How the CFIUS works and its significance in future U.S. business dealings with allied states.
On December 18, 2023, Japanese steel manufacturer Nippon Steel announced its agreement to acquire U.S. Steel for $14.9 billion.[2] According to the World Steel Association, Nippon Steel’s acquisition of U.S. Steel would propel the company into third place amongst the world’s largest crude steel producers; Nippon Steel’s production is currently the fourth largest in the world while U.S. Steel’s comes in at 27th.[3] The acquisition would create a base for the production of automotive steel in the U.S., thus allowing Nippon Steel to have a greater hand in the American market.[4] In response to the announcement, members of Congress and U.S. President Joe Biden have called for serious scrutiny of the deal, expressing particular concerns regarding national security interests and supply chain reliability.[5] The primary question sparked by the acquisition is how the U.S. government can investigate the deal to make sure it will not significantly harm American economic interests, given U.S. Steel’s significant influence on the American economy and job market.
The main answer to this question is the Committee on Foreign Investment in the United States (CFIUS), an interagency committee within the U.S. government that assesses the national security implications for foreign acquisitions of and direct investments in U.S. businesses.[6] Former U.S. President Gerald Ford established the CFIUS through Executive Order in 1975.[7] The Committee’s review process for foreign investments was codified by the 1988 Exon-Florio amendment to the Defense Product Act before the Committee itself was codified in the U.S. Code by the Foreign Investment and National Security Act of 2007.[8] The Committee examines possible threats arising out of foreign transactions, sources of vulnerability among U.S. businesses engaging in foreign transactions, and potential consequences for national security should foreign parties exploit identified vulnerabilities.[9] The CFIUS has the authority to review any transaction that could result in a foreign actor controlling a U.S. business.[10] The Committee cannot “suspend or prohibit” transactions it recognizes as posing a threat to national security, but it can make recommendations to the President for further action.[11] The CFIUS is the best answer to the question of how the U.S. government can review the Nippon Steel deal because it is the governmental body with the most authority and latitude to scrutinize these types of transactions. The CFIUS serves as a vital tool to aid U.S. presidents in exercising executive authority over business transactions of particular national importance.
In the past, there have been four general categories of transactions that the CFIUS has investigated, including those involving: (1) the nature of the U.S. business, (2) the identity of the foreign person, (3) foreign government control, and (4) corporate reorganizations.[12] In the case of Nippon Steel’s acquisition of U.S. Steel, any future investigation from the CFIUS would likely fall into the nature of the U.S. business category. Historically, investigations based on the identity of the foreign person involved actors from countries the U.S. government considers adversarial such as China. These cases have involved a wide variety of transactions such as the acquisition of dating app Grindr by Beijing Kunlun Tech Co. Ltd. or the construction of wind farms near a U.S. military base in Oregon by Ralls Corporation.[13]
Unlike China, Japan is a crucial U.S. ally both economically and militarily. Therefore, it would be unlikely for an investigation into the U.S. Steel acquisition to be based on the identity of Nippon Steel. Rather, the investigation is more likely to turn on the nature of U.S. Steel and its importance to the U.S. economy. Though the CFIUS has the power to initiate reviews of transactions unilaterally, given Nippon Steel’s statement anticipating a CFIUS review, the company will likely perform a voluntary filing with the Committee and submit to a review.[14] Voluntary filings can help convey a message of transparency and a willingness to cooperate with the U.S. government. A voluntary filing can come in the form of a declaration, a short-form summary with an expedited review, or a notice, which is a more comprehensive submission involving a lengthier review period.[15]
Given the recency of the announcement from Nippon Steel and the clandestine nature of CFIUS investigations, it will be a considerable amount of time before any more news breaks out on whether the U.S. government will approve of the acquisition. However, the deal will likely be successful given the close relationship between the U.S. and Japan and the desire to send a message to other countries promoting foreign investment in the U.S. With the continuing shift to a multipolar international system in the wake of the Pax Americana period, solidifying trade networks among allies has become more crucial than ever. If the U.S. wants to continue its global preeminence economically, then major business deals involving strategic international partners such as Japan are necessary steps to maintain this position. Thus, while likely to undergo CFIUS review, Nippon Steel’s acquisition of U.S. Steel should move forward. Approving the transaction will express the U.S. government’s willingness to allow these types of deals in the name of boosting cooperation with strategic international partners.
[1] Keith Srakocic, photograph of U.S Steel Corp. Edgar Thompson Works in Braddock, Pa., in Marc Levy, US Steel Ends Plans for $1.5B Pennsylvania Plant Upgrades, AP News (Apr. 30, 2021, 6:38 PM), https://apnews.com/article/pennsylvania-health-coronavirus-business-government-and-politics-0e7742f8d7b5fd1f167faeb1a13460f9.
[2] Nikkei Asia Staff Writers, Nippon Steel to Buy U.S. Steel for Over $14bn, Nikkei Asia (Dec. 18, 2023, 5:36 AM) https://asia.nikkei.com/Business/Business-deals/Nippon-Steel-to-buy-U.S.-Steel-for-over-14bn.
[3] See id. Crude steel is a form of steel that is in its first solid state after melting. See id.
[4] See id.
[5] Doug Palmer, Biden Believes Nippon Purchase of U.S. Steel Deserves ‘Serious Scrutiny,’ Politico (Dec. 21, 2023, 6:00 PM) https://www.politico.com/news/2023/12/21/biden-nippon-purchase-u-s-steel-00132964.
[6] CFIUS Overview, Cooley, https://www.cooley.com/services/practice/cfius/cfius-overview (last visited Feb. 19, 2024).
[7] See id.
[8] See id.
[9] See id.
[10] See id.
[11] Id.
[12] See CFIUS Reform: Guidance on National Security Considerations, U.S. Dep't Treas. (Dec. 1, 2012), https://home.treasury.gov/system/files/206/GuidanceSummary-12012008.pdf
[13] See The Associated Press, Obama Blocks Chinese Purchase of Small Oregon Wind Farm Project, Oregonian: OregonLive (Sep. 28, 2012, 8:31 PM), https://www.oregonlive.com/environment/2012/09/oregon_wind_farm_purchase_by_c.html; see also Echo Wang, China’s Kunlun Tech Agrees to U.S. Demand to Sell Grindr Gay Dating App, Reuters (May 13, 2019, 5:19 PM) https://www.reuters.com/article/us-grindr-m-a-beijingkunlun/chinas-k...h-agrees-to-u-s-demand-to-sell-grindr-gay-dating-app-idUSKCN1SJ28N/.
[14] See Palmer, supra note 5.
[15] See CFIUS Overview, supra note 6.
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