Domestic markets and foreign investiment regulation: a functional analysis of CFIUS/ Regulacao do mercado interno e do investimento estrangeiro: analise funcional do CFIUS.

AutorFurtado, Gabriel Rapoport

Introduction

The Committee on Foreign Investment in the United States--CFIUS is an inter-ministerial Committee which is directly subject to the US Presidency. Its main duty is to supervise the implications of foreign investments in the United States ("US") economy, in terms of national security and economic sovereignty. The Committee was established by President Gerald Ford, in 1975, and since its formation it has functioned in considerable opacity. (1)

In accordance to the Committee on Government Operations, CFIUS was firstly conceived as a direct response to investments originated from member nations of the Organization of Petroleum Exporting Countries (OPEC), which had increased after the First Oil Shock (1973). (2)

The Committee was initially responsible for advisory activities, especially to (i) prepare reports describing trends related to foreign investments in the US; (ii) analyze the impact of such investments; and (iii) suggest legislative, regulatory, and diplomatic policies related to this matter.

In 1988, President Reagan approved the "Exon-Florio Amendment", when US semiconductors leading company was about to be acquired by Japanese enterprise Fujitsu. The Amendment granted powers to US President to prohibit transactions which resulted in foreign control of US companies and, as a consequence, threatened to impair its national security.

In 1990, President George Bush made use of this prerogative, in order to hinder the acquisition of MAMCO Manufacturing (associated to the aeronautics industry) by the Chinese CATIC. President Barack Obama, on the other hand, made use of the Amendment to prevent Sany Group (also Chinese) to buy wind farms belonging to Terna Energy USA.

Nevertheless, beyond these precedents, which were publicly prohibited to be concluded by the US Presidency, numerous other private negotiations cease to occur because of CFIUS. In spite of the lack of official information, the press has reported a series of unsuccessful deals due to the Committee's influence. (3)

In this regard, this essay aims at developing an institutional analysis of the Committee, with the objective of clarifying at least a part of what CFIUS represents for the US domestic markets legal-economic regulation. This institutional autopsy will apply Economic Law as its main instrument, in order to investigate how relevant CFIUS is for the defense of US economic sovereignty.

This essay's scope is significantly different from the rest of the literature regarding the Committee. Most authors usually (i) present CFIUS in broad terms (4); (ii) investigate the limits of its activities in an allegedly liberal economy (5); (iii) limit the Committee as a tool for the US national security (6); (iv) addressing it circumstantially, in the middle of discussions related to other topics, such as (iv.a) sovereign funds' increasing role in the international circulation of capitals (7); or (iv.b) general essays regarding Foreign Direct Investment in the US. (8)

That is truly an inversion on the typical rationality of Brazilian legal research, in which US methodologies are employed in the assessment of Brazilian institutions.

On the contrary, this essay aspires to resort to a method with deep roots in Brazilian legal studies (9) for the comprehension of an US institution. It will be attempted the discovery of CFIUS' function, structure, and social effectiveness. (10) Firstly, the essay will try to uncover why the Committee was established (Topic I). Secondly, it will seek to identify which legal structure was built in the US legal system for the performance of those duties (Topic II). Thirdly, both these elements will be combined in CFIUS practical reality, in order to ascertain its dynamical repercussions (Topic III). Finally, a brief conclusion will summarize the partial findings of other topics and suggest a few parallels between CFIUS' regulation and other dimensions of the US economic police power.

  1. CFIUS: functional analysis

    CFIUS should be understood in the light of the capitalist system's trends and the US insertion pattern into global economy, considering the Committee as a regulatory tool applied to the entrance of foreign investments in its domestic markets. The Committee's institutional analysis must address its condition as an instrument on US Government's disposal to implement economic policies destined to deal with the world-economy, and the US position within "modern world-system". (11)

    A functional analysis such as this is supported by Economic Law's tradition, which brought the function (12) to the very core of State's activities, (13) as the "legal discipline of economic policy", (14) as stated by COMPARATO. Economic Law allows timely and adequate legal responses to an increasingly complex, dynamic, and hectic world, demanding considerably more comprehensive activities for the solution of modern challenges regarding the production and distribution of goods and services. (15)

