Photo: The Canadian Press

On a hot, humid East Coast day this summer, a massive container ship pulled into the Port of Baltimore loaded with sheets of plywood, aluminum rods and radioactive material – all sourced from the fields, forests and factories of Russia.

President Joe Biden promised to “inflict pain” and deal “a crushing blow” on Vladimir Putin through trade restrictions on commodities like vodka, diamonds and gasoline in the wake of Russia’s invasion of Ukraine six months ago. But hundreds of other types of unsanctioned goods worth billions of dollars, including those found on the ship bound for Baltimore from St. Petersburg, Russia, continue to flow into U.S. ports.

The Associated Press found more than 3,600 shipments of wood, metals, rubber and other goods have arrived at U.S. ports from Russia since it began launching missiles and airstrikes into its neighbor in February. That’s a significant drop from the same period in 2021 when about 6,000 shipments arrived, but it still adds up to more than $1 billion worth of commerce a month.

In reality, no one involved actually expected trade to drag to a halt after the invasion. Banning imports of certain items would likely do more harm to those sectors in the U.S. than in Russia.

“When we impose sanctions, it could disrupt global trade. So our job is to think about which sanctions deliver the most impact while also allowing global trade to work,” Ambassador Jim O’Brien, who heads the State Department’s Office of Sanctions Coordination, told the AP.

Experts say the global economy is so intertwined that sanctions must be limited in scope to avoid driving up prices in an already unstable market.

Also, U.S. sanctions don’t exist in a vacuum; layers of European Union and U.K bans result in convoluted trade rules that can be confusing to buyers, sellers and policymakers.

For example, the Biden administration and the EU released separate lists of Russian companies that cannot receive exports, but at least one of those companies — which supplies the Russian military with metal to make fighter jets currently dropping bombs in Ukraine –- is still selling millions of dollars of metal to American and European firms, AP found.

While some U.S. importers are sourcing alternative materials elsewhere, others say they have no choice. In the case of wood imports, Russia’s dense birch forests create such hard, strong timber that most American wooden classroom furniture, and much home flooring, is made from it. Shipping containers of Russian items — groats, weightlifting shoes, crypto mining gear, even pillows — arrive at U.S. ports almost every day.

A breakdown of imported goods from Russia shows some items are clearly legal and even encouraged by the Biden administration, like the more than 100 shipments of fertilizer that have arrived since the invasion. Now-banned products like Russian oil and gas continued to arrive in U.S. ports long after the announcement of sanctions due to “wind down” periods, allowing companies to complete existing contracts.

In some cases, the origin of products shipped out of Russian ports can be difficult to discern. U.S. energy companies are continuing to import oil from Kazakhstan through Russian ports, even though that oil is sometimes mixed with Russian fuel. Trade experts warn that Russian suppliers are unreliable, and opaque corporate structures of most major Russian companies make it difficult to determine whether they have ties to the government.

“It is a general rule: when you have sanctions, you’ll have all kinds of murky schemes and illicit trade,” said Russian economist Konstantin Sonin, who teaches at the University of Chicago. “Still, sanctions make sense because even though you cannot kill 100% of revenues, you can reduce them.”

Many American companies are choosing to cut off Russian trade. Coors beer, for example, returned a shipment of hops to a state-owned Russian company in May as part of a commitment to suspend all business in the country, said Molson Coors Beverage Co. spokeswoman Jennifer Martinez.

Russia and the U.S. were never major trading partners, and so sanctioning imports is only a very small slice of the retaliatory strategy. Restrictions on exports from the U.S. –- of technology in particular –- cause more damage to the Russian economy, and sanctioning the Russian Central Bank has frozen Russia’s access to roughly $600 billion in currency reserves held across the U.S. and Europe.

Nonetheless, sanctions carry a symbolic weight beyond the financial harm they might inflict, particularly for American consumers horrified by the war.

Here’s a look at some of the goods that have flowed between the two countries:

METALS

Russia is a key exporter of metals like aluminum, steel and titanium; cutting off that trade could dramatically drive up prices for Americans already grappling with inflation, said Morgan Stanley economist Jacob Nell.

“The basic idea with sanctions is that you’re trying to act in a way that causes more pain to the other side and less pain to yourself,” he said.

Most American companies dealing in metals have longstanding relationships with Russian suppliers. Such trade, particularly of aluminum, has continued virtually uninterrupted since the beginning of the war.

