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Chinese companies have embarked on a new era of protecting their interests in overseas markets through legal means. Sany Group, the country’s largest machinery maker, vowed on October 18 to “fight to the very end” in its lawsuit against U.S. President Barack Obama after he blocked its wind farm project on national security grounds, making it the first Chinese company to take such a move.
Ralls Corp., an associated company of Sany Group established in August 2010, has invested in a series of wind power projects in the United States in recent years.
Ralls, which is owned by two Sany executives, planned to install wind turbines, made by Sany, close to a naval training site in Oregon, which, according to the facility’s website, is used to test unmanned drones—a highly sensitive and prized U.S. technology.
Obama ordered Ralls to divest its interests in the project, the first time since 1990 that a U.S. president has formally blocked a business transaction on security grounds.
“This measure caused us more than $20 million in direct investment losses, excluding indirect losses,” said Ralls Chief Executive Wu Jialiang, one of the Sany executives who own the company, at a press conference in Beijing on October 18 where the company disclosed information regarding the lawsuit.
Ralls argues that Obama exceeded his power by dictating the terms of the sale, allowing the government to inspect all aspects of its operations and failing to treat the company equally as required under the law.
Sources close to Ralls have also said there are other wind farms owned by foreign competitors in the vicinity.
Obama’s order followed a recommendation from the Committee on Foreign Investment in the United States (CFIUS), an inter-agency group headed by the Treasury secretary that evaluates the national security risks of foreign investments in U.S. companies or operations. Ralls is suing the committee as well.
Ralls submitted the lawsuit to the U.S. district court for the District of Columbia on October 1 and is suing Obama because it says the impact of his decision on the company’s operations is huge. The case will be heard on November 28.
The prospect
“All procedures and permits required before construction were in place and confirmed by specialist lawyers and the projects had received ‘No Hazards’ clearance from the Federal Aviation Administration,” Wu said.
“Even until today, we don’t quite understand why the committee wanted to launch its investigation in the first place,” he said.
Wu said he was determined to press ahead.
“We are fully confident that we will win this lawsuit because we are innocent,” said Wu at the press conference.
“This is the perfect illustration of our confidence in the U.S. legal system, as well as our firm belief that there is no such threat posed to U.S. national security of any kind, and there never will be,” said Wu. “If in the end Sany wins this lawsuit, it would be a true triumph of the U.S. legal system, for it will be viewed as the best demonstration for the world to know that the United States is indeed a country where legitimate investments will be protected by the Constitution regardless of where they come from.”
“We will fight to the very end,” he said, adding that the U.S. action was partly motivated by politicians seeking to score points ahead of the U.S. presidential election in November.
Seven years after Sany established its presence in the United States, the world’s sixth largest machinery manufacturer has a base in both Atlanta and Wisconsin. Its operations in the United States have involved hundreds of millions of dollars and created hundreds of jobs.
Despite assurances from Sany’s senior executives, the lawsuit is viewed as a long shot given that courts do not often second guess the executive branch on security issues, said analysts. Tim Tingkang Xia, an attorney representing Ralls, acknowledged that the case will be tough as the courts routinely agree with decisions made by the committee.
“It is going to be a tough battle,” said Josh Zive, a lawyer with Bracewell & Giuliani who has handled CFIUS cases for 10 years. Zive said the courts tend to stay away from second guessing the executive branch on national security issues. “There is a large amount of discretion given not only to agencies, but in the context of national security, that will make it difficult to win.”
Xiao Shunwu, an associate professor at Southwest University of Political Science and Law, also said Sany has a slim chance of winning its case.
“If a U.S. company sues president Obama, it may win. But it will be extremely difficult for a Chinese company to win such a case. In a country with the most advanced jury system, the U.S. citizens, who are currently mired in an economic crisis, are apt to rule against the interests of foreign companies.”
Significance
Chinese investment in the United States has been blocked before on grounds of “national security.”
In 2009, CFIUS forced the Chineseowned Nonferrous International Investment Co. to backtrack on a proposal to buy Nevadabased Firstgold, whose properties were close to a naval air station.
