Interpretation of America M & a regulatory system, suggests that China strengthen the security review system for foreign mergers

 

                                              Ding Xu

 

Read a few times "AmericaITIntroduction "and the telecommunications market access evaluation system in this article, have a certain understanding of the review mechanism, the America foreign acquisition of domestic enterprises by laws and regulations, supervision and management system, improve understanding I m & a supervision system on foreign investment, with China's current legal system of the supervision of foreign capital merger and acquisition. This article thoughts.

 

A,         The main legal and institutional American Merger Regulation on foreign investment

    (a) through market access and government procurement protection technology in national industry policy

   1The Telecommunications Act. The provisions America Telecommunications Law: radio station license, communication company license, air way communication license, aeronautical fixed radio station license, the public carrier radio license does not allow directly by foreigners, foreign governments or Foreign Company. Indirect investment also need to submit an application by a foreign applicant Review Committee, according to the "instructions" foreign participation in the formulation of the principle. A principle which is: fromWTOMembers of the foreign investment must be consistent with the public interest USA.

2,1997Years of foreign participation in instruction. On international business license is included in the "1997Years of foreign participation in instruction in the instruction ", with open access standards instead of effective competition opportunity detection as a foreign applicant licensing conditions, the applicant must beWTOMembers to apply for business operations, shall be included in the "WTOBasic telecommunications agreement ".

3, "Omni Perth trade and competition law". The method of the "USA defense products law" was amended, gave the president the power, on the reliable evidence that foreign investment in telecommunications and other critical infrastructure could threaten national security USA, or that the legal American existing not to ensure they will not threaten American national security, the president has the power to suspend or prohibit such foreign the investment behavior of the Usa Inc.

4, "Exxon-Exon Florio statute ". The act is an important law in foreign capital management American, mainly to regulate America on related national security of foreign investment review process, content and legal consequences. The act granted the president America provide appropriate protection in USA other laws can not be the case, can take measures, suspend or prohibit the possible threat to foreign governments or enterprises America national security access, on USA enterprise merger or takeover. But America presidential decisions are not subject to judicial review jurisdiction; in order to reflect the president "maximum room" principle, America no one act on what is "national security" to make a clear definition of. As long as the transaction is likely to lead to foreign government control of the American target, the United States will start a period45A comprehensive survey program day; as long as relates to a "foreign buyers," is not necessarily "foreign government" to start a period30Preliminary examination days, and then by the Foreign Investment Management Committee (AmericanCFIUS, founded in1975Years, is a America government by the Ministry of finance, the Ministry of Commerce, the Department of defense, the Department of Justice12Cross sectoral bodies divisions, the main function is to the overall impact on the America countries responsible for assessing foreign) to decide whether to start a period45A comprehensive survey of the day.

5, procurement regulations. America regulations on government procurement are "buy" and "America goods by federal procurement regulations". These two regulations applicable to all procurement activities in all government departments USA use congressional appropriations of, its main purpose is to standardize the government procurement behavior should follow the policy and principle of government procurement, unified government departments. The main contents of the two laws have:

(1The principle of America) limit the government procurement from abroad applied to America domestic of foreign goods, services and building materials etc..

(2) only in the public interest, a shortage of supply, the cost of domestic products unreasonable, then sales situation, USA government procurement not subject to the restrictions of the law.

(3)AllWTO"Government procurement agreement" signed, "China Caribbean trade initiatives in China", "the North American Free Trade Agreement" members, Israel, "agreement on trade in civil aircraft" signatory, can not apply"Buy America goods method"There are unique; signed trade agreements and beauty of a department, according to the department regulations provisions.

(4) to limit the government purchasing non beauty "domestic terminal products" andAbout50Requirements of locally produced content%.

 

Two.Review mechanism

The Committee on foreign investment (CFIUS) is USA on overseas investment review agency. As long as the member that the transaction will have an impact on the American national security, we need to review.CFIUSThe specific daily affairs by the Office International Investment and International Investment Affairs Bureau in the Ministry of finance is responsible for.CFIUSVerification is not required to implement the transaction is completed, can before implementation, implementation, even after the implementation of any time start.