AP found more than 900 shipments totaling more than 264 million tons of metals since February. Russia is one of the largest producers of unwrought aluminum outside of China and a significant global exporter. But the war has affected that global market as well.

“Like all manufacturers,” said Aluminum Association spokesperson Matt Meenan, “we have seen supply chain impacts in terms of increased energy costs and other inflationary pressures which the invasion exacerbated.”

Russian aluminum ends up in American car parts and airplanes, soda cans and cables, ladders and solar racks. The largest U.S. buyer at the start of 2022 was a subsidiary of Russian-owned global aluminum giant Rusal. In April, Rusal America’s senior executives bought the U.S.-based part of the company and rebranded it as PerenniAL. In July alone, PerenniAL imported more than 35,000 tons from Russia. The company did not respond to requests for comment.

Also, among the private companies choosing to source materials from Russia are U.S. government contractors supported by federal tax dollars. Boeing, the world’s largest aerospace company signed a federal contract for up to $23.8 billion in 2021; it imported 20 tons of aluminum in June from Kamensk-Uralsky Metallurgical Works. In March, the U.S. banned exports to Kamensk-Uralsky because it supplies metals to the Russian military, but placed no restrictions on imports. A Boeing representative said the company made the decision to end trade with Russia in March, and explained that the shipment that arrived in June had been purchased four months before.

Another metal importer, Tirus US, is owned by Russian company VSMPO-AVISMA, the world’s largest titanium producer. VSMPO also provides metal to the Russian military to build fighter jets. The company’s broad global footprint and specific product — titanium — underscores the challenges of isolating Russia from global trade. Tirus US sells titanium to more than 300 companies in 48 countries, including a range of U.S. buyers, from jewelry makers to aerospace companies. VSMPO did not respond to requests for comment.

WOOD

Russia’s vast forests are some of the largest in the world. After Canada, Russia is the second largest exporter of wood, and has some of the only mills that can make strong, solid Baltic birch plywood, flooring used throughout the U.S.

This year, the Biden administration began imposing tariffs on Russian wood exports, a move which infuriated Ronald Liberatori, a Nevada-based wood dealer who sells Russian grown Baltic birch to all the major furniture makers, construction companies and flooring manufacturers in the U.S.

“The problem here is Russia is the only country in the world that makes this product,” he said. “There’s no alternative source.”

He said that on top of the tariff, he had to put up an $800,000 bond to ensure he’d pay the tax, further driving up prices.

“Who’s paying for this? Who? You and every other individual in the United States,” he said. “We’re so damned upset with what Biden has done. This is a government versus government issue.”

Liberatori said decision-makers need to consider who is going to be more hurt by tariffs before imposing them.

Another wood and paper importer told AP that while it stopped any new orders in February, it had vast amounts of lumber in Russia that already had been paid for; the final shipment arrived in the U.S. in July.

FUEL

On March 8, Biden announced the United States is banning all imports of Russian oil, gas and energy, “targeting the main artery of Russia’s economy.”

“That means Russian oil will no longer be acceptable at U.S. ports, and the American people will deal another powerful blow to Putin’s war machine,” he said.

Within hours, there were reports that a ship carrying 1 million barrels of Russian oil to the U.S. changed course to France. But plenty of others pushed on.

That week, about a million barrels of Russian crude oil had arrived off the port of Philadelphia, bound for Delta Airlines’ oil refinery Monroe Energy. Meanwhile, a tanker with about 75,000 barrels of Russian tar oil pulled into the port of Texas City, Texas, bound for Valero’s refineries after a long north Atlantic crossing, according to trade records.

The shipments continued to Valero, ExxonMobil and others. ExxonMobil media manager Julie King told AP a July oil delivery was of Kazakh origin and not subject to sanctions. She said Exxon “supports the internationally coordinated efforts to bring Russia’s unprovoked attack to an end, and are complying with all sanctions.”

Monroe spokesman Adam Gattuso said the company has not received any more Russian fuel and doesn’t “anticipate doing so for the foreseeable future.” Valero did not respond to requests for comment.

Andrea Schlaepfer, a spokesperson for Dutch fuel exporter Vitol, said that all of its oil and gas shipments since April 22 have been from Kazakhstan, where pipelines and rail networks run from the landlocked country’s oil fields and refineries to neighboring Russian ports.