And in 2011, Chinese telecom maker Huawei had to relinquish plans to buy some assets from U.S. server technology firm 3Leaf after CFIUS ordered Huawei to give up some parts of the deal.
Recently, the U.S. House of Representatives Intelligence Committee issued a report alleging that Huawei and ZTE, another Chinese hi-tech company, posed a possible threat to U.S. national security.
The report recommended that regulators block Huawei and ZTE from acquiring U.S. companies, adding that government computer systems should not include components made by the two companies on fear they “might pose an espionage risk.”
However, a White House-ordered review of possible security risks found no evidence that either company had been involved in spying.
Niu Xinchun, Vice President of the Institute of American Studies at the China Institutes of Contemporary International Relations, said there is a tendency for U.S. politicians to believe that “whatever the reason, being tough on China is safe.”
Although the chances of Sany winning the case are slim, it signals a new era for Chinese companies seeking to protect their interests in overseas markets through legal means, experts said.
They also warned that the case could have consequences on Chinese investment in the United States.
“Ours is a relatively small case, but it connects to the fundamental faith of thousands of Chinese investors,” Wu said.
Blocking investment from China will hurt the United States more than China, said Shen Danyang, spokesman of the Ministry of Commerce on October 19.
“Such moves will hurt bilateral trade ties. In fact, China’s investment to the United States grew the slowest among China’s major trade partners in the first nine months of the year,” said Shen.
From January to September 2012, Chinese companies’ outbound investment to the United States increased by 14.3 percent year on year, much lower than the average growth rate of 40 to 50 percent, according to data from the ministry.
“We hope the U.S. judicial departments will handle the lawsuit fairly, justly and publicly,” Shen said.
The ministry hopes the U.S. side will refrain from politicizing trade issues and resume business as usual, he said.
Hao Junbo, a claims and litigation expert, said Chinese companies used to back away from international disputes.
“As a lawyer for Chinese companies, I know they would often react passively when their interests were challenged,” Hao said.
“Sany is the first, but it will not be the last. Chinese companies are increasingly confident in dealing with legal issues,” he said.
Ralls Corp., an associated company of Sany Group established in August 2010, has invested in a series of wind power projects in the United States in recent years.
Ralls, which is owned by two Sany executives, planned to install wind turbines, made by Sany, close to a naval training site in Oregon, which, according to the facility’s website, is used to test unmanned drones—a highly sensitive and prized U.S. technology.
Obama ordered Ralls to divest its interests in the project, the first time since 1990 that a U.S. president has formally blocked a business transaction on security grounds.
“This measure caused us more than $20 million in direct investment losses, excluding indirect losses,” said Ralls Chief Executive Wu Jialiang, one of the Sany executives who own the company, at a press conference in Beijing on October 18 where the company disclosed information regarding the lawsuit.
Ralls argues that Obama exceeded his power by dictating the terms of the sale, allowing the government to inspect all aspects of its operations and failing to treat the company equally as required under the law.
Sources close to Ralls have also said there are other wind farms owned by foreign competitors in the vicinity.
Obama’s order followed a recommendation from the Committee on Foreign Investment in the United States (CFIUS), an inter-agency group headed by the Treasury secretary that evaluates the national security risks of foreign investments in U.S. companies or operations. Ralls is suing the committee as well.
Ralls submitted the lawsuit to the U.S. district court for the District of Columbia on October 1 and is suing Obama because it says the impact of his decision on the company’s operations is huge. The case will be heard on November 28.
The prospect
“All procedures and permits required before construction were in place and confirmed by specialist lawyers and the projects had received ‘No Hazards’ clearance from the Federal Aviation Administration,” Wu said.
“Even until today, we don’t quite understand why the committee wanted to launch its investigation in the first place,” he said.
Wu said he was determined to press ahead.
“We are fully confident that we will win this lawsuit because we are innocent,” said Wu at the press conference.