1,CFIUSA review procedure how to start. Exxon-Exon Florio statute: those involving foreign "acquisition, merger or takeover" of America property transaction of any party, can but do not require the transaction may involve USA whether national security, toCFIUSRequirements review. The decree for those who may be involved America national security investment transactions require a legal review procedures, at the same time, it also intervene in foreign investment America government management to create a legal mechanism.

2,CFIUSHow to review program.

CFIUSAfter receiving the application30The completion of the preliminary review of the transaction days, then according to the examination results to determine whether there is a need to continue for a45A comprehensive survey of the day. (if the buy side is controlled by a foreign government, the need for a comprehensive survey). IfCFIUSLaunched a comprehensive investigation procedures, need to45Days to complete the investigation and submit report to the president, the president in American15Days to submit a report to the Congress, clarify he the transaction will take measures, including: do not oppose the transaction, the transaction is prohibited, to cancel the transaction.CFIUSIn the past12Years of18Transaction conducted a comprehensive survey, only one transaction is ordered by President blocked, i.e.1990The president ordered when USA Bush withdrew Chinese aero technology import and Export Corporation intends to buy AmericaMAMCOManufacturing company (the production of aircraft parts) transactions, because of the use of the company's technology belongs to the category of America export control.

3,CFIUSHow to determine whether a transaction involving the "foreign control" and "national security"

For whether "foreign control",CFIUSMajor review of the investment structure and the corporate decision-making mechanism and other documents, in order to determine the proportion of foreign capital, and the influence of the main decision.

Exxon-Exon Florio act and its implementing regulations have not made a clear definition of "national security", but the decree of the president and theCFIUSIn consideration of the problems must be considered when American national security required levels of domestic production, foreign investment in USA impact on industrial competitiveness, foreign buyers are excluded USA employment etc..

In accordance with the provisions of Exxon exon Florio decree: American government (throughCFIUSIn the process) to review foreign investment transactions, will have to ask anyone who intends to buy and America military and national defense enterprise infrastructure Foreign Company, especially for the establishment of a "structural internal security measures" is controlled by foreign governments, such as the establishment of an invisible "firewall" of company management activities. For example, the proxy arrangement (this arrangement can make the enterprises in the American managers take foreign owners out of the company and the America national security related some confidential business activities) and other security measures, in order to make the foreign owners cannot come into contact with the enterprise and American national security related sensitive activities.

 

(three) "network security protocol".

If the overseas investment by theCFIUSReview, in some cases, USA will require foreign investors signed a security agreement, to ensure the reliability of data storage and file, ensure American law enforcement agencies to implement effective monitoring of network.

 

(four) technical standard threshold

Information security management American government is very strict, a common standard was established very early safety of information technology equipment evaluation test method "("CCStandard), and in1997By the National Institute of standards and. And the National Security Bureau jointly set up a national information assurance Alliance (NIAP),Specifically responsible forCCInformation security test and evaluation, evaluation methods and technology research and development related.CCStandard: the federal government before USA ordering information technology equipment, must make a thorough assessment of product safety testing, must make a historical evaluation on all products manufacturing company and all its people's credit and background, without these procedures, any order contract may be altered or revoked.

 

Two, through the analysis of two cases USA how practical application of Exxon-Exon Florio statute

1The acquisition, Nippon Telegraph and telephone America Internet backbone enterprises. 2000Years8Month14Day,CFIUSAnnounced, will advise the president approved by the Nippon Telegraph and Telephone Corp (NTT) take over the beauty in Colorado, an Internet backbone enterprisesVERIOCompany. Subsequently, the United States government internal matter whether they are related to the America home security issues had a heated debate, the final decision to approve the amount as high as55Billion deal. ButFBIFinally asked JapanNTTMust provide written assurance that promises to build a "firewall", its purpose is to limit the owners and management can not be aware of American current monitoring activities;FBIAlso called on JapanNTTMust a written guarantee will not giveVERIOThe basic property of the company out of American.