For the use of its port infrastructure, moorings and fees, Russia makes about $10 million each year.

Schlaepfer said U.S. Customs and Border Protection agents review and verify that its shipments entering the U.S. don’t contain Russian products. But CBP did not answer repeated questions about how it handles sanctions and bans on Russian goods. A CBP fact sheet says it plays a “critical role” in enforcing prohibitions on imports, however a spokesman repeatedly referred The AP to the State and Treasury departments.

OTHER

So far this year, almost 4,000 tons of Russian bullets have also arrived in the U.S., where they were distributed to gun shops and ammo dealers. Some were sold to U.S. buyers by Russian state-owned companies, while others came from at least one sanctioned oligarch. Those shipments slowed significantly after April.

AP also tracked millions of dollars worth of shipments of radioactive uranium hexafluoride from Russian state-owned Tenex JSC, the world’s largest exporter of initial nuclear fuel cycle products, to Westinghouse Electric Co. in South Carolina. Nuclear material is not sanctioned.

Westinghouse spokeswoman Cathy Mann said that as part of the nuclear fuel manufacturing process, their fuel fabrication facilities receive enriched uranium product and convert it into fuel pellets. She said Westinghouse doesn’t own the uranium used to make fuel. That material belongs to customers who operate nuclear power plants throughout the world.

“As a result, our customers have the accountability to determine where and from whom the materials are procured – some of which is sourced from Russia or enriched by a Russian company,” she said. “Westinghouse condemns Russia’s invasion and the resulting hostility and loss of life.”

In addition, some of the products sent to the U.S. from Russian ports continue on to Mexico and Canada. Toyota vehicle components, for example, arrived last month in New Orleans bound for a Mexican plant run by Toyota Tshusho, the car company’s trading arm.

Radioactive material sent from Russia to the U.S. is hauled north of the border to sterilize packaged medical supplies used throughout North America.

Although imports of some food items, such as seafood and vodka, have been restricted, the Treasury Department last month published a fact sheet reiterating that agricultural trade between the U.S. and Russia is still very much allowed.

The Red October chocolate factory sits just across from the Kremlin in Moscow. Today it’s a tourist attraction with apartments, stores and restaurants. But the company, Krasny Oktyabr, still makes and sells candy and other traditional treats from a production plant on the outskirts of Russia.

In Brooklyn, New York, Grigoriy Katsura, at the U.S. offices of Krasnyi Oktyabr Inc, said they continue to import delectables, a taste of childhood for Russian immigrants.

“Of course they’re used to it,” he said.

And so every few weeks, the shipments arrive at their warehouse from Russia: buckwheat, dried fruit and their world-renowned chocolate.

Originally Appeared Here

Economists have warned about an incoming recession for months now.  

While the Federal Reserve continues to hike interest rates to cool inflation, Fed chair Jerome Powell acknowledged that this move could lead to economic pain in the future.  

Recession impacts more than just companies – the workforce must be ready to adjust as well. This is particularly important for young Millennials and Gen Zers, both of whom have hardly experienced working through an economic downturn.  

There are ways for employers to prepare for a recession, but HR departments must be prepared to address the challenges that are likely to emerge from this.   

For starters, certain workplace incentives may not be as sustainable as they once were. For instance, providing lavish benefits to attract new talent could provide less value as people have less money to spend.   

But this doesn’t mean companies must get rid of incentives altogether. Instead, leaders must find alternative modes of keeping workers engaged that are not financial. For instance, nurturing company culture, providing workers with a clear path to progress and offering one-of-a-kind, fulfilling workplace experiences can all serve as incentives for workers. 

Another potential challenge in a recession is increased tension when it comes to remote work policies. Several large companies are eager to bring employees back into the office, but a recession may grow employees’ desire to be in the office as they cling to their wallets. 

In the future, leaders must reevaluate which roles are absolutely necessary to be performed in person and which can be effectively done remotely. 

Originally Appeared Here

The Justice Department has set aside documents seized from former President Donald J. Trump’s Florida estate potentially covered by attorney-client privilege, a maneuver that might make his efforts to have an independent arbiter review the materials unnecessary.

The disclosure, which came in a court filing on Monday, is based on the government’s initial analysis of the materials. It came as Mr. Trump’s lawyers pressed a federal judge in Florida to order the appointment of an outside expert, known as a special master, to review the trove of highly sensitive documents seized in a search of Mar-a-Lago, the former president’s private club and residence.

