DEFINITION of Exon-Florio Provision

Exon-Florio Provision is a provision that allows the president of the United States to suspend or block the foreign acquisition of a U.S.-based company for reasons of national security. The Exon-Florio provision only allows for the acquisition to be blocked if there is clear evidence that the foreign acquiring party could threaten national security through its control of the acquired company and the provisions of law don't provide the adequate authority for the U.S. to protect national security.

BREAKING DOWN Exon-Florio Provision

The Exon-Florio Provision was instituted by the Committee on Foreign Investment in the U.S. (CFIUS) and was implemented in 1988. It is covered under Section 721 of the Defense Production Act of 1950. This provision can reduce the level of direct foreign investment as foreign companies may be prevented from carrying out acquisitions.

Foreign Acquisitions

Although the law was originally enacted to passed at a time when Japanese companies were busy acquiring U.S. companies, in recent years the explosive growth of the economy in the People's Republic of China has been in the spotlight and the main concern of the committee. The January 2014 sale of Motorola Mobility by Google to Chinese computer corporation Lenovo did go through, but Xcerra Corp in January  2018 said that a U.S. national security panel had blocked its $580 million sale to a Chinese state-backed semiconductor investment fund.

The powers under the Exon-Florio and subsequent laws rest in the Committee on Foreign Investment in the United States (CFIUS). Canyon Bridge Capital Partners LLC, a U.S.-based private equity firm funded by the Chinese government, saw its $1.3 billion acquisition of U.S. chip maker Lattice Semiconductor Corp collapse last year after it was blocked by CFIUS, Reuters reported. Earlier in 2018, President Trump blocked the proposed acquisition of Qualcomm by China's Broadcom.

The concern among policymakers is not only that foreign companies will be able to acquire key technology but they would also would gain the ability, by selling certain products in the U.S., to place monitoring or tracking devices or other malware into devices such as smartphones. 

"Some members [of Congress} question CFIUS’s performance and the way the Committee reviews cases involving foreign governments, particularly with the emergence of state-owned enterprises," notes a 2018 Congressional Research report. "Some policymakers have suggested expanding CFIUS’s purview to include a broader focus on the economic implications of individual foreign investment transactions and the cumulative effect of foreign investment on certain sectors of the economy or by investors from individual countries."