U.S. needs to reform CFIUS reviews on foreign investment: experts

The United States needs to reform its reviews initiated by the Committee on Foreign Investment in the United States (CFIUS), in order to provide transparent criteria for foreign investors, according to several experts.

"It is a shame that we have to be so cautious in calling for CFIUS reform. We should stop phrasing transparency as a small thing, because the problem with CFIUS is ... its lack of clear and visible texts," Adam Posen, president of the Peterson Institute for International Economics (PIIE) said at a forum jointly held by the PIIE and Chinese think tank China Development Research Foundation (CDRF) in Washington on Tuesday.

As a national security guard, CFIUS is an inter-agency organization tasked to review foreign investors' mergers and acquisition activities in the United States.

CFIUS has been a thorny issue in bilateral investment relationship between China and the United States. Many Chinese companies had undergone CFIUS reviews for national security reasons, and the number of companies put under such reviews is disproportionally high considering China's relatively small investment scale in the United States.

In regard to CFIUS reviews, a broad and ambiguous definition of national security and non-transparent decision making processes are the major targets of complaint by foreign investors.

For instance, as the definition of state-owned enterprises (SOEs) by CFIUS is ambiguous, many Chinese mixed-ownership companies have been subject to CFIUS national security reviews, Fang Jin, deputy secretary general of the CDRF, said at the forum.

As a result, Chinese companies are facing rising uncertainties and restraints when investing in the United States, said Fang.

In order to lift ambiguity and promote transparency, Posen called for reforming the CFIUS process. He argued if the process is more transparent, foreign investors would have less reasons to complain when reviews are initiated, as they spell less uncertainty.

In addition, he argued that it's appropriate to use trade deals, such as the China-U.S. Bilateral Investment Treaty (BIT), to induce CFIUS reform in the United States.

Jeffery Schott, senior fellow at the PIIE, thought CFIUS issue would not be discussed at the BIT negotiations. "The existence of CFIUS is not a problem,...all countries recognize the importance of maintaining national security requirements in (foreign) investments," he said.

However, Schott also agreed there is a need to improve the transparency of CFIUS, saying "what the BIT can do is to increase the transparency of the CFIUS procedure to ensure that it is a narrowed focus." Endi