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FDI: Entry and ownership rule
On July 15, 2014 the U.S. Court of Appeals for the District of Columbia Circuit issued a ruling in Ralls Corporation v. Committee on Foreign Investment in the United States 'CFIUS', marking the first time that a federal circuit court has made a ruling on a CFIUS case.
The CFIUS has the authority under U.S. law to block foreign investments in certain cases related to national security.
This case stems from President Obama's Executive Order in 2012 prohibiting Ralls Corporation (a U.S. company owned by two Chinese nationals and affiliated with China's Sany Group) from owning an Oregon wind farm project companies that is located in the vicinity of restricted airspace associated with a U.S. Navy facility.
The three-judge panel held that this Presidential Order deprived Ralls of a constitutionally protected property interest without due process of law. It found that Ralls had been entitled to review an unclassified version of the evidence that the president relied upon in making his determination, and that the firm also should have had an opportunity to rebut the evidence.
The court remanded the case back to a lower court "with instructions that Ralls be provided the requisite process set forth herein, which should include access to the unclassified evidence on which the President relied and an opportunity to respond thereto." It further observed that, "Should disputes arise on remand--such as an executive privilege claim--the district court is well-positioned to resolve them." The court left "it to the district court to address the merits of Ralls's remaining claims in the first instance."
Some analysts see in this decision a major shift in the treatment of foreign investments in the United States. According to an analysis by the Covington Team, for example, "'p'erhaps the most significant policy implication of the decision is its affirmation of the integrity of the U.S. legal framework for foreign direct investment: not only is the U.S. system open to foreign investment, but it also offers strong protections for investors even when the authorities of the Executive Branch are at their zenith, as is the case with national security decisions." The analysts concluded that "the Ralls decision sends a powerful positive message both to foreign investors contemplating investment in the United States, and to other countries regarding the basic protections that should be afforded to their inbound investment (including investment from the United States)."
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