US President Donald Trump on Monday signed into law a new defence appropriations bill that authorises tougher regulations on foreign investments in the US – including deals from China.
The US$716 billion John S. McCain National Defence Authorisation Act – which is named for the Arizona senator, who is battling brain cancer – broadens the command of a cross-agency unit that reviews foreign investments in the US for national security concerns.
Under the new law, the unit, known as the Committee of Foreign Investment in the US, or CFIUS, will have the authority to review a broader set of mergers and acquisitions by foreign buyers.
The law “significantly expands CFIUS’s jurisdictional ambit, and reflects the most comprehensive reform to CFIUS in its history”, Mario Mancuso, a senior member of George W. Bush’s national security team and author of A Dealmaker’s Guide to CFIUS, said on Monday.
Changes to the review process were originally introduced as a separate bill – the Foreign Investment Risk Review Modernisation Act of 2018, also known as FIRRMA – in November 2017 by Republican Senator John Cornyn and Democratic Senator Dianne Feinstein. It was later incorporated into the defence spending bill.
In a statement on Monday, Nancy McLernon, president and CEO of the Organisation for International Investment (OFII), said that “FIRRMA does not radically change the scope of CFIUS to make it a tool for escalating trade disputes, coercing market reciprocity or imposing bygone industrial policy”.
Instead, she said, “It keeps CFIUS squarely focused on protecting US national security from the deceitful efforts of our nation’s adversaries.”
This is the first reform that the review process has undergone in more than a decade. Although the bill did not single out any countries in particular, the lawmakers have not shied away from spelling out that China’s acquisitions of US key technologies are their main concern.
The current review process “has allowed bad actors to exploit gaps in our safeguards to gain a competitive edge on the United States”, Cornyn said in a statement shortly after the bill was signed. “We can no longer allow dual-use military technology to be vacuumed up by countries like China.”
Mancuso, who currently leads the CFIUS practice at the law firm Kirkland & Ellis, said the new law “will capture many investments that have not been historically subject to CFIUS’s review”, including venture capital and private equity deals, as in many cases it shifts the reviewer’s focus “from whether a foreign investor could ‘control’ a US business to whether the foreign investor is ‘non-passive’”.
Before the new law goes into effect, the Treasury Department will provide guidance on terms, including definitions of what “critical” technologies might be.
Analysts have expressed concern over the lack of clarity regarding what kinds of technology will raise red flags for the committee. That could lead to abuse, or paralyse companies trying to decide what technologies might be off-limit, they have said.
The law also finalises weakened regulations that were originally intended to clamp down on Chinese telecoms company ZTE, which was found to have sold parts to Iran and North Korea in violation of US sanctions.
A Senate proposal would have effectively reintroduced US sanctions against ZTE, stopping it from buying US parts and putting it out of business, but intervention from the White House saw it watered down.
Now, under the new law, the US government is barred from buying from ZTE, but the phone maker is still allowed to buy US parts and sell to American consumers.
Despite the bill being named for McCain, Trump avoided mentioning the Republican senator’s name in his opening speech. McCain has been a vocal opponent of Trump’s.
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