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At a campaign event last month in Pennsylvania, the heartland of American steel manufacturing, President Biden made clear that he does not want the proposed takeover of U.S. Steel by Japan’s Nippon Steel to happen.
“We’re finally making sure that United States Steel stays United States Steel,” Mr. Biden said. “It’s not going to be anybody else’s steel.”
How that promise will be kept has yet to be determined. U.S. Steel said this week in its first-quarter earnings release that it expected the acquisition to be completed in the second half of this year, but noted that timing depended on getting regulatory approvals.
On Friday, Nippon Steel said that it was delaying its timeline for the deal to close, from the middle of the year to the end of 2024, because it had been asked to provide more information about the transaction to the Department of Justice, which is reviewing the deal.
The intensifying scrutiny of the acquisition has raised expectations that the $15 billion buyout could ultimately be scuttled by the Biden administration. It has also called attention to the secretive interagency panel that could be the ultimate arbiter of the merger: the Committee on Foreign Investment in the United States.
With a presidential election six months away and opposition to the deal strong among union members and some Senate Democrats, the opaque committee is facing pressure to conclude that a deal involving a company of a top American ally threatens national security.
The committee, known as Cfius, was created in the 1970s to screen international mergers and acquisitions for national security concerns. Over the years the definition of national security has broadened and in many cases the work of the panel has been consumed by political considerations, often with a focus on keeping Chinese investments out of America.
But scrutiny of Nippon’s bid for U.S. Steel is unlike recent transactions involving companies such as China’s ByteDance or Singapore’s Broadcom, which former President Donald J. Trump blocked from acquiring the American chipmaker Qualcomm in 2018.
Instead, it appears to be the 1980s all over again — when anxiety over trade with Japan ran high.
In 1983 the threat of a Cfius intervention caused another metals merger involving the same Nippon Steel Corporation to unravel. At that time, Nippon wanted to acquire the specialty metals unit of the Pittsburgh-based Allegheny International. The U.S. metals business was struggling because of the slumping airline industry, which was one of its major markets, and Nippon was interested in gaining a foothold and a factory in the United States.
The Reagan administration had other ideas, however, and at the request of the Department of Defense, the transaction was reviewed by Cfius. The Pentagon was concerned about the Allegheny unit’s technology making its way to the Soviet Union, and classified the metal that the U.S. firm produced as critical to national security on the basis it was used to make military aircraft. Faced with that complication, Nippon reluctantly withdrew its offer.
“In 1983 there was a real bona fide concern of technology leakage to the former Soviet Union,” said Mario Mancuso, who leads the international trade and national security practice at the law firm Kirkland & Ellis.
Mr. Mancuso noted that the situation 40 years ago differs significantly from the current case because it is hard to argue that the Nippon Steel bid could somehow benefit an adversary like Russia or China.
“Now, no one is alleging that U.S. Steel technology is going to China, because U.S. Steel and Nippon want to compete against China,” he said.
The investment review panel was established in 1975 through an executive order by President Gerald R. Ford amid concerns about investments that members of the Organization of the Petroleum Exporting Countries were making in American portfolio assets, according to the Congressional Research Service.
Led by the Treasury secretary and made up of officials from federal agencies, the purview of Cfius has broadened in scope in recent decades along with what the United States considers a threat to national security. Today, technology such as semiconductors and quantum computing are considered matters of national security, a departure from the early days when the concerns stemmed mostly from access to American innovations that could be used to build traditional military equipment such as tanks and planes.
Over the years, the powers of Cfius and the types of transactions that it can review have been expanded by Congress as political crosswinds changed course or intensified.
Following a political firestorm in 2006 after a state-owned Dubai company, DP World, sought to manage some terminal operations at six American ports, Congress intervened to deter the deal. It also moved to impose greater transparency on Cfius and ensure that it was screening international transactions rigorously.
In 2018, amid concern about Chinese investments, Congress passed legislation that gave the committee more time to scrutinize transactions and the authority to review land purchases near military installations.
By 2022, Cfius reviewed more than 400 transactions and 20 were abandoned after the committee raised national security concerns that could not be mitigated, according to the panel’s most recent report to Congress. For cases that require a full investigation, the committee makes a recommendation to the president, who has the final say about whether a transaction should be blocked on national security grounds.
The U.S. Steel acquisition will be particularly thorny because Japan is a close ally — Mr. Biden hosted Japanese Prime Minister Fumio Kishida for a formal state dinner last month.
However, the Biden administration has made supply chain resiliency a priority following the pandemic, when shortages of products like semiconductors revealed America’s dependency on foreign sources for critical materials. The committee could argue that there are national security concerns related to the United States losing any control over domestic steel supplies. The committee could also try to require Nippon to agree to safeguards that would protect American jobs and ensure a sufficient level of steel supplies are available.
During a news conference last week, Treasury Secretary Janet L. Yellen declined to confirm whether Cfius was reviewing the U.S. Steel deal, noting the confidentiality of its work. However, she acknowledged the concerns about the company’s ownership.
“I certainly accept the president’s view, which he has stated, that the company should remain in American hands,” Ms. Yellen said. “He hasn’t said specifically that it’s an issue of national security, but one that has to do with the good of the workers and the country.”
Following Mr. Biden’s comments in April, Nippon Steel released a statement pushing back against suggestions that the deal posed a threat. The company promised that jobs would be protected and that it planned to invest in Pennsylvania.
“There will be no plant closures, and production and jobs will remain in America,” the company said.
The timing of the outcome remains an open question. It could depend on whether Nippon wants to see the process through and if Mr. Biden wants to take action to ensure that U.S. Steel remains an American company before the election.
To some experts, the possibility that such a deal, involving a close American ally, could unravel is a case of politics eclipsing policy.
“It’s an election year and the notion of a foreign company buying an iconic brand in the U.S. in a swing state just invites a kneejerk political response,” said John Kabealo, a Washington-based lawyer who specializes in cross-border transactions.
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