    In this respect, legal shaping of modern economy, embodied in Economic Law, has to emanate specific legal treatment to economic behaviors of market players, considering the effects they spread through entire society. (16) Under the "markets legal organization" perspective, it is worth noticing that the classic distinction between Private Law and Public Law fades (17), and the enterprise becomes the locus of Economic Law rules, (18) especially legal transactions they conclude (19) as leading actors of economic processes. (20)

    This topic will thus try to understand the imperatives of international political economy which justified the creation of CFIUS, (i) initially by briefly analyzing the mode of regulation that preceded it, commonly called "Fordism"; (ii) after this, describing the deterioration of the previous mode of regulation and consolidation of a new one, which is currently prevailing (called "financialization"), to which (iii) CFIUS seems to be one the US institutional answers, caused by the unprecedented international opening to the movement of capital.

    1.1. Background: "fordist" mode of regulation

    CFIUS' establishment, in 1975, is related to a broader context of deep institutional transformations in the international economic order. They affected "capitalism's organic core" (21) and led to the need of adjustment to an economy with hegemonic pretensions, in order to maintain and reproduce its position. It is therefore paramount to investigate the background of this international political economy movement for its complete comprehension: the reasons why a controlling and monitoring body concerned to the entrance of foreign investments in the US domestic markets became unavoidable.

    For this task it is pivotal to define the main features of the "Fordist mode of regulation" (also known as "Fordism"). Initially, it is worth mentioning that "Fordism" is the mode of regulation that prevailed in the post-war period. It rendered what as probably capitalism's most prosperous era and preceded a "financialized mode of regulation", during which CFIUS was conceived.

    Wage relationship was perhaps the most "structuring" axis in "Fordism". Before its advent, wages were facing deep stagnation (considering the late 19th and early 20th centuries). This plight created a huge vacuum between workers remuneration and the growing productivity gains allowed by the Second Industrial Revolution. Consequently, there was no compatibility between effective demand and the set of available goods. (22)

    This phenomenon described contributed decisively to the Crash of Wall Street. In view of the resulting economic collapse, capitalist system's institutional response was to integrate to the average wages the variations of inflation, scale gains and the technical progress which permitted this period's high productivity. Such measures shared productive activities' gains with the working class and created thus a favorable environment for the advent of mass consumption, the only component which would guarantee necessary demand for such high production. (23)

    The capitalist reorganization that occurred in this period was also encouraged by the rise of a new international monetary regime. It was based on an US dollar gold standard and on coordinating multilateral institutions, such as the IMF and the World Bank, both created by the famous Bretton Woods Agreements. (24)

    These elements allowed the emergence of "Fordism", which is synthesized by BOYER (25) as an articulated cycle of three cornerstones: (i) weak international openness; (ii) a stable commitment between capital and labor, and (iii) potential increases in productivity.

    Notwithstanding, there are no stable equilibriums when it comes to the capitalist organization. From the institutional arrangements conceived in a given historical moment "disparities and conflicts arise, which cannot be solved within the present configuration". (26) Eventually, "Fordist" structures came to exhaustion, giving cause to the "redefinition of the grounding rules that encode institutional forms". (27)

    The crisis faced by this "mode of regulation" refers basically to three phenomena: (i) Bretton Woods international monetary system's crisis; (ii) exhaustion of productivity gains occurred during Keynesian commitment; (iii) breakdown of full employment model; and (iv) weakening of union entities, which intermediated labor relations throughout this period. (28) The combination of such events resulted in low economic growth, unemployment and wage compression, and a monetary and financially unstable condition. (29)

    From this turmoil emerged a new "mode of regulation", assembled from the broken pieces of "Fordism". CFIUS was designed as a reaction apparatus, as it will be possible to conclude subsequently: initially collecting data to aid the US in the comprehension of this transition, and later to effectively intervene in the economy, after the exacerbation of this new regime.

    1.2. Globalization of capital: The emergence of a...

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