The House on Tuesday approved legislation to reform the interagency process of the Committee on Foreign Investment in the U.S. (CFIUS) in reviewing foreign entities’ investments in the United States that could pose a national security threat.
The Foreign Investment Risk Review Modernization Act (FIRRMA) that passed by a vote of 400-2 would increase CFIUS’ jurisdiction to certain types of transactions that traditionally haven’t been subject to review by the interagency committee and aims to streamline the review process for transactions least likely to raise national security issues.
The Senate passed its version of FIRRMA earlier this month as part of the National Defense Authorization Act (NDAA).
The House was set to vote on a motion on Wednesday to move NDAA into conference.
The different versions of the bill could be reconciled during the NDAA conference process in which both chambers of Congress will work to hammer out one piece of legislation or through a bicameral conference process for only the FIRRMA provisions if they are dropped from the NDAA.
President Donald Trump and other senior administration officials in statements on Wednesday indicated that FIRRMA would address U.S. government concerns about sensitive foreign investment into this country, including with regard to China’s investments in the United States.
Those statements marked the outcome of weeks of Trump administration deliberations on investment restrictions to be imposed on China following the Office of the U.S. Trade Representative’s (USTR’s) findings released in a March report pursuant to Section 301 of the Trade Act of 1974 that China is unfairly forcing U.S. companies doing business in China to transfer critical technology to the country.
In response to that Section 301 report, a first tranche of tariffs against China — worth about $34 billion in annual import value — is set to take effect July 6, with another $16 billion in planned tariffs against China to undergo public notice and comment.
“Upon enactment of FIRRMA legislation, I will direct my administration to implement it promptly and enforce it rigorously, with a view toward addressing the concerns regarding state-directed investment in critical technologies identified in the Section 301 investigation,” Trump said in his statement.
Trump also noted he has directed the Commerce Department to lead an examination of issues related to the transfer and export of critical technologies, which will evaluate U.S. export controls and “make any modifications that may be needed to strengthen them to defend our national security and technological leadership.”
A senior Trump administration official said during a call with reporters on Wednesday that FIRRMA would expand CFIUS’ jurisdiction to certain investments that are not controlling but afford the investor “substantial rights in the entity,” enhance anti-evasion authorities to prevent companies from structuring around CFIUS and increase CFIUS’ ability to tailor its reviews to the most sensitive U.S. technologies, including by defining what constitutes a critical technology.
“The legislation is strong and responsive to some of the concerns that have been raised both in the 301 investigation, but also in our review and in Congress’ review of the CFIUS process,” another senior administration official said during the call. “It also maintains the open investment climate that … has helped our economy grow over years.”
One provision included in the House bill but not the Senate bill is language that directs a more rigorous review process for investments from several countries including China, Russia, Iran and Venezuela.
Further, the House legislation includes much of the text of the Export Control Reform Act of 2018, which would provide a permanent statutory basis for the Export Administration Regulations (EAR) and would broaden the definition of technologies subject to U.S. export controls.
The EAR statutorily expired in 2001 and has been operating under emergency authority pursuant to the International Emergency Economic Powers Act since 2001.
Neither the House bill nor the Senate bill currently contains previously included language that would have expanded CFIUS’ jurisdiction to outbound foreign investment, including such cases in which joint ventures would entail sharing of U.S. firms’ critical technology with foreign entities.
“Through the combination of the enhancements on CFIUS as well as the things that are included in the legislation on export controls, we believe that we will have a very tough approach that will be very responsive to issues that were raised in the 301 report through examination of the CFIUS process,” one of the senior administration officials said.
Regarding the two separate versions of FIRRMA, the other administration official said that the executive branch is working with Congress to “ensure that the tools that come out of the conference process are as strong and as flexible for addressing the concerns here as possible,” but the official declined to comment more specifically on what range of provisions the administration is prioritizing for passage.
During House floor debate on Tuesday, Rep. Jeb Hensarling, R-Texas, who chairs the House Financial Services Committee that OK’d the legislation by a unanimous vote, said, “This legislation recognizes that CFIUS and export controls are complementary, and as two sides of the same coin, reforms to both clearly belong in the same bill.”