In February, ChemChina, a Chinese state-owned chemical company, offered more than $43 billion in cash to buy its Swiss rival Syngenta. The purchase is undergoing regulatory review in various countries. It would combine Syngenta of Switzerland, one of the main global seeds and crop protection companies, and ChemChina of China, which controls Adama, the largest supplier of generic crop protection products in Europe.
The deal is one of several announced in the past 10 months that include: Dow Chemical Co. and DuPont; Bayer AG and Monsanto; Agrium Inc. and Potash Corp.
ChemChina declined an invitation to attend a Sept. 20 hearing with the U.S. Senate Judiciary Committee on the consolidation and competition within the seed and agrochemical industry. Representatives from Dow, DuPont, Monsanto, Bayer and Syngenta testified before the committee.
Following the hearing Grassley sent a letter to Ren Jianxin, chairman of ChemChina, regarding ChemChina’s acquisition of Syngenta and concerns of the company’s possible use of the Foreign Sovereign Immunities Act.
The Foreign Sovereign Immunities Act (FSIA) of 1976 is a law that establishes the limitations whether a foreign sovereign nation may be sued in U.S. federal or state courts.
|U.S. Senator Chuck Grassley of Iowa|
In his letter, Grassley stated that “Syngenta will not raise the defense” of foreign sovereign immunity to current or future litigation filed by U.S. residents. Syngenta also will not use the following defenses in any current or future litigation: the doctrines of international comity, the act of state of doctrine, the foreign sovereign compulsion doctrine and the political question doctrine.
In its response, ChemChina wrote that Syngenta would be entirely owned by the Chinese state-owned company, meaning it would be possible for Syngenta to assert sovereign immunity as a defense to claims brought in U.S. courts. And, while ChemChina indicated that immunity would not extend to Syngenta’s U.S. business, the company failed to note that immunity would otherwise apply to a wholly state-owned entity.
“FSIA immunity does not and will not extend to the commercial activities of these businesses, including those of Syngenta’s U.S. business once the acquisition is complete,” ChemChina stated in its response. “Further, in the 10 years that ChemChina has been doing business in the U.S., it has never invoked FSIA or sovereign immunity in U.S. courts. That said, we do not believe it is appropriate for a foreign investor to be required to enter into a consent decree with the U.S. Department of Justice regarding this matter given the lack of applicability of FSIA to commercial activity.”
Grassley introduced legislation in September to make sure that state-owned enterprises don’t attempt to skirt responsibility through the U.S. courts. His State-owned entities Transparency and Accountability Reform (STAR) Act legislation would ensure that state-owned companies engaged with U.S. companies and consumers as market participants would have to respond to claims brought in U.S. courts, just like any other foreign company that isn’t owned by a government.
When he introduced the bill, Grassley said some state-owned enterprises have tried to use the Foreign Sovereign Immunities Act to their advantage in the U.S. judicial system. State-owned enterprises often have complex ownership structures and then, when facing court proceedings, claim that immunity given to foreign sovereign governments in U.S. courts is also available to the state-owned enterprise at various levels of the organization.
“China, through state-owned enterprises, has made buying western companies an annual tradition over the last several years,” Grassley said. “The transactions involve billions of dollars worth of market share and intellectual property. ChemChina’s answers to my questions provide some important insight into its acquisition of Syngenta, but the answer regarding sovereign immunity leaves a number of concerns.”