2, Lenovo acquisitionIBM PCBusiness and the "State Council order disturbance"

2004Years12Month8Day,Lenovo issued to12.5Billion dollar mergerIBM PCBusiness news. The huge investment from Chinese enterprises has aroused the vigilance of the government USA. By12The Committee on foreign investment in the government formed a America Lenovo acquisition of comprehensive survey,The focus on how the government procurement American Lenovo product problems.After a70Days of hard negotiations, Lenovo merger with America Justice Department, the Department of Homeland Security national security agreement "signed" later, finally won the America government approval, visible American government on grounds of national security,The foreign investment enterprises in particular from Chinese enterprises to participate in the American government computer procurement has strict restrictions: one is China Investment EnterprisesNot a personal user information in any form, acceptance, maintenance, for identification of American government ordered computer products, as well as any specific American government department may purchase computer product information. Therefore,China investment enterprise may not sell directly to the American government, but must through the third party sales agent; two is not USA government user information out of the America native, therefore, China enterprises must accept America security departments of the information systems use inspection; three is the Chinese invested enterprisesMust provide products customer service service through USA government approved domestic company, while not directly product after sale service. Thus, in the USA in government procurement, national security is higher than that of commercial interests.

20063In mid September, Lenovo through fierce competition, with outstanding product quality and excellent price performance ratio, the State Council for USA computer purchase orders. According to the agreement, Lenovo will provide USA Council1.6Million units of various types of computer, the total amount of order more than1300Million dollars. However, originally a normal commercial behaviour has caused a great disturbance, in American, individual members of Congress and even to influence"National Security"The grounds, suggested that Congress for the business investigation or even halt. They claimed, the transaction amounted to Chinese a"The America embassies and consulates agency monitoring opportunity"At the same time, also let Chinese can"Through the installation of special hardware and software in a computer to collect America intelligence". The final decision of the State Council requirements American, bureau of diplomatic security put Lenovo products only in non confidential system.

 

Three,Regulation of M & A of foreign capital gap and reference

(a) the lack of unified legal system of foreign M & A.

Our current laws and regulations on foreign mergers and acquisitions are:

   1,2002Years2Month11Japan released by the State Council"Guiding the direction of Foreign Investment Provisions"

2,2004Years11Month30By the national development and Reform Commission, Ministry of Commerce issued the "Industrial Catalog for foreign investment" (2004Revised edition)

3,2002Years11Month1By the China Securities Regulatory Commission, the Ministry of finance, the State Economic and Trade Commission issued the "about the listing Corporation to transfer of state-owned shares and legal person shares related issues notice"

4,2002Years11Month8By the State Economic and Trade Commission, the Ministry of finance, the State Administration for Industry and commerce, the State Administration of foreign exchange bureau issued a "restructuring of state-owned enterprises with foreign investment" Interim Provisions

5,2006Years8Month8By theThe Ministry of Commerce, state owned assets supervision and Administration Commission of the State Council, the State Administration of Taxation, the State Administration for Industry and commerce, Chinese Securities Regulatory Commission, the State Administration of foreign exchange bureau issued "on the acquisition of domestic enterprises by Foreign Investors Provisions"

    Therefore, China's foreign capital merger and acquisition rules most belong to the departmental rules, only the "guiding foreign investment direction" belongs to administrative law, the administrative regulations only a few17Strip, and most provisions are provisions of principle. And American legal system of M & A in addition to the "company law", "contract law", "the federal securities law", and "antitrust law", "creditor debtor relationship method", "Exxon-Exon Florio act "," telecommunication law "," instruction "," foreign participation in the Om Ni Bos trade and competition law "," law "," America goods purchase Federal Procurement Regulations "etc.. In contrast, China's foreign M & a rules has not formed the unified legal system, and the effect of the relevant provisions of the low level, often change, legislation such obviously lags behind China's foreign M & a practice like a raging fire. Recommendations as soon as possible legal level of foreign M & a rules, such as "foreign M & a law", "anti-monopoly law" and the supporting for the actual operation of the detailed rules for the implementation of.

