President Barack Obama barred a Chinese-owned company from building wind farms near a U.S. Navy base in Oregon, the first time in 22 years a president has blocked a transaction as a national security risk.
Obama ordered Delaware-based Ralls Corp. to remove all property and installations from its sites within two weeks and divest all of its interests in the wind-farm project within 90 days. In the area around the sites, the Navy conducts training for bombing, electronic combat maneuvers and develops drones, according to the base’s website.
“The president’s action demonstrates the administration’s commitment to protecting national security while maintaining the United States’ longstanding policy on open investment,” the U.S. Treasury said yesterday in a statement.
The ruling, coming amid campaign charges by Republican challenger Mitt Romney that Obama has been too soft on China, shouldn’t be viewed as a precedent for any other investment from that country, Treasury said.
It replaces an interim order in July by the government’s Committee on Foreign Investment in the U.S., or CFIUS, which reviews acquisitions of domestic companies by non-U.S. entities. CFIUS told the company to stop operations and keep out of development sites it bought near the Naval Weapons Systems Training Facility Boardman, according to a lawsuit Ralls filed on Sept. 12 in federal court to overturn the order.
CFIUS rulings are rarely referred to the president before being resolved some other way, according to a panel report to Congress covering the period from 2008 to 2010.
The last transaction blocked on CFIUS grounds was by then-president George H.W. Bush in 1990 in the proposed acquisition of MAMCO Manufacturing Inc., a maker of motors and generators based in Washington state, by China National Aero-Technology and Export Corp.
“The project poses no national security threat whatsoever, and the president’s order offers no explanation otherwise,” Tim Xia, a lawyer with Morris, Manning & Martin LLP, who represents Ralls, said in a statement. “Scores of other wind turbines already operate in the area where Ralls’s project is located.”
Ralls will continue to press its suit, he said.
U.S. District Judge Amy Berman Jackson in Washington ordered both sides to present a status report by Oct. 1.
Jackson already said she can’t review the president’s decision because of the deference that she’s legally obliged to give the president on national security issues. She urged the government and Ralls to try to reach a deal.
“I thought this case would have been ripe for some sort of mitigation agreement, which would have limited access by the parties but still allow them to obtain the benefit of their purchase,” Greg Jacobs, a lawyer with Reed Smith LLP in Washington, said in an interview before the announcement. “Some will view this as a closed-door to Chinese investment.”
CFIUS received a report on the threat posed by the transaction from the Office of the Director of National Intelligence, in addition to making its own analysis, the Treasury Department said.
Ralls, which is owned by executives of China-based Sany Group Co., was seeking to place Sany-made wind turbines at the Oregon installations after purchasing land and other rights earlier this year. The assets consist of four locations, all of which are near or within the restricted Navy airspace, Treasury said.
Closely held Sany Group is the owner of China’s biggest machinery maker. Dawei Duan, Sany’s chief financial officer and Jialiang Wu, a vice president of the group and general manager of Sany Electric Co., a group unit, own Ralls, according to court filings.
Calls to the head of media relations at Sany Heavy Industry Co. (600031) went unanswered today. The Shanghai-listed Sany Heavy Industry is Sany Group’s main listing entity. Sany is based in Changsha City in Hunan province.
Ralls bought the wind-farm assets earlier this year without reporting the transaction to CFIUS, according to a U.S. filing in the case.
CFIUS is an interagency committee headed by Treasury Secretary Timothy Geithner that reviews the national security implications of transactions that could lead to a non-U.S. citizen controlling a U.S. business. The heads of the departments of Justice, Homeland Security, Commerce, Defense, State, and Energy, among others, sit on the committee. The panel’s recommendations can be enforced only by the president under the law.
Acquisitions by other Chinese companies have been blocked by CFIUS. Chinese telephone-equipment maker Huawei Technologies Co. and Bain Capital Partners LLC dropped a bid to buy computer-equipment maker 3Com Corp. in 2008 after U.S. officials opposed the transaction. Last year, Huawei unwound the purchase of patents from a computer-services company, 3Leaf Systems Inc., after U.S. objections.
Executives from Huawei and another telephone-equipment maker, ZTE Corp., were questioned by lawmakers in Washington earlier this month about their efforts to expand in the U.S.
In other transactions, state-controlled Chinese oil company Cnooc Ltd. (883) made an $18.5 billion bid for U.S. oil producer Unocal Corp in 2005 and later withdrew the offer in the face of opposition from U.S. lawmakers.
In 2006, Dubai Ports World, a state-owned company in the United Arab Emirates, acquired commercial operations at six U.S. ports when it bought a U.K.-based company. While CFIUS approved the deal, Dubai Ports sold the operations after U.S. lawmakers objected to the foreign ownership.
The case is Ralls Corp. v. Committee on Foreign Investment in the U.S., 1:12-cv-01513, U.S. District Court, District of Columbia (Washington.)
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