Date
16 August 2017
A US appeals court ruling in favor of Sany over a wind farm venture has ramifications for the way Washington reviews Chinese and other foreign investment. Photo: Bloomberg
A US appeals court ruling in favor of Sany over a wind farm venture has ramifications for the way Washington reviews Chinese and other foreign investment. Photo: Bloomberg

What does Sany’s US legal victory tell us?

In a landmark judgment, a US appellate court has ruled as unconstitutional a decision by an American intergovernmental agency and President Barack Obama to block a Chinese company from owning some wind farms in Oregon.

The case stems from the acquisition in spring 2012 of four wind farms by Ralls Corporation, an American unit of China’s Sany Group, which is involved in construction machinery and other heavy equipment. President Obama, in a rare exercise of presidential authority, issued an executive order in September requiring Ralls to divest itself of the wind power projects.

In the executive order, issued after the president received a report on Ralls’ acquisition from the Committee on Foreign Investment in the United States (CFIUS), an inter-agency body responsible for reviewing national-security implications of foreign investments, President Obama said “there is credible evidence” that led him to believe that Ralls “might take action that threatens to impair the national security of the United States.”

The president provided no details. However, the farms are close to a naval test facility.

The ruling by the US Court of Appeals for the District of Columbia Circuit on July 15 has ramifications for the way Washington reviews Chinese and other foreign investment at a time when Chinese investments are rising rapidly and when many Americans are suspicious of Chinese intentions.

Ralls took legal action against both CFIUS and Obama, alleging that the company’s constitutional right to due process had been violated. Ralls lost in the district court but then appealed.

The three-judge appellate court held that Ralls should have been given access to any unclassified evidence the president – and CFIUS – held to support their decision that national security might be impaired. The court also said that the company had a right to respond to any such evidence.

In a unanimous ruling, the court said: “We conclude that the Presidential Order deprived Ralls of its constitutionally protected property interests without due process of law…. This lack of process constitutes a clear constitutional violation.”

The US government has various options, including appealing to the Supreme Court. The legal process may be protracted and the final outcome may not be known for some time.

However, the fact that the court held that Ralls had a right to know what unclassified evidence the government held suggests that, in the future, CFIUS will have to make decisions in a more transparent fashion.

China has repeatedly voiced concern over the way the US reviews foreign investments on national-security grounds. Most recently, the issue was raised at the Sino-US strategic and economic dialogue in Beijing last month.

The Ralls case is only the second time a US president has raised national security reasons for blocking an investment project. The previous time was in 1980, when another Chinese company was involved.
Ralls is the first company to challenge the CFIUS process in court. CFIUS reviewed 114 transactions in 2012 and the Ralls project was the only one that it rejected.

In its annual report that year, CFIUS suggested that more problems lie ahead. It said: “The U.S. Intelligence Community judges with moderate confidence that there is likely a coordinated strategy among one or more foreign governments or companies to acquire U.S. companies involved in research, development, or production of critical technologies for which the United States is a leading producer.”

A number of decisions are coming up. For example, CFIUS will have to review the purchase of the low-end server business of IBM as well as of Google’s Motorola Mobility handset unit, both by Lenovo Group Ltd., the world’s largest maker of personal computers, which is based in Beijing.

While the court ruling is clearly a victory for China, a senior Sany Group executive paid a compliment to the United States.

The China Daily reported on the day of the court ruling that Wu Jialiang, a senior vice president of Sany, said he had been asked many times in China if it was really possible to sue the American president and whether he faced harassment or detention for doing so.

“To America’s great credit,” Wu said, “the answer is, ‘Yes, I can sue the President on behalf of my company. And, ‘No’- I can come and go into the United States without trouble. Therefore, filing the lawsuit has been a great experience to the Chinese and other people around the world – as to how the rule of law can provide the freedom for one to protect one’s rights against one’s own government in the courtroom on an equal footing.”

So, while China may have won this round in the courtroom, the US may well have scored in the court of public opinion.

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RC

Frank Ching opened The Wall Street Journal’s Bureau in China in 1979. He is now a Hong Kong-based writer on Chinese affairs.

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