This post is also available in: Chinese (Simplified)

By: Kun Zhao, Esq.

Early this year, Huawei droped its attempt to acquire some assets of U.S.-based cloud server provider 3Leaf. The decision followed the Committee on Foreign Investment in the United States’ (“CFIUS”) suggestion that Huawei withdraw the acquisition due to security concerns about the Chinese company. It has raised concerns and created future uncertainty for prospective Chinese investments which look into the U.S. market. However, the United States still has an overall open policy to foreign direct investment (“FDI”).
The United States has established general domestic policies that treat foreign investors no less favorably than U.S. firms. While the U.S.policy allows foreign investment in most American businesses, there are primarily three categories of restrictions that have an impact on foreign investment: (1) sector-specific federal law restrictions on foreign investors; (2) government review and approval requirements; and (3) disclosure requirements.

Foreign investment is constrained by U.S. laws that bar foreign ownership and limit activities in industrial sectors as maritime, aircraft, mining, energy, communications, banking, transportation, and government contracting. However, there is no sector within which foreign investors are excluded by federal law from any type of investing. The sector-specific federal laws that apply to foreign investors vary in the types and levels of restrictions and provisions they contain.

The government review and approval process applies to foreign investment in existing U.S. companies or businesses engaged in interstate commerce through mergers, acquisition or takeover. Those reviews include: (1) review by the Department of Defense under the National Industrial Security Program (NISP); (2) review by Committee on Foreign Investment in the United States; and (3) review by Director of National Intelligence (“DNI”). Generally, those reviews operate independently, although at times they may overlap.

Disclosure requirements under certain federal statutes are not restrictions on foreign investment per se but additional compliance obligations. There are two principal federal laws which impose disclosure obligations on foreign investments: (1) the International Investment and Trade in Services Survey Act of 1976 (“IITSSA”); and (2) the Agricultural Foreign Investment Disclosure Act of 1978 (“AFIDA”).

Even though there are sector-specific and various levels of restrictions on foreign investment, the United States is still largely open to foreign direct investment. No federal laws completely exclude foreign investment from an industry sector. As long as it is not related to above identified sectors and critical industries and technologies essential to national security, there are generally no federal restrictions limiting ownership and activities of foreign investment in the United States.