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4. Barriers to investment
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4.1 Discriminations in taxation

Foreign branches in the US or any American corporation that has at least one 25 percent foreign shareholder are required to maintain or create books and records relating to transactions with related parties. The documents must be stored at a place specified by the US tax authorities and an annual statement filed containing information about dealings with related parties. There are stiff penalties for non-compliance with the provisions. Although their purposes, the prevention of tax avoidance and evasion, are reasonable, they are burdensome and add to the complexity for foreign-owned corporations doing business in the US.

4.2 Investment review out of national security concern

The Exon-Florio Amendment authorizes the US President to investigate any merger, acquisition or take-over that might threaten the national security of the US. The investigation is carried out by the Committee on Foreign Investments in the United States (CFIUS). Such investigations tend to be time-consuming and costly in legal fees, thus constituting barriers to foreign investment. Moreover, if the President believes the transaction will threaten national security, he can take actions to suspend or prohibit the transaction. The denial of foreign investor's rights does not require court review, nor are the investors compensated for such losses.

In practice, domestic political factors in the US often play a role which affects such transactions. Both Lenovo's offer to acquire IBM Personal Computing division and the bid of China National Offshore Oil Corp (CNOOC) to acquire Unocal were played up by certain US Congressmen and the US media. Lenovo finally won the deal after many negotiations and the rigorous scrutiny by CFIUS, while CNOOC had to drop the acquisition after Capitol Hill had unnecessarily played up the issue.

4.3 Restrictions on market access and investment

Foreign ownership is expressly restricted by US federal laws in certain sectors considered particularly sensitive, such as radio and TV broadcasting, domestic air, marine transportation and fishing. In addition, certain highly regulated sectors, such as banking, insurance, electric and gas, and communications, are subject to discretionary governmental action, especially on the state level. Foreign investment therein is often subject to a higher level of scrutiny.

4.3.1 Mineral leasing and energy development

Energy resources generally are regulated by both state and federal laws. Exploration and development of energy resources, as well as their refinery, wholesale and marketing are all operated by private companies, which obtain the right to development and production through public tender for leasing or selling. However, the federal Mineral Lands Leasing Act allows mineral lands owned by the federal government to be leased only to US citizens and to corporations organized in the US. The latter may be foreign-owned, but in general a greater than 10 percent foreign ownership is allowed only to the extent the foreign owners' country grants similar rights to US citizens - that is, reciprocity is required. The Secretary of the Interior determines what countries do not provide reciprocal treatment.

The Mineral Leasing Act of 1920, which governs rights to mine coal, oil, oil shale and natural gas on land sold by the federal government subject to reserved mineral mining rights, restricts such mining to U.S. citizens, corporations and other U.S. entities. Also, for an alien to obtain an interest in a mineral lease held by a U.S. citizen under the Mineral Leasing Act of 1920, the Secretary of the Interior must approve any subleases or assignments of such leases.

On August 8 2005, President Bush signed the Energy Policy Act of 2005. In view of CNOOC's bid to acquire Unocal, an additional provision was put in the Act, which requires that the Secretary of Energy, in consultation with the Secretary of Defense and Secretary of Homeland Security, shall conduct a study of the growing energy requirements of China and the implications of such growth on the economic or national security interests of the United States, and shall report to the President and the Congress on the findings of the study, as well as any recommendations the Secretaries consider appropriate, not later than 120 days after the date of the enactment of the Act. For various reasons, the report was postponed to February 2006. China will closely watch the progress of this study and possible action by the US

4.3.2 Land and real estate

Foreign persons are allowed to invest in real estate in the US through buying, selling or leasing. There are special regulations, however, on investment in certain lands. As restricted by US laws, land owned by US Land Administration is not allowed for sale to foreign persons. Over 30 states, particularly those with extensive farming areas, have laws restricting foreign interests in real estate to different extents. The disposition of a US real property interest by a foreign person (the transferor) is subject to the Foreign Investment in Real Property Tax Act of 1980 (FIRPTA) income tax withholding.

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