Chinese firm’s victory in court of US sets precedent

The Chinese-owned Ralls Corp hardly expected it could win an appeal against the Obama administration over an investment dispute recently.

The victory is likely to push the US government to bring at least a little more transparency to its secretive national security review process.

The US Circuit Court of Appeals for the District of Columbia ruled that President Barack Obama and the Committee on Foreign Investment in the United States failed to provide Ralls with due process, as required by the US Constitution. The company had been denied the right to own wind farms in Oregon, for supposed national security reasons.

It was the first time that the committee has lost an appeal by a foreign company.

In 2012, the deal by Ralls, a subsidiary of China’s machinery conglomerate Sanyi Group, was blocked by Obama and the Foreign Investment Committee because the wind farms were said to be too close to a military facility. Ralls sued Obama and the committee — an interagency group that assesses the national security implications of mergers — claiming they had failed to respect constitutional rights and to provide detailed evidence to support the denial.

National security reviews in the US are traditionally opaque, and the US president and the committee have the power to block any deal if they believe national security is threatened. Companies have been reluctant to challenge the government’s decisions in court because it was believed the government had such broad authority in these matters that any lawsuit was doomed to fail.

“We conclude that the President Order deprived Ralls of its constitutionally protected property interests without due process of law,” the court wrote, adding that “due process requires, at the least, that an affected party be informed of the official action, be given access to the unclassified evidence on which the official actor relied and be afforded an opportunity to rebut that evidence”.

Chinese investment in the US has been growing rapidly in recent years, and a number of Chinese companies have failed to pass national security reviews. The most eye-catching case was China National Offshore Oil Corp’s failed attempt to acquire Union Oil Company of California in 2005.

Chinese Internet technology heavy weight Huawei is currently banned from making any investment in the United States, as the country sees telecommunications as one of its most sensitive sectors for foreign investment.

Although the Foreign Investment Committee is widely expected to make some changes, Lowery said it is unrealistic to think a considerable amount of information will be released because it uses a great deal of classified information. The US government has laws and regulations about what information can be classified.

“This case could nonetheless open up huge issues pitting intelligence agencies that do not want to make public what they know, versus US legal issues of due process and equal treatment, versus the World Trade Organization and Bilateral Investment Treaty issues of non-discrimination and mostfavored-nation,” said Theodore Moran, a senior researcher with the Peterson Institute for International Economics