Inception date: 13 Aug 2018 | Removal date: open ended
Still in force

FDI: Treatment and operations, nes

On August 13, 2018 President Trump signed into law the John McCain National Defense Authorization Act for Fiscal Year 2019 (NDAA). One section of this law is the Foreign Investment Risk Review Modernization Act (FIRRMA). The FIRRMA overhauls the operations of the Committee on Foreign Investment in the United States (CFIUS), which reviews some investment transactions for their national security implications. FIRRMA expands the scope of the committee’s jurisdiction and makes changes in the rules and procedures that may be more likely to lead to determinations that limit or prohibit acquisitions of U.S. companies by foreign investors.

(Note that on September 17, 2019, CFIUS published two separate proposed rules in the Federal Register that will implement many of the changes to U.S. foreign investment review outlined in FIRRMA. On January 13, 2020 the CFIUS issued the two final rules, which will become effective on February 13, 2020.)

The CFIUS is an interagency committee that reviews the national security implications of such “covered transactions” as mergers, acquisitions, and takeovers by or with any foreign entity that could result in foreign “control” of a U.S. business. It is chaired by the Secretary of the Treasury and its voting members include the U.S. Trade Representative and the heads of several departments (i.e., Commerce, Defense, Homeland Security, Justice, State, and Energy); the Director of National Intelligence and the Secretary of Labor serve as ex officio members. CFIUS may impose certain conditions before allowing a deal to proceed, or require the parties to enter into a mitigation agreement. It may also refer the transaction to the president, who may block transactions that pose a threat to national security. Some proposed deals are voluntarily withdrawn by the parties prior to such presidential actions.

The most consequential of the amendments that FIRRMA makes to the existing process will expand CFIUS jurisdiction to cover additional investments. The bill retains the existing definition of a “covered transaction” as “any merger, acquisition, or takeover that is proposed or pending … by or with any foreign person that could result in foreign control of any United States business” but now defines “control” to include the ability to decide or direct important matters, whether exercised or not. The new law further expands covered transactions to include:

  • The purchase or lease by foreign persons of certain U.S. real estate near a U.S. port, military facility, or other “sensitive” government property;
  • All non-passive foreign investments in any company that deal with “critical technology,” “critical infrastructure,” or “sensitive personal data of United States citizens that may be exploited in a manner that threatens national security.” Covered investments are those that provide corporate control, any position on the board of directors, a role in sensitive decision-making, or access to “material non-public technical information,” with detailed exemptions for investment funds;
  • Changes in existing ownership rights that could result in foreign ownership or control of a U.S. business; and
  • Any other transactions structured to evade CFIUS review.

Critical technologies include “emerging and foundational technologies” are technologies critical to U.S. national security but not controlled under any other export control provisions. Critical infrastructure is defined as "systems and assets, whether physical or virtual, so vital to the United States that the incapacity or destruction of such systems or assets would have a debilitating impact on national security."

FIRRMA centralizes authority in the Treasury Department, creating two new positions responsible for overseeing CFIUS operations. It also requires that all other member agencies have dedicated CFIUS staff, including an assistant secretary or equivalent position.

FIRRMA enumerates several factors that CFIUS should take into account when considering the national security risks posed by foreign investments. These include:

  • Whether a transaction involves a country of special concern that has a strategic goal of acquiring technologies that would affect U.S. technological leadership in that area;
  • The national security effects of cumulative market share control by foreign persons;
  • Whether a foreign person involved in a transaction has a history of complying with U.S. law;
  • How the control of U.S. industries and commercial activity affects the capability and capacity of the United States to meet the requirements of national security, including the reduction in employment of United States persons whose skills are critical to national security and the continued U.S. production of items necessary for national security;
  • The extent to which a transaction is likely to expose sensitive data of U.S. citizens to exploitation by foreign persons and governments; and
  • Whether a transaction exacerbates cybersecurity vulnerabilities or allows a foreign government to gain new capabilities to engage in malicious cyber activities against the U.S., including activities designed to affect the outcome of any federal election.

The new law also amends the CFIUS process in several ways, and expands CFIUS authority to mandate reviews or take unilateral action. It authorizes CFIUS to initiate unilateral review in the case of any breach of a prior agreement where there are no other “adequate or appropriate” remedies. It directs CFIUS to create a process to identify covered transactions that are not submitted to CFIUS.

