The House recently passed the America COMPETES Act, which aims to boost the global competitiveness of the United States. However, the bill contains a little-noticed but important provision to create a new US government screening process for outbound investments.

If passed in its current form after being reconciled in the Senate, the bill will have far-reaching implications for cross-border mergers, U.S. investments abroad, technology licensing, and possibly even technology exports.

Since 2017, a bipartisan coalition has focused on addressing national security risks associated with China’s pursuit of civil-military innovation by modernizing the regulatory regime for reviewing foreign investments in the United States.

This effort led to the landmark Foreign Investment Risk Review Modernization Act of 2018, which expanded the jurisdiction of the Committee on Foreign Investment in the United States (CFIUS) to review foreign investments. entrants and created mandatory notification requirements to CFIUS for certain investments involving critical technologies and large investments. personal data.

‘Reverse-CFIUS’ process

Congress is now increasingly focusing its efforts on creating a new US government review regime for US investments overseas, a type of “reverse-CFIUS” process.

The COMPETES Act passed by the House — the companion to the U.S. Innovation and Competition Act that authorized the Senate in 2021 — will create a new interagency body called the National Critical Capabilities Committee. This new CFIUS-style committee would be chaired by the office of the US Trade Representative to review the transfer of critical assets overseas.

Under the bill, the committee’s mandate would be broad, covering “any transaction” that “moves or relocates to a country of concern, or transfers to an entity of concern, the design, development, production, manufacture, the supply, maintenance, testing, management, operation, investment, ownership or any other essential element involving one or more national critical capacities.

The definition of “country of concern” would encompass not only covered investments in U.S. adversaries like China and Russia, but also potentially in “non-market economy” countries like Vietnam and others in Europe and Central Asia.

Review triggers

The scope of “national critical capabilities” triggering the review is equally broad. While specific products and technologies that may trigger review will be listed in later regulations, the bill identifies critical national capabilities as including:

  • medical supplies and medicines,
  • individual protection equipment,
  • essential items for critical infrastructures,
  • items essential for the construction of infrastructure following a natural or man-made disaster, and
  • items essential to the operation of weapons and intelligence gathering systems.

It also identifies industries that would receive particular attention: energy, medicine, communications, defence, transport, aerospace, robotics, artificial intelligence and semiconductors, among others.

Similar to the current CFIUS process, parties to a covered transaction would be required to submit the transaction to the new committee for approval or potential blocking by the President.

The prospect of enacting these provisions remains uncertain. Over the next few weeks, the COMPETES Act is due to be reconciled with the Senate Companion, which did not include an outbound investment review provision, and previous versions have been removed from prior legislation. since at least 2018.

But support is growing among political parties and branches of government. The bipartisan U.S.-China Economic and Security Review Commission recommended legislation “to screen out the relocation of critical supply chains and production capabilities” to China in its report. 2021 in Congress.

Additionally, National Security Advisor Jake Sullivan noted in a July 2021 speech that the Biden administration is “examining the impact of outward U.S. investment flows that could circumvent the spirit of export controls or improve the technological capability of our competitors in a way that harms our national security.”

Deep implications

If something like the outgoing COMPETES Act foreign investment regime is enacted, the implications for U.S. businesses will be profound and could create substantial uncertainty around cross-border capital flows.

First, the bill’s coverage of “any transaction” that “transfers or moves…or transfers” certain capabilities to countries of concern could cover not only new overseas mergers, but also technology licensing, tracking for maintaining non-US facilities, and even exports of US-origin goods.

Second, although transactions in allied countries are excluded, the implications for U.S.-China economic relations would be significant: the U.S.-China Investment Project estimates that 43% of transactions in U.S. investment in China, worth $110 billion, from 2000 to 2019 would have been covered by the new bill. The implications could be particularly severe for investments in the information technology, automotive, biotechnology, venture capital and private equity sectors.

Third, it is unclear whether investments by foreign-registered funds of US-based investment firms would be covered by the bill.

Fourth, it is unclear whether the legislation would trigger reciprocal responses in China, similar to its recent adoption of antidote measures to block compliance with US sanctions by Chinese companies.

Fifthly, it could provide competitive advantages to investors from third countries who do not face such restrictions when investing abroad.

Given these significant ambiguities, one could imagine that a pilot program would be needed before the legislation could come into full effect.

Whatever the details of such a law, a new outbound investment review process would certainly be an accelerator of the broader forces of economic decoupling between key sectors of the US-China relationship.

This article does not necessarily reflect the views of the Bureau of National Affairs, Inc., publisher of Bloomberg Law and Bloomberg Tax, or its owners.

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Author Information

Jason Chipman and Marik rope practice national security law at Wilmer Cutler Pickering Hale and Dorr LLP in Washington, D.C. They previously served, respectively, as Senior Counsel to the Deputy Attorney General at the Department of Justice and Acting Legal Counsel at the Department of State.