its concern. (6)

   The Foreign Investment and National Security Act of 2007 (FINSA), a federal statute little known outside the merger and acquisition circle, controls the fate of foreign firms seeking to invest in the United States. (7) The statute authorizes the President, acting through CFIUS, to review, suspend or prohibit a foreign transaction "that threatens to impair the national security." (8) The statute does not define "national security," but provides several general factors such as the possibility that a foreign company may obtain sensitive technology or may dominate an industry deemed critical to national defense. (9)

   Nor does the statute require the President to provide even a scant explanation to an investor as to why a particular transaction may threaten national security. (10) In the Ralls case, some experts attribute CFIUS's decision to the wind farms' proximate location to a military base. (11) Others hazard a guess on a perceived threat from the rising economic power of China and the U.S. government's attempt to protect U.S. energy from foreign control. (12) While one would think that these factors explain CFIUS's decision, other decisions caught investors by surprise. (13) In July 2012, CFIUS cleared a Chinese company's acquisition of Canada-based petroleum company Nexen. (14) The Chinese state-owned petroleum giant CNOOC tendered a $15.1 billion cash offer to acquire Nexen, including its offshore oil fields in the Gulf of Mexico. (15) One of the fields is less than fifty miles from the Naval Air Station Joint Reserve Base at Belle Chasse, Louisiana and near subsea telecommunications cables. (16) The deal presents almost the same security sensitive features as the Ralls acquisition, namely, a Chinese company acquiring U.S. energy assets located near a military base, yet it finally went through. (17) CNOOC, a traditional state-owned enterprise, should have undergone more scrutiny under FINSA's expressed concerns for a "foreign government-controlled transaction" than Sany-owned Ralls, a representative of China's private sector. (18)

   Under the name of "national security," the executive branch does not offer a procedure to explain its rationale or to give a chance for the affected investors to rebut. (19) FINSA explicitly exempts the President's "findings and actions" from judicial review. (20) Confused and baffled by the decision, Ralls sued CFIUS and the President in federal court, challenging the constitutionality of the judicial review ban. (21) The Court of Appeals for the D.C. Circuit asserted jurisdiction over Ralls's procedural due process claim despite the no-judicial-review language in FINSA. (22) The court held that the President's decision deprived Ralls's property interest without due process of law. (23) For the first time, a foreign investor challenged the no-judicial-review provision of FINSA in any federal court, raising thorny questions concerning the fundamental fairness of the national security review process. (24) Although U.S. officials have repeatedly proclaimed that the United States encourages foreign investments the lack of transparency in the reviewing process argues just the opposite. (26) Ralls Corporation's board declared that the reason to sue was not about the monetary loss, (27) but about "dignity" (28) and the stigmatizing effect of the President's decision on the corporation's reputation. (29)

   This Comment argues that judicial review is constitutionally mandatory in protecting individual rights and in bringing necessary checks and balances to the national security review process. Starting with this introduction, the Comment first recapitulates the history of the presidential power in foreign investment in Part II, and evaluates the Ralls case and its constitutional challenges to FINSA's no-judicial-review provision in Part III. In Part IV, the Comment explores the scope of judicial review from the perspectives of constitutional rights, reviewability of antitrust concerns, and administrative procedure. In Part V, the Comment ventures into a larger picture by comparing FINSA with other transnational statutes that face similar constitutional issues, and conjectures how courts will interpret FINSA's no-judicial-review provision. Part VI discusses the policy purpose of judicial review in shielding CFIUS review from politicization. Finally, the Comment concludes with the suggestion to incorporate the third branch of government into the national security review process.

2. THE HISTORY OF FINSA AND THE EXECUTIVE POWER

   It is a well-settled notion that foreign investment plays a vital role in the American economy, but the path of the United States' open investment policy has endured several pushbacks. (30) The fear that foreign entities could control "strategic" U.S. industries has prompted a few legislative attempts to block foreign mergers and acquisitions. (31) This part discusses the history of the CFIUS review corresponding to the perceived threat of "national security" and the current procedure of the CFIUS review and investigation.

   1. The Evolution of the CFIUS Review; From Exon-Florio to FINSA

      Fearing that Arab petrodollar investment might take over key U.S. industries, President Gerald Ford issued Executive Order 11858, which created the Committee on Foreign Investment in the United States (CFIUS) in 197 5. (32) The committee originally served to monitor the impact of foreign direct investment into the United States. (33) Congress also enacted the International Economic Emergency Powers Act (IEEPA) in 1977, which authorized the President to investigate and prohibit any transaction involving a foreign country or a foreign national subject to U.S. jurisdiction. (34) However, the IEEPA requires the President to declare a national emergency in response to an "unusual and extraordinary threat" posed by the country or transaction. (35) In fact, Presidents have generally avoided using this power to block foreign transactions--it would amount to "a hostile declaration against the country involved." (36)

      In the 1980s, the national security concern shifted to America's competitiveness in emerging technology sectors due to the Japanese investment in fields like semiconductors. (37) Congressman Florio of New Jersey proposed the Exon-Florio Amendment to the Defense Production Act of 1950 as a part of the Omnibus Trade and Competitive Act of 1988. (38) The Amendment essentially gave the President similar powers as IEEPA, but obviated the need to first declare a national emergency. (39) The amendment also delegated the President's initial review, decision-making authorities, and investigative responsibilities to CFIUS, the interagency committee established by President Ford's presidential order in 1975. (40) After CFIUS completed its investigation, the committee made its recommendations to the President. (41) The President then had the discretion to block the sale of a U.S.-owned company to a foreign-funded entity if the President found "credible evidence" that "leads the President to believe that the foreign interest exercising control might take action that threatens to impair the national security" and no other provisions of law, other than IEEPA, "in the President's judgment provide adequate and appropriate authority." (42)

      Other than granting greater flexibility to the President than IEEPA, Exon-Florio differs from IEEPA by explicitly exempting the President's "findings" from judicial review, (43) even though IEEPA deals with more urgent situations entailing "unusual and extraordinary threat" and declaration of "a national emergency." (44)

      The Exon-Florio Amendment does not define "national security," but lists several factors for CFIUS and the President to consider in determining whether a transaction poses a threat to national security:

      (1) domestic production needed for projected national defense requirements;

      (2) the capability and capacity of domestic industries to meet national defense requirements, including the availability of human resources, products, technology, materials, and other supplies and services;

      (3) the control of domestic industries and commercial activity by foreign citizens as it affects U.S. capability and capacity to meet national security requirements;

      (4)...