FIRRMA expands the remedies CFIUS can pursue to address national security concerns. These now include agreements, conditions, suspension of transactions, and referral of transactions to the president.




Inception date: 13 Aug 2018 | Removal date: open ended
Still in force

Export-related non-tariff measure, nes

The export-control provisions in the bill, as provided in Subtitle B, are known as the Export Controls Act of 2018. Viewed in isolation, these provisions might appear as a substantial expansion in presidential authority to impose trade restrictions for purposes of national security. Viewed in the context of existing law and its historical evolution, however, it appears to be one of many steps taken since the end of the Second World War by which Congress has sought to strike a balance between economic and security interests. Like all of its predecessor statutes, this law sets out objectives and creates authorities by which a president could either tighten or loosen restrictions on economic transactions for reasons of national security, but leaves considerable room to the executive in the actual implementation of the law in response to specific circumstances and strategies.

The dual objectives of the law can be appreciated by reviewing the plurality of objectives provided in section 1752. On the one hand, the bill begins by stating that it is “the policy of the United States” to “use export controls only after full consideration of the impact on the economy of the United States and only to the extent necessary (A) to restrict the export of items which would make a significant contribution to the military potential of any other country or combination of countries which would prove detrimental to the national security of the United States; and (B) to restrict the export of items if necessary to further significantly the foreign policy of the United States or to fulfill its declared international obligations.” On the other hand, it then observes that the “national security and foreign policy of the United States require that the export, reexport, and in-country transfer of items, and specific activities of United States persons, wherever located, be controlled” for such purposes as controlling “the release of items for use in …  the proliferation of weapons of mass destruction or of conventional weapons,” “the acquisition of destabilizing numbers or types of conventional weapons,” “acts of terrorism,” etc. And while the bill calls for the preservation of “the qualitative military superiority of the United States” and the strengthening of the U.S. defense industrial base, it also observes that achieving these ends “requires that United States persons are competitive in global markets.”

The law provides for various means by which export and other controls may be created and maintained, such as prohibiting “unauthorized exports, reexports, and in-country transfers of controlled items, including to foreign persons in the United States or outside the United States,” restrictions on “exports, reexports, and in-country transfers of any controlled items,” and licensing or other conditions on exports, reexports, and in-country transfers of controlled items. These authorities do not appear prima facie to represent significant departures from existing law and policy.

The actual impact of these provisions will thus depend primarily on how they are actually implemented by the executive. The first indications are that the Trump administration is still considering that point. That may depend on the result of a policy review that President Trump initiated on June 27, 2018, in which he “directed the Secretary of Commerce to lead an examination of issues related to the transfer and export of critical technologies” so as to “assess our Nation’s export controls and make any modifications that may be needed to strengthen them to defend our national security and technological leadership,” and had also “directed the Secretary of State, the Secretary of the Treasury, the Secretary of Defense, and the United States Trade Representative to engage with our allies and partners to support their efforts to combat harmful technology transfer and intellectual property theft.”

Inception date: 13 Aug 2018 | Removal date: open ended
Still in force

Public procurement, nes

Section 889 generally prohibits procurement of certain telecom equipment from certain Chinese firms. It provides in relevant part that the head of an executive agency may not—

(A) procure or obtain or extend or renew a contract to procure or obtain any equipment, system, or service that uses covered telecommunications equipment or services as a substantial or essential component of any system, or as critical technology as part of any system; or

(B) enter into a contract (or extend or renew a contract) with an entity that uses any equipment, system, or service that uses covered telecommunications equipment or services as a substantial or essential component of any system, or as critical technology as part of any system.

The term “covered telecommunications equipment or services” means any of the following:

(A) Telecommunications equipment produced by Huawei Technologies Company or ZTE Corporation (or any subsidiary or affiliate of such entities).

(B) For the purpose of public safety, security of government facilities, physical security surveillance of critical infrastructure, and other national security purposes, video surveillance and telecommunications equipment produced by Hytera Communications Corporation, Hangzhou Hikvision Digital Technology Company, or Dahua Technology Company (or any subsidiary or affiliate of such entities).

(C) Telecommunications or video surveillance services provided by such entities or using such equipment.

(D) Telecommunications or video surveillance equipment or services produced or provided by an entity that the Secretary of Defense, in consultation with the Director of the National Intelligence or the Director of the Federal Bureau of Investigation, reasonably believes to be an entity owned or controlled by, or otherwise connected to, the government of a covered foreign country.