President Barack Obama blocked on Friday a privately owned Chinese company from building wind turbines close to a Navy military site in Oregon due to national security concerns. The company said it would challenge the action in court.
The rare presidential order to divest interests in the wind farms comes as Obama campaigns for a second term against Republican Mitt Romney, who has accused him of being soft on China.
Ralls Corp, which had been installing wind turbine generators made in China by Sany Group, has four wind farm projects that are within or in the vicinity of restricted air space at a naval weapons systems training facility, according to the Obama administration.
"There is credible evidence that leads me to believe" that Ralls Corp, Sany Group and the two Sany Group executives who own Ralls "might take action that threatens to impair the national security of the United States," Obama said in issuing his decision.
Ralls Corp had filed a lawsuit against the Committee on Foreign Investment in the United States (CFIUS) for ordering it to stop all construction and operations at its projects while the government panel completed its investigation and finalized its recommendation to Obama.
After the decision was announced on Friday, the company said it was confident that the courts would vindicate Ralls Corp's rights under the law and the Constitution.
Although CFIUS reviews dozens of foreign investment deals for potential national security concerns every year, the president is rarely called upon to issue a formal order as companies usually abandon their deals or divest assets when the panel takes issue with their transaction.
The last time a president formally blocked a deal on national security grounds was in 1990 when then President George H.W. Bush stopped a Chinese aero-technology company from acquiring a U.S. manufacturing firm.
"This is a big deal because it is the first time since 1990 that the president of the United States has either blocked a transaction from occurring or divested a transaction that has occurred," said Clay Lowery, a former assistant secretary at Treasury who oversaw the CFIUS process and now is with Rock Creek Global Advisors.
Ralls Corp had hired the George W. Bush administration's top lawyer Paul Clement to help represent the company as well as a former U.S. assistant attorney general, Viet Dinh, who helped the Republican administration develop the Patriot Act. But that appeared to do little to convince the current administration to allow the company to resume operations.
The presidential order gives the Chinese company 90 days to divest all its interests in the projects. However, sources close to Ralls Corp said the company was still evaluating the order and had no immediate plan to unwind its activities.
Only one of the four wind farms was in restricted airspace and CFIUS never came up with a plan that would require the company to only divest interests in that particular project, the sources said.
In addition, the sources said there are other wind farms in the same area that are also operated by foreigners — albeit one company is from Denmark and the other from Germany.
Obama's decision comes as two other Chinese companies are vying for CFIUS approval.
The Treasury Department stressed that Obama's decision was not a precedent for other investments from China or any other country. Acting Commerce Secretary Rebecca Blank said the United States generally welcomed investment from China but not in every case.
"Particularly when you're talking about China, but there's other countries where this is true too, one has to be worried about national security concerns," Blank said in remarks at the Council on Foreign Relations earlier on Friday.
China's state-owned oil company CNOOC Ltd is trying to buy Canada's Nexen in a $15.1 billion deal and Chinese auto parts company Wanxiang Group Corp is about to takeover U.S. battery maker A123 Systems Inc. Both Chinese firms are waiting for the government panel's decision and CFIUS experts see the Ralls case as a one-off decision.
"There have been many Chinese investments in the U.S. that have gone through without trouble," said Benjamin Powell, a former general counsel to the director of national intelligence who is now a partner at Wilmer Hale.
© 2014 Thomson/Reuters. All rights reserved.