Articles Tagged with CFIUS

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There are several legislative proposals pending in Congress targeting trade and investment involving China. If enacted, the proposals would prevent Chinese entities from acquiring certain U.S. technologies, prohibit U.S. government procurement from ZTE and Huawei, and limit U.S. issuers from receiving investments from Chinese parties.

Fair Trade with China Enforcement Act

Sen. Marco Rubio (R-FL) has introduced the Fair Trade with China Enforcement Act (Fair Trade Act), which would impose significant restrictions on Chinese investment in U.S. companies producing certain categories of products as well as prohibit the outbound transfer of intellectual property (IP) and sensitive technologies to China. The bill would further institute a U.S. Government procurement ban on products/services from both Huawei and ZTE.

The Fair Trade Act focuses on the ten strategic sectors cited by China’s Made in 2025 initiative. The bill would require the U.S. Trade Representative (USTR) to create a list of products that receive support from the Chinese government pursuant to the Made in China 2025 policy, as well as any product receiving Chinese government support that has displaced U.S. exports of like products. At a minimum, the list would include products in the following industries:

(1) Civil aircraft; (2) Motor car and vehicle; (3) Advanced medical equipment; (4) Advanced construction equipment; (5) Agricultural machinery; (6) Railway equipment; (7) Diesel locomotive; (8) Moving freight; (9) Semiconductor; (10) Lithium battery manufacturing; (11) Artificial intelligence; (12) High-capacity computing; (13) Quantum computing; (14) Robotics; and (15) Biotechnology.

The Fair Trade Act would amend Section 13(d) of the Securities Exchange Act of 1934 to prohibit issuers participating in the above sectors from being majority-owned by a Chinese investor. In addition, the law would create a presumption that imports from China of products included in USTR’s list benefit from countervailable subsidies under the U.S. trade remedy law.

The legislation would also call for the U.S. Commerce Department to impose a blanket prohibition on the export of any sensitive technology or intellectual property to China. This likely would restrict licensing agreements with Chinese companies and could have significant effects on U.S. companies with Chinese subsidiaries or affiliates.

Finally, the Fair Trade Act would target ZTE and Huawei by prohibiting the U.S. Government from entering into any contract with an entity that uses, or contracts with any other entity that uses, any telecommunications equipment or services provided by ZTE or Huawei.

Foreign Investment Risk Review Modernization Act

The proposed Foreign Investment Risk Review Modernization Act (FIRRMA) would alter the Committee on Foreign Investment in the United States (CFIUS) review process. See our prior posting on FIRRMA here.

The Senate Banking Committee will mark up a FIRRMA draft on May 22, though the discussion draft does not include prior language that would have authorized CFIUS to review outbound investments for technology transfers that could harm U.S. national security. The discussion draft would still define a covered transaction to include any “non-passive” investment by a foreign person in critical technology or a critical infrastructure company, among other types of transactions.

Trade Authority Protection Act

The Trade Authority Protection (TAP) Act would require the President to submit a report to Congress prior to taking any “congressionally delegated trade action,” which is a defined list of actions under certain provisions of law (e.g., Section 232 of the 1962 Trade Expansion Act, Section 301 of the Trade Act of 1974, the International Emergency Economic Powers Act (IEEPA), etc.). The list is as follows:

  • A prohibition on importation of the article.
  • The imposition of or an increase in a duty applicable to the article.
  • The imposition or tightening of a tariff-rate quota applicable to the article.
  • The imposition or tightening of a quantitative restriction on the importation of the article.
  • The suspension, withdrawal, or prevention of the application of trade agreement concessions with respect to the article.
  • Any other restriction on importation of the article.

Congress would then be able to pass a joint resolution prohibiting the action.  The prospects for enactment of any of these proposed laws remains uncertain.

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Recent reports suggest that the Administration may declare an emergency under the International Emergency Economic Powers Act (IEEPA) to grant the Committee on Foreign Investment in the United States (CFIUS) authority to review transactions involving the transfer of U.S. technology and intellectual property (IP) to foreign entities, even where there is no transfer of “control” as currently required under existing CFIUS regulations.  This executive action would follow a memorandum issued by President Trump directing the U.S. Government to propose possible restrictions on Chinese investment in U.S. companies due to concerns outlined by the Office of the United States Trade Representative (USTR) in connection with its Section 301 investigation.  The potential CFIUS review of U.S. technology transfers to foreign entities would mirror one aspect of the pending Foreign Investment Risk Review Modernization Act of 2017 (FIRRMA).

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On November 8, 2017, members of the U.S. House and Senate introduced companion legislation that would update the Committee on Foreign Investment in the U.S. (CFIUS) and the national security review process. The bill, entitled the Foreign Investment Risk Review Modernization Act of 2017 (FIRRMA), would change the scope of what is considered a “covered transaction” and add a new “declaration” process that would be required in certain cases. Below are three of the most significant changes contained in the proposed bill.

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President Trump issued an Executive Order prohibiting the proposed acquisition of Lattice Semiconductor (Lattice) by a Chinese consortium known as Canyon Bridge. Lattice is a semiconductor company primarily manufacturing programmable logic devices.  The Executive Order prohibits the proposed acquisition and any substantially equivalent transaction, and requires the parties to permanently abandon the proposed transaction in 30 days. The Executive Order follows a lengthy review process with the Committee on Foreign Investment in the United States (CFIUS). This is only the fourth time since the enactment of the Exon-Florio Amendment in 1988 that a transaction has been formally blocked.

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Recent public reports indicate Sen. Chuck Schumer (D-NY), the Senate Democratic Leader, has authored a letter to President Trump requesting the President order the Committee on Foreign Investment in the United States (CFIUS) to suspend the approval of all covered transactions by Chinese entities.  Sen. Schumer explains that such action would place severe economic pressure on China and force the country to take more stringent action against North Korea.  While President Trump has publicly expressed “disappointment” with China over its perceived lack of response to recent North Korean missile tests, it is unclear what actions, if any, the President might take to spur action from China.

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As the Trump Administration continues to examine its trade relationship with China, legislators in Congress are looking to modernize the Committee on Foreign Investment in the United States (CFIUS) review process in order to effectively respond to increased foreign direct investment in the U.S. and perceived threats to U.S. national security. On June 22, 2017, Senator John Cornyn (R-TX) spoke at the Council on Foreign Relations where he highlighted key features of his proposed Foreign Investment Risk Review Modernization Act (FIRRMA).  The bill would make certain changes to the CFIUS review process in order to close perceived gaps.  As described, however, it appears that CFIUS already has the legislative and regulatory authority to address many of these issues.

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