On Saturday, Judge Aileen M. Cannon of Federal District Court for the Southern District of Florida suggested she was leaning toward the appointment of a special master to look at the materials taken by federal agents from Mar-a-Lago. She ordered the Justice Department to respond by Tuesday and share a complete list of documents, some of them highly classified, taken in the search on Aug. 8.

Mr. Trump’s request for a special master — which was filed far later than is typical — is significant because it could provide his legal team with an opportunity to contest the government’s seizure of specific documents whose ownership, and possibly classification levels, they see as being in dispute.

But the Justice Department’s three-page filing on Monday, noting that its review of the materials was completed, threw up a significant obstacle to that request. In the filing, lawyers at the department disclosed that its privilege review team had finished its assessment of the documents and set aside “a limited set of materials that potentially contain attorney-client information,” a requirement that was mandated by the original search warrant issued by a federal magistrate judge in Florida this month.

Takeaways From the Affidavit Used in the Mar-a-Lago Search

The release on Aug. 26 of a partly redacted affidavit used by the Justice Department to justify its search of former President Donald J. Trump’s Florida residence included information that provides greater insight into the ongoing investigation into how he handled documents he took with him from the White House. Here are the key takeaways:

Takeaways From the Affidavit Used in the Mar-a-Lago Search

The government tried to retrieve the documents for more than a year. The affidavit showed that the National Archives asked Mr. Trump as early as May 2021 for files that needed to be returned. In January, the agency was able to collect 15 boxes of documents. The affidavit included a letter from May 2022 showing that Trump’s lawyers knew that he might be in possession of classified materials and that the Justice Department was investigating the matter.

Takeaways From the Affidavit Used in the Mar-a-Lago Search

The material included highly classified documents. The F.B.I. said it had examined the 15 boxes Mr. Trump had returned to the National Archives in January and that all but one of them contained documents that were marked classified. The markings suggested that some documents could compromise human intelligence sources and that others were related to foreign intercepts collected under the Foreign Intelligence Surveillance Act.

Takeaways From the Affidavit Used in the Mar-a-Lago Search

Prosecutors are concerned about obstruction and witness intimidation. To obtain the search warrant, the Justice Department had to lay out possible crimes to a judge, and obstruction of justice was among them. In a supporting document, the Justice Department said it had “well-founded concerns that steps may be taken to frustrate or otherwise interfere with this investigation if facts in the affidavit were prematurely disclosed.”

A deeper “classification review” of the intelligence implications of Mr. Trump’s retention of government documents by the F.B.I. and the director of national intelligence is continuing, the filing revealed. The government affidavit, filed to justify the search, revealed concerns in the intelligence community that Mr. Trump’s possession of highly classified materials could compromise “clandestine human sources” collecting information overseas.

In both court papers and public statements, Mr. Trump and his lawyers have argued that some of the material seized at Mar-a-Lago could be protected by executive privilege, a vestige of his service as president. But legal scholars and some judges have expressed skepticism that former presidents can unilaterally assert executive privilege over records from their time in the White House. That power, the scholars and judges say, generally resides with the current president.

While Mr. Trump and his legal team have advanced arguments about executive privilege, most of the cases they cited in their filing asking for a special master concerned independent reviews of seized documents for those shielded by attorney-client privilege.

The case involving Mr. Trump’s attempt to get a special master has been hindered from the start by sloppy legal work and unusual procedures. That has happened, in part, because the request for a special master was filed separately from a matter it is deeply entwined with: the court fight over unsealing portions of the warrant affidavit used to justify the search of Mar-a-Lago.

Last week, after receiving an initial attempt by Mr. Trump’s lawyers to request a special master, Judge Cannon asked them, in a rare rebuke, to send her clarifications about what precisely they were asking for and why she should handle the case and not Judge Bruce E. Reinhart, who handled the unsealing of the warrant.

More on the Trump Documents Inquiry

Then, after she received a supplemental filing from Mr. Trump’s legal team answering her questions, Judge Cannon took the unusual step of issuing a document that signaled her “preliminary intent” to appoint a special master even before she sought the Justice Department’s opinion on the matter or held a hearing on the questions. A hearing is set to take place on Thursday in West Palm Beach, Fla.

