Who knew that pork could be a national security problem?
That may be the case with the $4.7 billion offer from Shuanghui International of China for Smithfield Foods. The deal will be subject to a national security review by the Committee on Foreign Investment in the United States, or Cfius. There are important implications not just for pork but for how Washington looks at Chinese investment.
Shuanghui's proposed purchase would be the largest Chinese acquisition of an American company, so it is bound to receive intense scrutiny. Shuanghui was not required to submit to a review, but that would have been foolhardy given the size of the deal and the money at stake. The decision also means that the United States government cannot come back later and undo the transaction once the committee approves it.
To understand what will happen next, it is important to understand the sometimes dry history of the national security review.
The Committee on Foreign Investment has its origins in the 1980s when the United States feared not investment from China but Japan. In 1987, Fujitsu, a Japanese company, tried to acquire the Fairchild Semiconductor Corporation. Congress responded by passing the 1988 Exon-Florio Amendment, which grants the president the ability to block or unwind a foreign acquisition if there is "credible evidence" that a "foreign interest exercising control might take action that threatens to impair the national security." The law is administered by the committee.
In 2011, according to the most recent data available, 111 review notices were filed with the panel, 40 were investigated and 6 deals were withdrawn.
The law came under a spotlight in 2007 during Dubai Ports World's proposed acquisition of Peninsular and Oriental. Dubai Ports is in the United Arab Emirates, one of the United States' strongest allies in the Middle East.
The supposed threat of a Persian Gulf country's operating ports in the United States pushed Congress to pass the National Security Foreign Investment Reform and Strengthened Transparency Act. The bill strengthened and broadened the review process, adding critical infrastructure and foreign-government-controlled transactions as factors for consideration.
Reviews have centered on four categories of companies: manufacturing, finance and information services, mining and construction, and transportation.
In the case of the deal for Smithfield, the product is pork, and it is unclear whether the panel has ever examined such a transaction.
The review is likely to cover three categories. First, it is likely to look at any contracts Smithfield has to supply pork to the military or other security agencies. Second, it is likely to examine any special technology like farm-rearing techniques that might be transferred to China. Finally and perhaps most relevant, there is the food supply chain itself and whether Shuanghui will be in a position to disrupt the United States' food supply — or at least the supply of pork.
It is the issue of food supply protection that most experts believe will probably get the bulk of the attention of the committee.