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Rice Paddies on the White House Lawn: CFIUS & the Foreign Control Requirement

Reville, Tricia

Our peaceful trading partners are not our enemies; they are our allies. We should beware of the demagogs who are ready to declare a trade war against our friends—weakening our economy, our national security, and the entire free world—all while cynically waving the American flag. The expansion of the international economy is not a foreign invasion; it is an American triumph, one we worked hard to achieve, and something central to our vision of a peaceful and prosperous world of freedom.[1] – President Ronald Reagan

Americans have long been skeptical of foreign investment in American companies. Since the end of the Second World War, Congress and Presidents have utilized the Committee on Foreign Investment in the United States (CFIUS) to monitor foreign investments in the U.S. with national security conc-erns. However, determining what is “foreign” for CFIUS review purposes is not a straight-forward analysis given increasingly complex financing structures. This Note traces developments in case law from an early twentieth-century case involving the treatment of a “colorless” corporation wholly owned by African-Americans, to mid-century Trading With the Enemy Act cases during the Second World War, to a more recent case involving an American company wholly owned by Chinese nationals. Modern courts have found that corporations can take on the race or national identity of their founders or investors, which, as this Note describes in greater detail below, represents a shift in how the courts view corporat-ions. Additionally, this Note describes the inadvertent foreign person problem where a corporation majority-owned by Americans, incorporated in America, and solely operated in America could become foreign for CFIUS purposes if the corporation received a substantial amount of foreign investment.

This Note will recommend that CFIUS stop using the foreign control analysis as a gatekeeping function. Instead, CFIUS should shift the foreign control analysis to the formal review stage and use the scale of foreign control as informative rather than dispositive. This solution addresses national security concerns, promotes efficiency and effectiveness for all three branches of government as well as private industry, and adheres to American free-market and anti-discriminatory policies.

[1] President Ronald Reagan, President of the U.S., Radio Address to the Nation on the Canadian Elections and Free Trade, Ronald Reagan Presidential Library & Museum (Nov. 26, 1988), https://www.reaganlibrary.gov/research/speeches/112688a.

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Also Published In

Title
Columbia Journal of Race and Law
DOI
https://doi.org/10.7916/cjrl.v10i1.4841

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Academic Units
Law
Published Here
July 10, 2020