In advance of the hearing, the Justice Department is also expected to file on Tuesday a detailed inventory of the materials seized. But that list, which will go into greater depth than the nominal description in the search warrant that was unsealed this month, will be filed under seal.

Attorney General Merrick B. Garland and the department’s leaders have yet to decide if they will seek to unseal that document, according to officials.

Judge Cannon will now have access to the government’s own assessment of the materials, and she could have the information needed to rule on requests by Mr. Trump’s team to exclude individual documents.

Originally Appeared Here

 

File Photo:VCG

The China Council for the Promotion of International Trade (CCPIT) on Monday slammed the US CHIPS and Science Act as being opposite to the fair, open and non-discriminatory spirit predominant in the global semiconductor industry, and called for Chinese and US business communities to work together to mitigate the adverse impact of this law.

US President Joe Biden signed an Executive Order to implement the semiconductor funding in the CHIPS and Science Act of 2022, which provides $52.7 billion in government subsidies for its own semiconductor production and research, on Thursday.

In a strongly worded comment on Monday, a CCPIT spokesperson said that while the effect of the implementation of the law is still to be seen, its impact in damaging the growth of the global chip industry and international economic and trade rules will be profound.

The CCPIT and China Chamber of International Commerce issued a statement on August 10 stating that the US CHIPS Act ensures the US will gain an unfair advantage over other countries, including China. They pointed out the law is a typical industrial subsidy, which is not in line with the WTO’s non-discrimination principle.

Stressing the organization’s repeated, firm opposition to the law, CCPIT spokesman Sun Xiao called for Chinese and US business communities to work together to eliminate the adverse impact of this law. Sun said the chamber will also take effective measures to safeguard their legitimate rights and interests when necessary.

The law’s implementation will not only hinder normal economic, trade and investment cooperation between Chinese and US businesses in the semiconductor field, but also damage the interests of global companies in this sector, including US firms, Sun said.

Gao Shiwang, a director with the China Chamber of Commerce for Import and Export of Machinery and Electronic Products, told the Global Times on Monday that the law is a direct violation of the WTO’s non-discrimination principle and a negative example globally as the world’s economy is facing downward pressure.

The law, which uses state influence to coerce companies to make a choice between the US and China, serves nothing but hugely increased the risk of international business operation and poses as a major risk to the mid and long-term development of the global semiconductor industrial chain, Gao said.

Originally Appeared Here

LawFlash

August 29, 2022

Concerns are growing over the national security impact of real estate purchases by foreign persons, only a small portion of which are reviewed by the Committee on Foreign Investment in the United States (CFIUS). These transactions are the subject of increasing debate and congressional attention. CFIUS review of real estate transactions is limited to land purchases in close proximity to US military installations, ports, or other sensitive facilities, and is not generally subject to any mandatory filing requirement. This leaves a considerable gap in foreign investment screening and potentially impacts other national security interests, such as the US supply chain and food security.

The Foreign Investment Risk Review Modernization Act of 2018 (FIRRMA) expanded CFIUS jurisdiction by providing the Committee with authority to review foreign acquisitions of or investments in real estate in close proximity to US military installations, ports, and other sensitive facilities. While the addition of select real estate transactions to CFIUS jurisdiction broadened the Committee’s mandate, CFIUS jurisdiction over real estate transactions remains fairly limited, focusing on proximity to sensitive locations.

Recent reports of growing numbers of real estate acquisitions by foreign persons have reinvigorated debate over whether this jurisdiction remains too narrow. There is an increasing recognition that more real estate deals merit scrutiny based on national security concerns beyond those where the land is in close proximity to military or critical infrastructure locations. Across the national security apparatus and Congress, discussions are beginning to focus on foreign acquisitions of US lands that impact, for example, the agribusiness sector, which can raise issues relevant to the US supply chain and food security. Although national security considerations always compete with traditional foreign direct investment equities, there is a greater awareness of potential threats to national security, increasing the likelihood that CFIUS’s scope of review of real estate transactions could be expanded.

While these transactions have raised concerns for years, the recent April 2022 acquisition by the Fufeng Group of Shandong, China, of approximately 370 acres of land in Grand Forks, North Dakota, has reignited concerns, with federal and state politicians calling for CFIUS to review the transaction. Most comments focused on the land’s proximity to the Grand Forks Air Force Base, which is about 12 miles away, and/or the motivations behind the acquisition, as the proposed corn milling facility will be located further from the corn fields than typical milling facilities in North Dakota. Less attention has been paid to the fact that real estate transactions can pose national security risks beyond those associated with proximity to government facilities.

