Reviewing Cross-Border Mergers and Acquisitions for Competition and National Security: A Comparative Look at How the United States, Europe, and China Separate Security Concerns from Competition Concerns in Reviewing Acquisitions by Foreign Entities
Kevin B. Goldstein
Weil Gotshal & Manges LLP - New York NY Office
June 5, 2011
Tsinghua China Law Review, Vol. 3, p. 215, 2011
This Article takes a comparative look at how governments review cross-border mergers for both competition and national security concerns. In particular, key factors are the institutional mechanisms through which these two reviews are separated or combined and how “national security” is defined in the context of economic activity. The focus is on the three major economic markets: the U.S., the EU (using the example of the UK as a member state), and China, with particular emphasis on China’s rapidly developing system.
In the U.S., antitrust review is wholly separate from the national security review conducted by the Committee on Foreign Investment in the United States (“CFIUS”). In Europe, large mergers are notified to the EC Directorate General for Competition, however individual Member States may raise national security exceptions within the same competition review process. Though China has reviewed foreign investment for years, comprehensive competition review began when the Antimonopoly Law became effective in 2008. Recently, China’s State Council has implemented an interdepartmental national security review system for foreign mergers and acquisitions.
This Article examines the existent U.S. and EU systems alongside the emerging Chinese system of national security review. Examples demonstrate that national security review in the U.S. has often become politicized, though primarily by the U.S. Congress and not by CFIUS. Politicized mergers result in uncertainty for businesses and can harm diplomatic relations with key trading partners. The UK has had success avoiding the pitfalls of politicized reviews, however the European system could not be successfully replicated by the U.S. or China due to their more centralized political systems.
Ultimately, the definition of “national security” will have the greatest impact on which cross-border mergers receive clearance. Though China has not explicitly defined national security, concerns about foreign investment relate to military defense, strategic economic security, and what has been called cultural security. The U.S. and EU have historically limited their definitions of national security to the defense arena. However, the Foreign Investment and National Security Act of 2007 significantly broadened the U.S.’s definition to include many sectors of the economy previously beyond CFIUS’s purview. This new definition and other changes make U.S. practice more likely to appeal to Chinese lawmakers and are likely to influence the emerging Chinese national security review committee.
Early merger reviews under the Antimonopoly Law, especially the Coca-Cola and Huiyuan case, have drawn criticism for apparently allowing factors other than competition to influence the Ministry of Commerce Antimonopoly Bureau’s decisions. China’s new national security review is likely to have a positive impact on the internal politics that may have influence the Antimonopoly Bureau. While politicization of merger reviews is likely to continue in the future, adopting a CFIUS-type interdepartmental review system can act as a lightning rod, freeing the Antimonopoly Bureau from pressure to consider non-competition factors. This will enhance transparency and improve external perceptions by investors and trading partners.
This Article concludes that the CFIUS model, taking account of the great increase in authority since 2007, is a good fit for China’s political climate. If properly implemented, creation of a national security review system will provide substantial, though limited, benefits to China.
Number of Pages in PDF File: 52
Keywords: Antimonopoly, Antitrust, Competition, CFIUS, China, National Security, Mergers, M&A, Cross-BorderAccepted Paper Series
Date posted: May 12, 2011 ; Last revised: March 19, 2012
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