The Committee on Foreign Investment in the United States

The Exon-Florio amendment authorizes the President to suspend or  prohibit foreign acquisitions of U.S. companies if they are determined to  pose a threat to national security. Foreign Investment Laws, Policies, and Processes Address National Security Concerns

As is the case in the United States, each of the countries we reviewed has  enacted laws and instituted policies regulating foreign investment—often  to address national security concerns. Restrictions  range from requiring approval of investments in a narrowly defined  defense sector to broad restrictions on the basis of economic security and  cultural policy. Recent and proposed changes in the countries’ laws and  policies have more explicitly identified national security as an area of  concern, in some cases as the result of controversial investments. The two countries without a review process, the Netherlands and the UAE,  restrict entry into certain sectors or restrict the extent of ownership  allowed in a sector. Foreign Investment Review Implementation Has Many Similarities in Different Countries

While there are many unique characteristics to the systems employed by  the 10 countries to regulate foreign investment, in many ways the systems  are similar to each other, and in several ways similar to the CFIUS process  in the United States. Eight of the 10 countries use a formal review process to approve or deny a  transaction. Generally, this review is conducted by a government  economic body with input from government security bodies, and national  security is a primary factor or one of several factors considered in  evaluating transactions. Although the concepts of national security vary  from country to country, all countries share similar concerns about  national security-related issues. These concerns include, for example, their  defense industrial base, and more recently, investments in energy sectors  and investments of state-owned enterprises and sovereign wealth funds;  the latter because of concerns that political rather than economic  motivation may be behind the investment. For example, a country may place national citizenship  requirements on company board members. Unlike the U.S. system, most  countries’ reviews are mandatory if the investment reaches certain dollar  thresholds or if the buyer will obtain a controlling or blocking share in the  acquired company. Finally, unlike in the U.S. process, five countries allow  review process decisions to be challenged in court or through  administrative means. In addition to the formal mechanisms, there are  unofficial factors that may influence investment in each of the 10  countries. Entities within the United Kingdom and the Netherlands have also  expressed concerns about foreign government-controlled investments, but  the governments do not currently have plans to revise their foreign  investment policies to address those concerns. Appendix I: Scope and Methodology

This report expands and updates a 1996 GAO report that compared the  laws and processes governing foreign investment in Japan, France,  Germany, and the United Kingdom. Under FINSA, CFIUS and the President must consider, as  appropriate, the following additional factors:the potential national security-related effects on U. S. critical  infrastructure, including major energy assets;  the potential national security-related effects on U.S. critical  technologies;    whether the transaction is a foreign government-controlled transaction;    as appropriate, and particularly with respect to transactions requiring  an investigation, a review of the current assessment of  the acquiring country’s adherence to nonproliferation regimes;  the relationship of the acquiring country with the United States,  specifically on its record on cooperating in counterterrorism efforts;  and  the potential for transshipment or diversion of technologies with  military applications, including an analysis of national export  control laws and regulations;  the long-term projection of U.S. requirements for sources of energy and  other critical resources and material; and  the potential effects of the transaction on sales of military goods,  equipment, or technology to any country identified by the Secretary of  Defense as posing a potential regional military threat to the interests of  the United States. Additional Foreign Investment Laws and Policies

Other Chinese laws, regulations, and opinions also regulate foreign  investment. Some sectors have additional restrictions and approvals.
Why GAO Did This Study

Foreign acquisitions of U.S. companies can pose a significant challenge for the U.S. government because of the need to balance the benefits of foreign investment with national security concerns. The Exon-Florio amendment to the Defense Production Act authorizes the President to suspend or prohibit foreign acquisitions of U.S. companies that may harm national security. To better understand how other countries deal with similar challenges, GAO was asked to identify how other countries address the issues that Exon-Florio is intended to address. Specifically, this report describes selected countries' (1) laws and policies enacted to regulate foreign investment to protect their national security interests and (2) implementation of those laws and policies. This report updates a 1996 GAO report that describes how four major foreign investors in the United States--France, Germany, Japan, and the United Kingdom--monitored foreign investment in their own countries to protect national security interests. It also examines foreign investment in six additional countries: Canada, China, India, the Netherlands, Russia, and the United Arab Emirates (UAE). GAO reviewed selected laws and regulations and interviewed foreign government officials and others concerning their implementation and any planned changes to their foreign investment laws, regulations, and policies.

What GAO Found

As is the case in the United States, the countries we reviewed have enacted laws and instituted policies regulating foreign investment, often to address national security concerns. However, each of the 10 countries has its own concept of national security that influences which particular investments may be restricted. As a result of the differing concepts, restrictions range from requiring approval of investments in a narrowly defined defense sector to broad restrictions on the basis of economic security and cultural policy. In addition, some countries have recently made changes to their laws and policies to more explicitly identify national security as an area of concern, in some cases as the result of controversial investments. Several countries have also introduced lists of strategic sectors in which foreign investment requires government review and approval. While there are many unique characteristics of the systems employed by the 10 countries to regulate foreign investment, in many ways the systems are similar to each other, and to the U.S. process under Exon-Florio. Eight countries use a formal review process--usually conducted by a government economic body with input from government security bodies--to review a transaction. Generally, national security is a primary factor or one of several factors considered in evaluating transactions. While the concepts of national security vary from country to country, all countries share concerns about a core set of issues. These include, for example, the defense industrial base, and more recently, investment in the energy sector and investment by state-owned enterprises and sovereign wealth funds. Most countries have established time frames for the review and can place conditions on transactions prior to approval. For example, a country may place national citizenship requirements on company board members. However, unlike the voluntary notification under Exon-Florio, most countries' reviews are mandatory if the investment reaches certain dollar thresholds or if the buyer will obtain a controlling or blocking share in the acquired company. Further, unlike the United States, five countries allow decisions to be appealed through administrative means or in court. Two countries do not have a formal review process. The Netherlands restricts entry into certain sectors such as public utilities, and the UAE restricts the extent of ownership allowed in all sectors without a review. In addition to the formal mechanisms, there are unofficial factors that may influence investment in each of the 10 countries. For example, in some countries an informal government preapproval for sensitive transactions may be needed. In commenting on a draft of this report, the Department of the Treasury emphasized the United States' commitment to an open investment policy.