CFIUS’s Current Jurisdiction Over Real Estate Purchases

Prior to February 13, 2020, the regulations pertaining to investments in the United States by foreign persons, at 31 CFR Part 800, focused on transactions that could result in foreign control of a “US business.” Thus, almost no real estate transactions were subject to review unless the land was itself a business or part of a business. Effective February 13, 2020, the regulations changed to implement FIRRMA. Part 802 now addresses CFIUS’s expanded jurisdiction over select real estate transactions. However, the Committee’s real estate authority remains limited. The CFIUS regulations largely track the language in FIRRMA, focusing, like the statute, on two types of land transactions: those near military bases and those near ports. 31 CFR § 802.227.

FIRRMA allows CFIUS to review only the “purchase or lease by, or a concession to, a foreign person of private or public US real estate that—

• is, is located within, or will function as part of, an air or maritime port; or
• is in close proximity to a United States military installation or another facility or property of the United States Government that is sensitive for reasons relating to national security.”

FIRRMA excluded from CFIUS jurisdiction transactions that constitute the purchase or investment in

• a single “housing unit,” as defined by the Census Bureau; or
• real estate in “urbanized areas,” also as defined by the Census Bureau, although CFIUS also could include, by regulation, real estate “as otherwise prescribed by the Committee in regulations in consultation with the Secretary of Defense.”

Currently, an urbanized area is defined as one where there is a statistical geographic area of a “densely settled core created from census tracts or blocks and contiguous qualifying territory that together have a minimum population of at least 50,000 individuals.”

Not surprisingly, CFIUS review of real estate transactions has been relatively limited as a result of its narrow jurisdiction. As noted in the CFIUS annual reports, real estate deals constitute a very small portion of overall CFIUS activity. Because FIRRMA did not authorize reviews of real estate transactions outside the narrow areas described above, many types of real estate purchases that may still pose a risk to national security remain largely unreviewed, including transactions with a potential impact on supply chains, power sources, telecommunications, and numerous other areas.

Grand Forks Transaction

In November 2021, the City of Grand Forks announced that Fufeng selected the municipality as the location for a new wet corn milling plant. The second largest producer of xantham gum in the People’s Republic of China (PRC), Fufeng, which is publicly traded on the Hong Kong Exchange, is asserted by members of the US Congress to have strong ties to the PRC government and the Chinese Communist Party (CCP). Those alleged ties led to calls for CFIUS to review the land acquisition. Because of CFIUS’s limited jurisdiction, however, the calls for review focused on the land’s proximity to the Grand Forks Air Force Base, which is home to a US military drone facility as well as a new space networking center. The space center reportedly forms the backbone of US military communications globally.

Although the US Air Force has not taken a public stance on the purchase, an Air Force officer stationed at the facility produced a report raising concerns about the PRC government conducting covert surveillance through operations that could occur at the agribusiness site (something strenuously denied by Fufeng). That report notes:

Some of the most sensitive elements of Grand Forks exist with the digital uplinks and downlinks inherent with unmanned air systems and their interaction with space based assets . . . . If proximal access were given to our adversaries, and their collections were directed at us, it would present a costly national security risk causing grave damage to [the] United States’ strategic advantages.

In a May 2022 report, the US-China Economic and Security Review Commission echoed these concerns: “The location of the land close to the base is particularly convenient for monitoring air traffic flows in and out of the base, among other security-related concerns.”

These proximity concerns have prompted politicians to call for CFIUS review of the deal. On July 14, 2022, US Senators John Hoeven and Kevin Cramer of North Dakota and Marco Rubio of Florida submitted a formal request for CFIUS to conduct a full review of the Fufeng land purchase. According to Senator Cramer: “[W]e grossly underappreciate how effective [China is] at collecting information, collecting data, [and] using it in nefarious ways.”

Shortly thereafter, on July 25, North Dakota Governor Doug Burgum sent a letter to US Treasury Secretary Janet Yellen and US Defense Secretary Lloyd Austin, also calling for CFIUS to review the transaction. The parties ultimately decided to submit the transaction to CFIUS for review. Had the land’s proximity to the Grand Forks Air Force Base not been available as a basis for CFIUS jurisdiction, the deal would likely not have been within CFIUS’s reach.