“This is the perfect illustration of our confidence in the U.S. legal system, as well as our firm belief that there is no such threat posed to U.S. national security of any kind, and there never will be,” said Wu. “If in the end Sany wins this lawsuit, it would be a true triumph of the U.S. legal system, for it will be viewed as the best demonstration for the world to know that the United States is indeed a country where legitimate investments will be protected by the Constitution regardless of where they come from.”
“We will fight to the very end,” he said, adding that the U.S. action was partly motivated by politicians seeking to score points ahead of the U.S. presidential election in November.
Seven years after Sany established its presence in the United States, the world’s sixth largest machinery manufacturer has a base in both Atlanta and Wisconsin. Its operations in the United States have involved hundreds of millions of dollars and created hundreds of jobs.
Despite assurances from Sany’s senior executives, the lawsuit is viewed as a long shot given that courts do not often second guess the executive branch on security issues, said analysts. Tim Tingkang Xia, an attorney representing Ralls, acknowledged that the case will be tough as the courts routinely agree with decisions made by the committee.
“It is going to be a tough battle,” said Josh Zive, a lawyer with Bracewell & Giuliani who has handled CFIUS cases for 10 years. Zive said the courts tend to stay away from second guessing the executive branch on national security issues. “There is a large amount of discretion given not only to agencies, but in the context of national security, that will make it difficult to win.”
Xiao Shunwu, an associate professor at Southwest University of Political Science and Law, also said Sany has a slim chance of winning its case.
“If a U.S. company sues president Obama, it may win. But it will be extremely difficult for a Chinese company to win such a case. In a country with the most advanced jury system, the U.S. citizens, who are currently mired in an economic crisis, are apt to rule against the interests of foreign companies.”
Significance
Chinese investment in the United States has been blocked before on grounds of “national security.”
In 2009, CFIUS forced the Chineseowned Nonferrous International Investment Co. to backtrack on a proposal to buy Nevadabased Firstgold, whose properties were close to a naval air station.
And in 2011, Chinese telecom maker Huawei had to relinquish plans to buy some assets from U.S. server technology firm 3Leaf after CFIUS ordered Huawei to give up some parts of the deal.
Recently, the U.S. House of Representatives Intelligence Committee issued a report alleging that Huawei and ZTE, another Chinese hi-tech company, posed a possible threat to U.S. national security.
The report recommended that regulators block Huawei and ZTE from acquiring U.S. companies, adding that government computer systems should not include components made by the two companies on fear they “might pose an espionage risk.”
However, a White House-ordered review of possible security risks found no evidence that either company had been involved in spying.
Niu Xinchun, Vice President of the Institute of American Studies at the China Institutes of Contemporary International Relations, said there is a tendency for U.S. politicians to believe that “whatever the reason, being tough on China is safe.”
Although the chances of Sany winning the case are slim, it signals a new era for Chinese companies seeking to protect their interests in overseas markets through legal means, experts said.
They also warned that the case could have consequences on Chinese investment in the United States.
“Ours is a relatively small case, but it connects to the fundamental faith of thousands of Chinese investors,” Wu said.
Blocking investment from China will hurt the United States more than China, said Shen Danyang, spokesman of the Ministry of Commerce on October 19.
“Such moves will hurt bilateral trade ties. In fact, China’s investment to the United States grew the slowest among China’s major trade partners in the first nine months of the year,” said Shen.
From January to September 2012, Chinese companies’ outbound investment to the United States increased by 14.3 percent year on year, much lower than the average growth rate of 40 to 50 percent, according to data from the ministry.
“We hope the U.S. judicial departments will handle the lawsuit fairly, justly and publicly,” Shen said.
The ministry hopes the U.S. side will refrain from politicizing trade issues and resume business as usual, he said.
Hao Junbo, a claims and litigation expert, said Chinese companies used to back away from international disputes.
“As a lawyer for Chinese companies, I know they would often react passively when their interests were challenged,” Hao said.
“Sany is the first, but it will not be the last. Chinese companies are increasingly confident in dealing with legal issues,” he said.