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Ralls squaring off against Obama in court

Ralls Corp files a lawsuit against US President Obama for blocking its wind-farm projects in Oregon. Photo: Agencies


Ralls Corp, a wind power enterprise associated with Sany Group, the largest construction machinery conglomerate in China, asked a federal judge in Washington on Wednesday to hear its case against US President Barack Obama's decision to scrap the purchase of four wind-farm projects near a US navy facility in Oregon.


Ralls argued on Wednesday that Obama's move could cost the company at least the $20 million it has spent on design and construction since acquiring the Oregon sites.


Lawyers for Ralls told US District Judge Amy Berman Jackson at a two-hour hearing that the company's rights were violated by the September 28 move to bar the wind-farm deals due to an unspecified national-security risk.


Viet Dinh, one of the lawyers representing Ralls, said the company was informed of the national-security reservations "out of the blue".


"We do not know whether it's locational or whether it's equipment-related or the height of the tower," Dinh told Jackson at Wednesday's hearing. "We've been asked to disprove a negative in an entire universe of negatives."


The company also argued that it hasn't been given a chance to address the Obama administration's concerns.


"We just want to do business here, and help the local economy with job creation," Wu Jialiang, CEO of Ralls Corporation, said. "But CFIUS' decision labeled us a 'national security' risk without further evidence and ordered us to end the project without any mention of compensation or anything.


Wu also said, "CFIUS has done this to other Chinese companies, too, so we hope bringing our case through legal channels will make CFIUS realize that it should show justice toward all Chinese companies, and provide evidence of decisions they make."


"Bringing this to the court is really the last thing we want to do, as we all know going to court is a big deal in any country, either in China or the US," Wu told China Daily after the hearing.


Ralls bought four plots of land on which it planned to build a wind farm in March 2012. The deal was later blocked by the Committee on Foreign Investment in the United States (CFIUS), a government agency empowered to review foreign purchases of US assets to ensure they entail no national security risk.


CFIUS said it had found “credible evidence” that Chinese ownership of land near a military facility posed a risk. Ralls challenged that finding, prompting Mr. Obama to issue the first presidential order in 22 years backing a CFIUS ruling.


Obama issued the executive order at the climax of his presidential campaign, when he was under fire from Mitt Romney for being soft on China. Ralls then filed a suit against the president for exceeding his authority.


"By failing to provide Ralls with sufficient notice and opportunity to be heard prior to prohibiting its acquisition of the wind farms and imposing extraordinary restrictions on the use and enjoyment of its property interests, CFIUS and the president have unconstitutionally deprived Ralls of its property absent due process," Ralls said in an amended complaint filed with the court in October.


Defending Obama's decision, the Justice Department argued that Jackson should dismiss Ralls' lawsuit because the federal Defense Production Act prohibits judicial review of a presidential order to block the foreign acquisition of a US business. The administration has no obligation to explain the reasoning behind its decision, the department said.


Jackson didn't rule on the government's request to dismiss Ralls' lawsuit.


“No chance of being successful”


Lawyers do not expect the case to go far, but they agree that the case won't likely have much impact on Chinese investment in the US.


"The government has a pretty good case that once the president issues an executive order, that is the end of the story," said David Fagan, an expert on cross-border investment with Covington & Burling, a Washington law firm. "The statute is pretty clear that the president has the authority to prohibit a transaction to safeguard national security."


"The Exon-Florio amendment specifically exempts presidential decisions such as this from judicial review, so Ralls' lawsuit has virtually no chance of being successful," said Clif Burns, a lawyer with Washington firm Bryan Cave LLP who specializes in export controls and economic sanctions. He was referring to a federal law enacted in 1988 that provides for scrutiny of foreign investments.


"The case will be a near impossibility to win, since rarely do private interests have the resources or political capital to go against a government which makes all the rules," Ann Lee, a New York University economics professor and author of What the US Can Learn from China, said. "It will be a good way for the Chinese to get experience working the US legal system even if they lose."


"It is a US court ruling on a Chinese case against their national security reasons. I think it's just too obvious. I don't think the outcome would be favorable to Sany." Wu Gaolin, vice-chairman of US China Business Association, said.


But the lawsuit has symbolic and psychological value, said Hao Junbo, an independent expert on transnational legal cases. “It will be good publicity in China,” he said. “When you challenge the Titan, the US, you appear a hero.”


At the same time, Hao added, “The case presents a confident Chinese company insisting it has not done anything wrong. This case’s meaning is psychological.”


Lawsuit not to affect Chinese investment in the US


US officials insist that the Ralls decision signals no general hostility to Chinese investment. “The president’s decision is specific to this transaction and is not a precedent with regard to any other foreign direct investment from China or any other country,” the Treasury Department said in a statement.


Indeed, the figures show that Chinese investment in the US, though still a tiny fraction of overall foreign investment there, is growing fast; a record $7.8 billion in deals had been announced this year by the end of August, according to data from Dealogic.


"The US is very, very open to investment from China … and the CFIUS process was not set up to be biased against China," said Mr. Fagan.


But the 2007 Foreign Investment and National Security Act does establish a presumption that all purchases of US firms by foreign-state-owned enterprises will require a formal CFIUS investigation, pointed out Karl Sauvant, who teaches at Columbia Law School in New York.

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