Deal-Breaker: FDI, CFIUS, and Congressional Response to State Ownership of Foreign Firms

29 Pages Posted: 17 Jun 2009

See all articles by Rahul Prabhakar

Rahul Prabhakar

University of Oxford - Department of Politics and International Relations

Date Written: May 13, 2009

Abstract

I argue that foreign state ownership of a given firm seeking to acquire a U.S. firm significantly heightens the likelihood that a Committee on Foreign Investment in the United States (CFIUS) review, even if it results in approval of the transaction, will be overridden and that the transaction will be blocked through political pressure. This pressure is applied by the U.S. Congress, and the resultant tension and poor publicity for the foreign firm and/or country leads to a bid withdrawal, the abandonment of the acquisition by the firm and/or country. State ownership raises the potential of direct management of U.S. assets in critical sectors by a foreign government. It is this potential, however warranted or unwarranted, that motivates American legislators, mindful of the electoral salience of national security, to oppose the acquisition. In this way, the specter of state ownership is consistent with the competitiveness and national security arguments advanced by politicians and interests opposed to a given transaction. The prospect and process of CFIUS review for a foreign firm is politically-fraught, and the CFIUS process itself is institutionally vulnerable to being overridden by congressional pressure. I examine the cases of China and the Lenovo acquisition of the IBM PC division, as well as the United Arab Emirates and Dubai Ports World debacle.

Keywords: cfius, congress, national security, state ownership, foreign direct investment, China, Lenovo, United Arab Emirates, Dubai Ports World

JEL Classification: P16, G18, F20, F21, F23, H56

Suggested Citation

Prabhakar, Rahul, Deal-Breaker: FDI, CFIUS, and Congressional Response to State Ownership of Foreign Firms (May 13, 2009). Available at SSRN: https://ssrn.com/abstract=1420790 or http://dx.doi.org/10.2139/ssrn.1420790

Rahul Prabhakar (Contact Author)

University of Oxford - Department of Politics and International Relations ( email )

Manor Road
Oxford, OX1 3UQ
United Kingdom

Register to save articles to
your library

Register

Paper statistics

Downloads
677
Abstract Views
3,307
rank
37,132
PlumX Metrics