Expanding Review Beyond Proximity to Military and Critical Facilities

The North Dakota land purchase reflects a continuing uptick in US land holdings by foreign persons, which increased more than 60% in the last decade. Chinese buyers reportedly own more US agricultural real estate than those from any other foreign country. According to US Department of Agriculture (USDA) Agricultural Foreign Investment Disclosure (AFIDA) reports, Chinese investors’ holdings of US agricultural land grew from 13,720 acres in 2010 to 352,140 acres in 2020.

Part of that increase occurred when a Chinese company acquired Smithfield Foods, one of the US’s largest farming operations. Smithfield’s assets include 146,000 acres of US land. Although CFIUS reviewed the transaction (since it involved a US business and not just real estate), it imposed no restrictions on the buyer’s ownership. Without any oversight, following the transaction the new owners terminated relationships with a number of Smithfield’s then-existing US partners. For example, a year after the acquisition, Smithfield reportedly ended its contract with CHS, the largest farmer-owned grain cooperative in the United States, and in 2015, Smithfield ended its contract with MaxYield Cooperative, which had supplied a Smithfield feed mill for 20 years. Simultaneously, Smithfield ramped up exports to China, sending a record amount of pork to China in 2020—so much so that the company ran out of blast freezer space (used to store pork) in China.

The acquisition initially raised national security concerns because the buyer is a subsidiary of a Chinese company whose chairman was alleged to have “direct ties” to the CCP. The connection was assumed to have allowed the company to secure the necessary backing from the Chinese government for the required outflow of monies from China, including a $4 billion loan from the state-owned Bank of China. The Smithfield acquisition was recently cited by the US-China Economic Security Review Commission as raising concerns beyond just proximity. Had that deal been solely a land purchase, it is not clear that CFIUS would have had jurisdiction to review it, or that it even would now, because of the proximity requirement in FIRRMA.

Food supply and food security represent, perhaps, the most obvious national security issues raised by real estate transactions outside of the proximity concerns currently within the Committee’s jurisdiction. The last couple of years—spanning a global pandemic, war, and record-high inflation—have showcased the frailty of domestic and global supply chains and the consequential impacts of supply volatility and commodity shortages. There is a rapidly growing recognition that food security represents an important part of national security, and both are impacted when real estate transactions occur in this sector.

Once land assets and their production are acquired by a foreign entity, there are few, if any, national security restrictions relating to the use of that land. As a result, real estate acquired by foreign entities or governments can present unique challenges to US national security.

While CFIUS can address national security concerns in transactions it has the authority to review, to paraphrase Wayne Gretzky, the US misses 100% of the cases it does not review.

The potential national security issues arising from land ownership are also demonstrated by the recent focus on Russia, which revealed to the American public that Russian oligarchs had acquired many premier properties in the United States, some without disclosing their interests. Yet, the vast majority of these acquisitions were not then, and would not be now, subject to CFIUS review. And for the few that might be subject to CFIUS analysis, the decision to file a notice would be up to the parties, as pure real estate transactions are not subject to mandatory CFIUS action. Thus, in addition to the type of real estate transactions subject to CFIUS jurisdiction, the lack of any authority for mandatory submissions remains a continuing concern for many in Congress focused on national security.

Reviewing land purchases only when they are close to a US military installation or a limited set of critical infrastructure leaves significant gaps in the ability of foreign investment reviews to protect US national security. National security risks that continue to attract attention include where there is a potential impact on supply chains and food security in the United States, where critical information and communications technology and services (ICTS) facilities are located, and numerous other important areas. Consequently, Congress is considering numerous proposals to expand CFIUS jurisdiction, as listed below. If that jurisdiction is expanded in the near future, it seems likely real estate transactions will be among those for which broader reviews occur.

