Chinese SOE Legal Immunity

21 Jun 2016

By Chris Clayton
DTN Ag Policy Editor

OMAHA (DTN) -- Sen. Charles Grassley took to the Senate floor Tuesday to express concerns about Chinese state-owned enterprises trying to avoid American court systems through foreign sovereignty immunity.

The Republican from Iowa, who is chairman of the Senate Judiciary Committee, raised the concerns as the federal government continues looking into whether the sale of seed-and-chemical company Syngenta should be allowed to be bought by the Chinese state-owned enterprise ChemChina. Grassley suggested his committee may hold hearings and possibly introduce legislation to curb state-owned enterprises from hiding behind their government to avoid lawsuits.

ChemChina, formerly known as the China National Chemical Corp., announced plans earlier this year to buy Swiss-based Syngenta for $43 billion. About $12 billion of Syngenta's annual revenue comes from North American ag sales, Grassley noted. The senator indicated there are possible long-term implications in dealing with state-owned enterprises that are opaque in ownership and accountability.

"Even if these transactions function seamlessly for the first 10 to 15 years, there are strategic questions we need to consider before approving the sale of any more of our agricultural assets to another government," Grassley said.

Grassley cited that he and Sen. Debbie Stabenow, D-Mich., had asked the Committee on Foreign Investment in the U.S., known as CFIUS, to thoroughly review the ChemChina-Syngenta deal and include USDA in the process. CFIUS is expected to analyze the national security implications of any foreign investment in the U.S. Grassley said he believes food security is a critical part of national security.

According to Bloomberg news, ChemChina is asking CFIUS for more time before completing its review of the Syngenta purchase. ChemChina has not responded to questions about the Syngenta deal. A spokesman for Syngenta on Tuesday told DTN the companies would not comment on the CFIUS process because it is confidential in nature.

In preparing for the Syngenta purchase, ChemChina announced last week that it was bringing on another investor, an investment fund run by CITIC Trust, yet another state-owned enterprise. CITIC is committing $5 billion for shares in the Syngenta deal. The investment is being done to satisfy Swiss law regarding the equity-and-loan requirements for the takeover of a company, ChemChina stated in a news release.

Most of Grassley's floor speech Tuesday focused on concerns over news articles pointing to Chinese state-owned enterprises trying to avoid the U.S. legal system through claims of sovereign immunity.

DTN highlighted the issue last month in an article pointing out cases in which Chinese state-owned enterprises have had lawsuits against them in U.S. courts dismissed by citing that they are part of sovereign nations and immune to civil litigation under the Foreign Sovereign Immunities Act. http://dld.bz/…

It should be noted that ChemChina has not used the immunity claim in U.S. courts, but other Chinese state-owned enterprises have used the FSIA claim multiple times.

Grassley noted such claims of legal immunity by businesses warp the actual meaning of why the FSIA law was created. The law was meant to uphold centuries of immunity tradition in courts for foreign governments acting in the role as a foreign power, not acting in commercial activity. "I've seen reports noting cases where companies owned by foreign governments have claimed that they are immune to suits by American companies or consumers in our courts. And sometimes, their arguments have succeeded, which raises concerns that the exception may not be working as designed."

Grassley pointed to a case in New Orleans where a Chinese state-owned company accused of selling shoddy drywall got a case dismissed against it, leaving the plaintiffs in the case without any recourse.

Grassley said on the Senate floor the issue is one he intends to keep mulling over for possible hearings and legislation to avoid courts granting state-owned enterprises similar immunity as those companies continue investing more heavily in the U.S.

"Foreign state-owned companies are arguing that many of their affiliates don't have to answer the claims of American companies and consumers, even when it's clear that at some level the company engaged in market activity that may have harmed Americans," Grassley said. "Sometimes, like in the New Orleans case, the companies are succeeding."

Grassley had earlier told reporters, "We're trying to get a handle on this."

Chris Clayton can be reached at Chris.Clayton@dtn.com

Follow him on Twitter @ChrisClaytonDTN

(AG/)