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This week, there were reports that the Trump
Administration would use emergency powers to restrict Chinese
investment in the United States. On Wednesday, the White House
backed away from that position after the House of Representatives
passed a bill on Tuesday expanding and increasing the powers of the
Committee on Foreign Investment in the United States (CFIUS). The
bill is called the Foreign Investment Risk Review Modernization Act
(FIRRMA).
The 400-2 passage in the House shows an overwhelming bipartisan
momentum behind FIRRMA and signals that the bill is likely to be on
the President's desk for signature as soon as the House and
Senate reconcile their versions. The timing of the actions is not
coincidental. It appears that the Trump Administration has decided
to let Congress take the lead on increasing scrutiny of foreign
investments.
We have reported on the proposed content of FIRRMA (
here and
here), and the list of the bill's main points have been
recited throughout the law-blogging world. However, now that the
bill is on the brink of passage, we believe it is worth examining
three key elements that will have significant impact on foreign
investors and U.S. companies.
Exemptions from the CFIUS Process
It will come as good news for certain investors that the bill
may make it easier for numerous U.S.-allied countries to invest in
the United States. The draft bill authorizes CFIUS to exempt from
its review transactions in which all foreign persons involved are
from a country identified by the Committee (i) as having processes
which effectively safeguard national security interests the country
shares with the U.S.; (ii) is a NATO member country or is a major
non-NATO ally; or (iii) as adhering to nonproliferation control
regimes. That likely creates a list of candidates for exemption to
include:
The NATO Countries;
Australia;
New Zealand;
South Korea;
Japan; and
The Philippines
Investments from that group of countries comprise the majority
of foreign direct investment in the United States, particularly as
we understand that Chinese investment in the United States has dropped 90%.
Expansion of Covered Transactions
FIRRMA will significantly expand CFIUS's authority to review
inbound foreign investments, particularly in technology, even where
those investments do not result in control of the U.S. company by a
foreign entity. The definition of "covered transactions,"
that is, transactions which CFIUS has jurisdiction to review, would
be expanded to include any investment (other than a passive
investment) by a foreign person in any U.S. critical technology
company or U.S. critical infrastructure company, regardless of
whether such investment would result in foreign control. It also
would include the purchase or lease of real estate located at a
land, air or maritime port, or that is in close proximity to a
military installation or other sensitive government facility.
Enhanced Export Controls
Beyond the changes to CFIUS's mandate, FIRRMA would also
require the update and enhancement of U.S. controls on exporting
leading-edge technologies. Currently, U.S. export controls lag
behind emerging technology. Much of the
straight-from-science-fiction developments coming out of Silicon
Valley and elsewhere are simply not contemplated by the years-old
regulations.
FIRRMA would require a group of executive agencies, led by the
Secretary of Commerce, to identify "emerging and foundational
technologies" that "are essential to the national
security of the United States." The bills do not specifically
list technologies to target, but we can expect that robotics,
autonomous vehicles, and artificial intelligence will be at the top
of the list. None of those technologies are specifically controlled
under current U.S. export regulations.
While the expansion of CFIUS powers would likely be implemented
fairly directly through regulation, FIRRMA's export control
changes would be promulgated through changes to the Export
Administration Regulations already in place. Because the export
control changes would require changing or adding to complex and
nuanced rules, as well as years of established practice by
exporters, it is possible, even likely, that changes by that route
may take years to take any major effect.
The Takeaway
A wide variety of companies will be affected by FIRRMA. U.S.
companies developing new technology or exporting controlled items,
and non-U.S. companies considering investments in the United States
will need to make planning adjustments based on the changes we see
coming out of Congress this Summer.
The content of this article is intended to provide a general
guide to the subject matter. Specialist advice should be sought
about your specific circumstances.
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