 

(two) for related to national security, foreign acquisitions of the examination and approval authorities single, after approval supervision is weak.

The America M & a regulatory system is introduced, we can see that, although the general USA on foreign mergers and acquisitions almost no intervention, completely by the market this "invisible hand" to manipulate the merger and acquisition activity, but once involved in key industries or relates to national security is very strict, mergers and acquisitions, including:

1, "Exxon-Exon Florio statute "authorized America president cannot protect national security in a legal case, at any time to stop, cancel the threat to national security transaction.

2Foreign investors, such as mergers and acquisitions USA enterprise belongs to the national security related industry, can but need not toCFIUSApplication review.CFIUSIn the30Days to review to determine whether to a full investigation, if necessary, will be45A comprehensive survey of days, and then submitted to the president to review the merger, President15Make a decision whether to consent days.

3", is involved in the transaction state security" and "foreign control" have detailed provisions.

4Overseas investment, even through theCFIUSReview, American may require the foreign investors signed the "Protocol", in order to ensure the USA law enforcement agencies to implement effective monitoring of network.

In the M & a rules, this year8On the new"Regulations" on the acquisition of domestic enterprises by foreign investors is undoubtedly the most detailed,The most important department regulations. The provisions on relates to specific industries, key industries, the national security of foreign mergers and acquisitions are only two, that is tenth:"The foreign investment enterprise established after the merger shall, according to the provisions of the laws, administrative regulations and rules, foreign investment enterprises of certain types or industry belongs to the Ministry of Commerce for approval by the provincial examination and approval organ, shall transfer the application documents to the examination and approval of the Ministry of Commerce, the Ministry of Commerce shall decide whether to approve or not to approve the." AndArticle twelfth:"Acquisition of domestic enterprises by foreign investors and obtain the actual control rights, involving key industries, affects or may affect national economic security or cause the domestic enterprise has a well-known trademarks or old Chinese real control right transfer, the parties should apply to the Ministry of Commerce to declare. If not declared, but its mergers and acquisitions on national economic security, cause or may cause a significant impact, the MOFCOM may, jointly with relevant departments to require the parties to terminate the transaction or to transfer equity, assets or other effective measures, to eliminate the merger & acquisition of state economic security after effect." We are pleased to see, formulated in these terms is a historic breakthrough, has important significance for national security concerns enterprise to regulate and restrict the foreign acquisition of key industries, China, but American"Exxon-Compared under the exon Florio statute ", this provision apparently have the following deficiencies:

1The examination and approval authority, single, after the merger supervision department shall not clear. The provisions of article tenth, involving a specific type or industry needs the approval of the Ministry of commerce foreign mergers and acquisitions. Since it is a specific type of industry, will inevitably involve a certain industry departments, professional knowledge related to don't understand a lot of the Ministry of Commerce, the author thinks that only by the Ministry of Commerce approved alone cannot very good protection relates to national security, key industries of foreign mergers and acquisitions. The provisions of article twelve, if the merger & acquisition of national economic security, cause or may cause a significant impact, the Ministry of Commerce may jointly with the relevant departments to take measures to eliminate the influence of. "Relevant departments" actually refers to what department? Which department? Provisions are not too clear, to the Ministry of Commerce for the actual operation of the time have to "cross the river by feeling the stones", the parties to a merger would have no way of knowing. In contrast, the same as relates to national security, foreign M & A review organ, the Committee on foreign investment in the America (CFIUS) by the Secretary of the treasury as president, by the Ministry of Commerce, the Department of defense, the Department of homeland security, the Department of justice, state, Council of economic advisers, National Security Council, the National Economic Council, the office of management and budget, the office of science and technology policy etc.12Departments, any12A member of that transaction would have a negative impact on the national security review mechanism can start, greatly strengthened the rigor and impartiality of the review. And when the president authorized to provide proper protection in the law cannot, measures can be taken to suspend or prohibit any possible harm to the national security of transaction. The author thinks that the authorities relating to national security or the key industries in China M & A's approval and supervision organs in addition to the Ministry of Commerce, at least, should also include the Ministry of finance, Ministry of defense, Ministry of justice.

