Political uproar over US steel supply puts Cfius in the spotlight

At a campaign rally last month in Pennsylvania, the heartland of America’s steel production, President Biden said made clear that he does not want the planned takeover of US Steel by the Japanese company Nippon Steel to take place.

“We are finally ensuring that United States Steel remains United States Steel,” Mr. Biden said. “It won’t be someone else’s steel.”

How this promise will be kept remains to be determined. US Steel said this week in its first quarter earnings release It expects the acquisition to close in the second half of this year, but notes that timing is subject to regulatory approvals.

On Friday, Nippon Steel said It pushed back its timeline for completing the deal from mid-year to late 2024 because it had been asked to provide more information about the transaction to the Justice Department, which is reviewing the deal.

Increasing scrutiny of the takeover has raised expectations that the $15 billion deal could ultimately be scuppered by the Biden administration. It has also drawn attention to the secretive interagency body that could be the ultimate arbiter of the merger: the Committee on Foreign Investment in the United States.

With a presidential election in six months and There is great resistance to the deal The opaque committee is under pressure from union members and some Senate Democrats to conclude that a deal involving a company owned by a key American ally endangers national security.

The committee, known as CFIUS, was created in the 1970s to review international mergers and acquisitions for national security concerns. Over the years, the definition of national security has expanded, and in many cases the panel’s work has been consumed by political considerations, often with an emphasis on maintenance Chinese investments from America.

But the review of Nippon’s bid for US Steel differs from recent deals with companies such as China’s ByteDance and Singapore’s Broadcom, which President Donald J. Trump blocked from acquiring American chipmaker Qualcomm in 2018.

Rather, it seems as if we are back in the 1980s – when fears about trade with Japan were high.

In 1983, the threat of CFIUS intervention caused another metal merger by the same Nippon Steel Corporation to fail. At that time, Nippon wanted to take over the specialty metals division of Pittsburgh-based Allegheny International. The U.S. metals business was struggling due to the declining airline industry, which was one of its main markets, and Nippon was interested in establishing a foothold in the United States and establishing a factory.

However, the Reagan administration had other ideas and at the request of the Department of Defense, the transaction was reviewed by CFIUS. The Pentagon feared that the Allegheny unit’s technology could end up in the Soviet Union and classified the metal produced by the US company as critical to national security because it was used to make military aircraft. Faced with this complication, Nippon reluctantly withdrew its offer.

“In 1983, there were serious concerns about a technology leak to the former Soviet Union,” said Mario Mancuso, who leads the international trade and national security practice at law firm Kirkland & Ellis.

Mr. Mancuso pointed out that the situation 40 years ago was significantly different from the current situation, as it was difficult to argue that Nippon Steel’s offer could somehow benefit an adversary such as Russia or China.

“Now no one is saying that US Steel technology is going to China because US Steel and Nippon want to compete with China,” he said.

The Investment Review Board was created in 1975 by an executive order from President Gerald R. Ford because of concerns about investments in American portfolio assets by members of the Organization of the Petroleum Exporting Countries. according to the Congressional Research Service.

The purview of the CFIUS, which is headed by the Treasury secretary and made up of officials from federal agencies, has expanded in recent decades along with what the United States views as threats to national security. Today, technologies such as semiconductors and quantum computing are viewed as matters of national security, a departure from the early days when concerns stemmed primarily from access to American innovations that could be used to build traditional military equipment such as tanks and aircraft.

Over the years, CFIUS’s powers and the types of transactions it can review have been expanded by Congress as political headwinds changed course or intensified.

After a political storm in 2006 after a Dubai state-owned company, DP World, tried to manage some terminal operations at six American ports, Congress intervened to block the deal. Additionally, she has worked to bring greater transparency to the CFIUS and ensure that international transactions are rigorously reviewed.

In 2018, amid concerns about Chinese investment, Congress passed a law giving the committee more time and authority to review transactions Check land purchases near military installations.

As of 2022, CFIUS reviewed more than 400 transactions and 20 were canceled after the committee raised national security concerns that could not be mitigated, according to most of the panel’s experts recent report to Congress. In cases that require a full investigation, the committee makes a recommendation to the president, who has the final say on whether a transaction should be blocked on national security grounds.

The takeover of US Steel will be particularly sensitive as Japan is a close ally – Mr Biden hosted its Prime Minister Fumio Kishidafor a formal state dinner last month.

However, the Biden administration has made supply chain resiliency a priority since the pandemic, when shortages of products like semiconductors exposed America’s reliance on foreign sources for critical materials. The committee could argue that there are national security concerns related to a loss of U.S. control over domestic steel supplies. The committee could also seek to require Nippon to agree to safeguards that would protect American jobs and ensure sufficient steel availability.

During a news conference last week, Treasury Secretary Janet L. Yellen declined to confirm whether CFIUS was reviewing the U.S. steel deal, citing the confidentiality of its work. However, she acknowledged concerns about the company’s ownership.

“I certainly accept the president’s expressed view that the company should remain in American hands,” Ms. Yellen said. “He did not specifically say that this is a national security issue, but rather an issue that has to do with the well-being of workers and the country.”

After Mr. Biden’s comments in April, Nippon Steel released a statement pushing back against claims that the deal posed a threat. The company promised to protect jobs and planned investments in Pennsylvania.

“There will be no factory closures, production and jobs will remain in America” the company said.

The timing of the result remains an open question. It could depend on whether Nippon wants to go through with the process and whether Mr. Biden wants to take action to ensure that US Steel remains an American company before the election.

For some experts, the possibility that such a deal involving a close American ally could fail is a case of politics overshadowing politics.

“It’s an election year and the idea of ​​a foreign company in a swing state buying an iconic brand in the U.S. invites a knee-jerk political reaction,” said John Kabealo, a Washington-based lawyer who specializes in cross-border transactions has specialized.

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