Business Intelligence and Investigations
Providing firms with investigative expertise to help resolve conflict.Business Intelligence and Investigations
2017 was an unusual year in U.S.-Asia trade and investment. Asian companies seeking to invest in the U.S. market face a rare level of uncertainty while continuing to favor the united states as a prime investment location.
Since the transition to a new presidential administration in the United States, the so-called “pivot” to Asia appears to have been reversed as showcased by the withdrawal of the United States from the Trans-Pacific Partnership (“TPP”) in 2017. The U.S. withdrawal from TPP has challenged trade relations with much of Asia, including with Japan, who made significant market access accommodations to the United States in TPP negotiations and now faces talk of U.S. action to reduce the negative trade balance between the two countries. The trade relationship with South Korea is also challenged by recent indications that the trade agreement between South Korea and the United States (“Korus”) may be in jeopardy because the negative trade balance with South Korea continues under Korus. Added to this uncertainty is the suggestion of import restrictions and increased tariffs which may reduce the value of investments in the United States by Asian multinational companies who manage their costs by leveraging global supply chains.
Turbulence on the U.S. trade policy front comes at the same time that uncertainty is growing on the regulatory front. This includes a push for more aggressive use of national security tools, such as the Committee on Foreign Investment in the United States (“CFIUS”), a federal, inter-agency committee charged with the national security review of transactions in which a foreign entity acquires control of a U.S. entity. Combined, all these factors are creating regulatory and commercial risks for Asian companies seeking to make investments in the United States. CFIUS risks have increased due to, among other things, proposed legislation expanding CFIUS’ jurisdiction. A potential expansion of CFIUS jurisdiction may be particularly worrisome for Asian investors when considered in the context of the most recent CFIUS Annual Report to Congress1. Even under CFIUS’ current and more limited jurisdiction, acquisitions by investors from China and Japan were in the top four of all covered transactions reviewed by CFIUS during the period discussed by the report.
Moreover, with respect to Chinese investors in particular, investment risks are compounded by the release in August 2017 of overseas investment guidelines by the Chinese government prohibiting certain overseas investments. The Chinese government has also issued a series of new measures to control capital outflow, which makes engaging in M&A activities in the United States and beyond increasingly challenging for cash-rich Chinese enterprises.
Notwithstanding these challenges, significant opportunities are available to Asian investors in the United States, particularly when such investment has the potential to sustain or increase U.S. jobs. How should investors navigate the convergence of regulatory and commercial risk with the significant investment opportunities in the United States?
Companies from Asia and around the world may consider taking the following steps: