By By Alexandra Alper
WASHINGTON (Reuters) – Nippon Steel’s proposed $14.9 billion takeover of U.S. Steel would create national security risks because it could hurt the supply of steel needed for critical transportation, infrastructure, construction and agriculture projects, the U.S. said in a letter sent to the companies and seen by Reuters.
Decisions by Nippon could “lead to a reduction in domestic steel production capacity,” the Committee on Foreign Investment in the U.S. (CFIUS) said in its 17-page letter sent Saturday to Nippon Steel and U.S. Steel, first reported by Reuters.
“The consequences to national security that have been identified relate to the possible supply chain disruptions to sectors critical to national security, particularly transportation, infrastructure, construction and agriculture,” the committee wrote.
Nippon Steel told CFIUS in a letter Tuesday that it will invest billions of dollars to maintain and boost U.S. Steel facilities that otherwise would have been idled. Nippon added that the deal “indisputably will maintain and potentially increase domestic steelmaking capacity in the United States.”
But CFIUS argued “A continued loss of viable commercial production capabilities and related skilled workforce will jeopardize the U.S. steel industry’s ability to meet the full spectrum of national security requirements.”
The committee, which reviews foreign investments for national security threats, also sees risk arising from Nippon’s growing presence in India, where production costs are much lower than in the U.S.
CFIUS also voiced concerns about Nippon Steel’s policy toward seeking U.S. trade relief for products manufactured domestically. It noted that Nippon sometimes resists such relief for the U.S. domestic steel industry, raising the possibility that U.S. Steel would be less aggressive in seeking trade remedies under Nippon’s control.
Nippon has said it would not transfer any U.S. Steel production capacity or jobs outside the U.S. and would not interfere in any of U.S. Steel’s decisions on trade matters, including decisions to pursue trade measures under U.S. law against unfair trade practices.
Nippon Steel, U.S. Steel, the White House and the Treasury Department, which leads CFIUS, did not immediately respond to requests for comment.
Nippon Steel has proposed a detailed draft agreement to address CFIUS’s concerns.
(Additional Reporting by David Shepardson; editing by Chris Sanders and David Gregorio)