The International Business Transactions Blog

CFIUS and National Security Relating to U.S. Farms

By Yuki Taylor
Law Student Editor

The Committee on Foreign Investment in the United States (CFIUS) assists the President in reviewing national security risks arising from foreign direct investment in the U.S. economy.  CFIUS was initially implemented in 1975 under the Ford administration to study and monitor the impact of foreign investment in the United States against the backdrop of a rapid ownership increase by OPEC countries.  Because of the diverse interests involved, CFIUS is an inter-agency committee composed of the heads of nine federal agencies and chaired by the Secretary of the U.S. Department of the Treasury.

The first major enhancement to CFIUS review was made in 1988, when concern was growing over foreign acquisition of U.S. companies, particularly by the Japanese.  The Exon-Florio provision was introduced to the Defense Production Act of 1950, which grants the President the authority to block foreign direct investment in U.S. assets when he considers that it may threaten national security.  The authority to conduct the initial Exon-Florio review was delegated to CFIUS.  Although the President has ultimate authority to approve or block foreign investment, presidential disagreement with CFIUS recommendations is rare.  However, there have been seven instances of proposed foreign acquisitions blocked by Presidents: four by President Trump, two by President Obama, and one by President George H.W. Bush.  Notably, all seven cases of denial involved investors from the People’s Republic of China.  A majority involved intended acquisitions in the semiconductor industry.

The purview of CFIUS has since been significantly extended by executive orders and legislation in response to perceived threats to U.S. national security arising from foreign investment in the United States.  In August 2018, the Foreign Investment Risk Review Modernization Act (FIRRMA) was signed into law.  The Act substantially broadened the purview of CFIUS and modernized its risk assessment processes.  In particular, the Act provides CFIUS with jurisdiction over real estate transactions in the proximity of sensitive government facilities.  The Treasury issued regulations to implement the FIRRMA amendment effective February 13, 2020.  Under 31 C.F.R. Part 802, two broad categories of the covered real estate localities are described depending on the nature of a subject military installation: (1) close proximity, i.e., “area that extends outward one mile from the boundary of such military installation, facility, or property,” and (2) extended range, i.e., “area that extends 99 miles outward from the outer boundary of close proximity to such military installation.”

Most recently, on September 15, 2022, President Biden issued an executive order to provide CFIUS with formal presidential direction for national security assessment.  It contains five specific focal factors including supply chains, advanced technology such as microelectronics and artificial intelligence, cybersecurity, and sensitive personal data.

On December 13, 2022, Fufeng USA, a U.S. subsidiary of the Chinese agribusiness giant Fufeng Group, announced that it had been informed by CFIUS that, at the completion of a 45-day national security review, the interagency committee would not take any further action against Fufeng with respect to its proposed US$ 700 million corn milling project on land acquired from private landowners in the vicinity of Grand Forks, North Dakota.  Since the land acquisition was not a “covered transaction” subject to the Exon-Florio review, CFIUS lacks jurisdiction.  The project was planned on a 300-acre patch of prime Dakota farmland, 12 miles away from Grand Forks Air Force Base, which has been known as one of the nation’s most sensitive locations for the development of military drone technology.

Under the FIRRMA Amendment to Exon-Florio, the planned corn milling project is not in close proximity, but certainly in the extended range of Grand Forks Air Force Base.  However, interestingly, the Air Force Base is not identified as a sensitive facility in Appendix A to 31 C.F.R. Part 802, i.e., the list of designated military installations and other U.S. government sites for CFIUS review.  It is possible that CFIUS denied its own jurisdiction under 31 C.F.R. Part 800 concerning foreign investment in U.S. businesses as opposed to Part 802 with regard to real estate purchase, because Fufeng filed its notice pursuant to Part 800.

However, on January 27, 2023, the Department of the Air Force sent a letter to the North Dakota Senates, stating: “While CFIUS concluded that it did not have jurisdiction, the Department’s view is unambiguous: The proposed project presents a significant threat to national security.”  Amidst an uproar concerning the Chinese investment in rural land, on February 6, 2023, the Grand Forks City Council voted unanimously to deny Fufeng the necessary building permits for the project.  More generally, states may decide whether foreign investment in agricultural land is permitted (and currently 14 U.S. states prohibit such acquisitions).

Because a possible loophole in CFIUS review has been exposed, a bill named the Foreign Adversary Risk Management Act or the FARM Act, first introduced in 2021, was reintroduced in the current session of Congress.  The bill adds the Secretary of Agriculture to CFIUS, and includes agricultural systems and supply chains in the definitions of critical infrastructure and critical technologies for the purposes of CFIUS review.  The bill further requires the Department of Agriculture and the Government Accountability Office to analyze and report on foreign influence in the U.S. agricultural industry.

The consequence of increased CFIUS scrutiny of foreign acquisitions of U.S. agricultural land is potentially far-reaching.  Although most foreign investors in U.S. agricultural land are close U.S. allies, such as Canada and states of the European Union, not all are.  China has acquired significant interests in the U.S. food chain and agricultural land, and Saudi Arabia and the United Arab Emirates have acquired significant farmland in California and Arizona in recent years.  Although U.S. relations with these Middle Eastern countries are currently friendly, that may not last indefinitely.  Both are hereditary dictatorships with deplorable human rights records.