Relevant Proposed Legislation

Due to current constraints on CFIUS’s review of real estate transactions, Congress has proposed a number of legislative amendments to expand the Committee’s jurisdiction or otherwise impose greater regulatory oversight on foreign-party purchases of real estate. Some of the more relevant legislative initiatives include the following:

• On April 21, 2021, Senators Ted Cruz, Marco Rubio, and Steve Daines introduced the Protecting Military Installations and Ranges Act of 2021, which would make CFIUS reviews mandatory for land acquisitions near sensitive US military installations.
• On October 5, 2021, Senators Tommy Tuberville, Cynthia Lummis, Roger Marshall, and Rick Scott introduced the Foreign Adversary Risk Management (FARM) Act, which would
  • add the secretary of agriculture as a member of CFIUS;
  • expand the definition of “critical infrastructure” to include agricultural production facilities and real estate; and
  • mandate reports to Congress on current and potential foreign investments in the US agricultural industry from the USDA and Government Accountability Office (GAO).
• On October 21, 2021, Senator John Kennedy introduced the Exposing China’s Belt and Road Investment in America Act of 2021, which would add greenfield investment to CFIUS jurisdiction, specifically requiring that parties submit declarations to CFIUS if China’s government controls or has substantial interest in the investment.
• On June 23, 2022, the House Appropriations Committee approved an amendment to the Fiscal Year 2023 Agriculture, Rural Development, Food and Drug Administration, and Related Agencies Bill, which would completely prohibit companies from Russia, China, North Korea, and Iran from purchasing US agricultural land.
  • The previous year, the Appropriations Committee voted to ban China from acquiring additional US farmland, but the proposal was later revised to a request for a USDA report on the matter.

Conclusions

The continuing increase in acquisitions of US land by non-US persons, particularly agricultural land, underscores the point that there is a need to revisit the legal authorities governing CFIUS reviews of real estate transactions. Foreign ownership of US real estate has demonstrated implications for US national security. Due to FIRRMA’s limitations, legislative action would be required to expand reviews of real estate deals where national security can be placed at risk.

Contacts

If you have any questions or would like more information on the issues discussed in this LawFlash, please contact the authors or any of the following Morgan Lewis lawyers:

Washington, DC
Giovanna M. Cinelli
Kenneth J. Nunnenkamp
David Plotinsky
Ulises R. Pin
W. Barron Avery
Heather C. Sears
Katelyn M. Hilferty
Christian Kozlowski
Charles C. Rush
Eli Rymland-Kelly

Boston
Carl A. Valenstein

Brussels
Christina Renner

Frankfurt
Michael Masling

Houston
Casey Weaver

London
Joanna Christoforou

Legal practice assistant Julia Benbenek contributed to this LawFlash.

###
Originally Appeared Here

A lobbying group representing the interests of Apple has joined a coalition of corporate titans and industry organizations in a concerted effort to derail portions of President Joe Biden’s $3.5 trillion economic agenda.

The Business Roundtable, a group of U.S. business leaders that counts Apple CEO Tim Cook as a board member, is preparing to oppose corporate tax increases designed to fuel the Democratic spending initiative, reports The Washington Post.

Biden proposed a hike in corporate tax rates from 21% to 28%, while placing heftier burdens on profits earned overseas. Democratic lawmakers are hoping to push the laws through as a reconciliation bill, a procedure that allows Congress to pass legislation with a simple majority. Passage is not guaranteed by the 117th Congress, however, as Democrats enjoy only narrow control over both houses, a precarious position potentially vulnerable to intense lobbying.

Business Roundtable’s concerns are part of a wider effort that targets key sections of Biden’s budget plan. A “lobbying blitz” is being organized by the U.S. Chamber of Commerce, which seeks support from all corners to fight the economic package, including its cost, policy scope and tax demands, according to the report.

In a statement, Business Roundtable spokesperson Jessica Boulanger said the group is engaged in “a significant, multifaceted campaign” to fight tax increases, adding that it would “continue to ramp up our efforts in the coming weeks.”

Organizations taking part in the strategy are expected to lean on traditional lawmaker lobbying as well as more modern maneuvering like advertising campaigns, sources told the publication. Companies and lobbying groups have committed to or are already running ads against the reconciliation package.

In addition to Business Roundtable, the RATE Coalition is also at odds with the Democrats’ tax agenda. RATE Coalition includes members Disney, FedEx and Lockheed Martin. Broader opposition might also be mounted by the National Association of Manufacturers, a major advocacy group representing more than 14,000 members. NAM’s board includes executives from Dow Inc., Exxon, Caterpillar and Johnson & Johnson. A parallel effort from the pharmaceuticals industry targets drug pricing proposals.

Guided by Biden’s spending proposals, Democrats are crafting legislation that will expand Medicare coverage, combat climate change, increase access to education, introduce broad subsidies for low- and medium-income families and more.

###
Originally Appeared Here