Study On The Legal System Of The National Security Review Of Foreign M&A

Since the entry of21st century, the economic globalization based on the liberalization among production factors, trade and finance is becoming an inevitable worldwide trend. As an economic phenomenon, transnational mergers and acquisitions is a natural result of the competition among each economic entity in the market at some degree. It is a main tool for the expansion and development of enterprises and a major means for foreign direct investment. Transnational mergers and acquisitions can bring capital to the host country on the one hand, but on the other hand, because of the size of the participating enterprises, the scale of trade and the nature of involved industries, it may also brings negative effects, which will lead to the loss of technical capability and capital, the key industries and enterprises controlled or monopolized by other countries, the impediment to the host country’s economic policies, sometimes even a shock to its economic system. All of these threaten directly or indirectly the security of the nation’s economy, politics, national defenses and society. To carry on the reasonable regulation of foreign capital mergers and acquisitions, and guide foreign capital mergers and acquisitions activities in the legal angle, is the essential way for the sovereign state to adjust the economic activities within its jurisdiction scope. Even those developed countries that use open investment as a long term policy hold that these production factors should be supervised to guarantee the maximization of common interests while they praise highly of free flow of cargos, service, capital and human resources. For its most advanced national safety review system on foreign capital mergers and acquisitions, America has set an example on the supervision of foreign capital mergers and acquisitions. Canada, Australia, Germany, France, Russia and other countries have recently revised their national safety review system on foreign capital mergers and acquisitions to be in accordance with their national interests.The national security problems caused by foreign capital mergers and acquisitions are determined by the multinational companies’special motive to monopolize extra profit and their mother countries’use of them as a policy and profit making tool to realize their national interests. In the first twenty years of the opening policy, China mainly focused on attracting foreign capital by favorable policies, so at some degree it ignored the protection on its key industries, which led to a substantial part of strategic industries and resources controlled by foreign companies. In the micro level, foreign enterprises and industries, which rely on the advantage of its technology, management and scales stifle those local enterprises at home; on a macro scale, it brings security issues to national economic coordination and sustainable development. In the legal angle to carry on the reasonable regulation of foreign capital mergers and acquisitions, and guide foreign capital mergers and acquisitions activities is an important task to defend our nation’s economic right and security.China has initially in2011established the framework for the national safety review system on foreign capital mergers and acquisitions through the establishment of the State Council on Establishment of a Security Review System for the Merger and Acquisitions of Domestic Enterprises by Foreign Investors and the Provisions of the Ministry of Commerce on Matters Relating to the Implementation of the System of Security Review of Mergers and Acquisitions of Domestic Enterprises by Foreign Investors. But the system design is not mature and standardized. This essay tries to make some comparisons of the system factors of some developed countries’ national safety review system on foreign capital mergers and acquisitions, for the purpose to provide examples to the improvement of China’s legislation.The introduction elaborates the background and significance of this essay and puts forward the need of system supervision caused by the effect of the foreign capital mergers and acquisitions on the host country’s economic security. Normally, each of those countries mainly adopts three types of legislation to control the foreign capital mergers and acquisitions:firstly, they regulate the investment industries and direction through industry policies; secondly, they standardize the market competition through anti-monopoly review; thirdly, they limit foreign capital mergers and acquisitions of some strategic or sensitive industry through security review so as to safeguard national strategic industries security and state security. To review the national economic safety of the foreign capital mergers and acquisitions should function as the last safety valve. This part illustrates the framework of the essay and major issues of M&A, and it also comments on other countries’ existing documents of the national safety review system on foreign capital mergers and acquisitions, andChapter one is concerned with the basic theory of the national safety review system on foreign capital mergers and acquisitions. The law system must focus on the basic value which is beyond the normal social and economic structure. The national safety review system on foreign capital mergers and acquisitions takes the national security as the logical starting point and value target. The national security has the characters of assumption, openness, multiple-angel, level, law and complication. In the economy science, the free trade theory, international investment theory and government planning theory altogether elaborate on the importance of the protection on national security especially economic security. The host country’ supervision on foreign capital mergers and acquisitions within its landscape is the result of execution of its sovereign rights, which is recognized by the international treaty.Chapter two is on the legislation pattern and investigation organization of the national safety review system on foreign capital mergers and acquisitions. To some extent, the legislation pattern reflects the degree which the research activities on the control of foreign capital mergers and acquisitions reach on the economic theory and law level. And the legislation is the priority of the system research. American, Canada, Australia, and Russia adopt the specialized legal pattern. European countries and Japan adopt mixed legal pattern. As to investigation organization of national security on foreign capital mergers and acquisitions, in practice, it can be classified into two patterns; one is double supervising mode with investigation and decision respectively belonging to different organizations, and the other is single supervising mode with investigation and decision belonging to only one organization. The establishment of legislative pattern and supervising organization is based on the country’s political background and legal environment.Chapter three is about the investigation scope of national security on foreign capital mergers and acquisitions. The scope of investigation is the basis of national security investigation on foreign capital mergers and acquisitions. When defining complicated foreign capital mergers and acquisitions activities, capital control standard has been introduced to justify investors’identity by more and more countries, and the definition of mergers and acquisitions has expanded from the form standard of the mergers and acquisitions of stock right and capital to the essential standard of sustainable economic interests. Different standards, such as the cognizance of the control, the nature of target companies, the identity of foreign investors, are applied to define investigation.Chapter four focuses on the substantial standard of national security investigation on foreign capital mergers and acquisitions. How to make a substantial evaluation on M&A transaction within the scope of national security investigation on foreign capital mergers and acquisitions in order to decide whether it threatens national security is a serious problem for national security investigation on foreign capital mergers and acquisitions. There is almost not one country having defined the concept of "national security" in law, the object and consideration set for national security are some sort of self-judgment. However, they generally regard military security, industry security, technical security, critical infrastructure and the relevance between foreign capital and foreign government as top priorities in the management of external threats. In the Empirical Analysis Method, this chapter illustrates the process of how the USA analyzed the external threats.Chapter five introduces the procedures of national security investigation on foreign capital mergers and acquisitions. Reasonable procedure system can have a direct influence on carrying out these substantial standards. It can be established by investor on his own initiative or by organization in charge. The review process is inevitable before the decision-making process. A mitigation agreement is a flexible way of settling potential threat rooting in foreign investment and makes the investment benefit the host country’s interests. Informal consultation procedures can bring conveniences to investigation, and each country has its different ways in investigation and supervising process.Chapter six illustrates the international coordination of national security investigation on foreign capital mergers and acquisitions. The abuse of national safety review system on foreign capital mergers and acquisitions may lead to new investment-protectionism. This chapter will analyze in the Empirical Analysis Method how the USA goes against free-investments in a political way with respect to national safety review system on foreign capital mergers and acquisitions. How to regulate and supervise national safety review system on foreign capital mergers and acquisitions at the international level, to answer the question, OECD has put forward Non-discrimination, Transparency/predictability, Regulatory proportionality as guide principles for host countries. Among case practices of ICSID, it also requires host countries to take restrictive measures within the necessary scope.Chapter Seven discusses the legislation improvement of national security investigation on foreign capital mergers and acquisitions of China. Taking a look at the development of national security investigation on foreign capital mergers and acquisitions of China, this chapter puts forward how to position the function of national security investigation on foreign capital mergers and acquisitions, and after analyzing the shortcomings of the existing national security investigation on foreign capital mergers and acquisitions system, it proposes the consideration to improve this system.