2After the merger, supervision and regulations is not perfect. The provisions of article twelfth, foreign mergers and acquisitions involving key industries, national economic security, to declare to the Ministry of commerce. If the parties have not declared, but M & A activities have a significant impact on national economic security, the Ministry of Commerce may jointly with the relevant departments to take measures. In other words, the Ministry of Commerce to take measures, must meet two conditions: first, the parties did not declare; second, the M & A activities have a significant impact on national economic security. The parties declare that if the declaration, but do not have what influence on national economic security, a few years later on the national economic security has had a major impact, the Ministry of Commerce on the basis of the terms can take measures? In contrast, the "America Exxon-Provisions of exon Florio statute ": whether mergers and acquisitions when things before they apply for personnelCFIUSReview, as long asCFIUSAny member that transaction will have an impact on America national security, can review. AndCFIUSThe review is not required to implement the transaction is completed, can before implementation, implementation, or any time after the implementation of the start. China in the formulation of "foreign M & a law" clearly the Ministry of Commerce, the Ministry of finance, Ministry of defence, the Ministry of justice and other departments as long as that foreign acquisition of China's national security have a significant impact or influence, whether in the M & A has not declared, both before the examination and approval or examination and approval, has the right to to review them, and take corresponding measures. After the completion of mergers and acquisitions by foreign investors, the government should take effective monitoring, the network to network information security personnel to carry out examination and other measures to ensure the effective supervision on the newly established foreign-funded enterprises.

 

Three.Information security protection of our national security concerns of foreign capital M & A is not enough

"Provisions of Exxon exon Florio statute": USA government (throughCFIUSIn the process) to review foreign investment transactions, will have to ask anyone who intends to buy and America military and national defense enterprise infrastructure Foreign Company, especially for the establishment of a "structural internal security measures" is controlled by foreign governments, such as the establishment of an invisible "firewall" of the company management activities so, in order to make the foreign owners are not exposed to the enterprise and American national security related sensitive activities. In theNippon Telegraph and telephone acquired America Internet backbone enterprises,FBIRequires the JapaneseNTTMust provide written assurance that promises to build a "firewall", its purpose is to limit the owners and management can not be aware of American current monitoring activities;FBIAlso called on JapanNTTMust a written guarantee will not giveVERIOThe basic property of the company out of American. AgainSuch as20063Month association through fierce competition, won the State Council America computer purchase orders. But America to may affect national security grounds, the final decision of the State Council requirements American, bureau of diplomatic security put Lenovo products only in non confidential system.

Information security management American government is very strict, the common standard of safety of information technology equipment evaluation test method "("CCStandard provisions before the federal government): USA ordering information technology equipment, must make a thorough assessment of product safety testing, must make a historical evaluation on all products manufacturing company and all its people's credit and background, without these procedures, any contract may be altered or revoked.

While China's government procurement of foreign enterprises make no exception, not what information technology equipment safety evaluation test, in our country government, financial institutions, communication system and the strategic significance of the large state-owned enterprises running in computer equipment, from USA large chip and the operating system, from the perspective of national security to be, we take great risk. So Chinese needed to establish the safety of information technology equipment evaluation system, certification standards and implementation mechanism, detect all related to national security, government departments, financial institutions, the key state-owned enterprise information equipment, all of the Department's new purchase information equipment must pass the safety test.

 

Regulate foreign M & A, should be legal in advance. While China's M & a legal framework has not been established, rather than America advanced legislative level there is a big gap, in order to regulate the foreign M & A behavior, to prevent the loss of state-owned assets, the protection of the national economy, national defense and security, China must learn from the experience of foreign capital construction and mode of operation of the western developed countries legal system, combined with China's current the actual situation, all the foreign M & a policy oriented, qualification, procedure, supervision program in the specific legal provisions in the regulations, the foreign capital merger and acquisition activity on the orbit of the legal system.

 

(this article was written in December 2, 2006)