David Hanke John A Gurtunca May 21 2021 To outrun China, Senate to consider groundbreaking legislation Arent Fox LLP | International Trade - USA David Hanke, John A Gurtunca International Trade IntroductionNeed to knowBackgroundMany chefs in Senate kitchenEmergency fundingMulti-pronged approach to tackling China challenge – legislative detailsNext stepsIntroductionThe Senate has kicked off the complicated process of coordinating and passing multi-committee legislation designed to:bolster US technological capabilities;expand the US political, diplomatic and economic toolkit for dealing with China; andcurb China's growing geopolitical influence.The effort has garnered strong bipartisan support and is likely to yield landmark legislation that will be enacted with strong bipartisan support and the backing of the Biden administration.Need to knowA key Senate committee has taken a major bipartisan step to counter China in an era of increasing technological rivalry.The Senate is likely to expand and pass the Endless Frontier Act shortly, but the Biden administration may seek to slow the process while it formulates its own China-related policies.The House of Representatives is likely to draft and push a separate version of China legislation this summer.On 11 May 2021 the Senate Committee on Commerce, Science, and Transportation held a business meeting on the bipartisan Endless Frontier Act and voted to advance the bill by 24 votes to four. The Endless Frontier Act is a major legislative package that aims to better position the United States for a decades-long economic and technological competition with China that some thought leaders have appropriately dubbed the "superpower marathon". At the heart of the bill, which is co-authored by Senate Majority Leader Chuck Schumer (Democrat, New York) and Senator Todd Young (Republican, Indiana), is an effort to significantly boost federal funding for US research and development. Going forward, the Endless Frontier Act will also serve as the legislative vehicle for the Senate's upcoming consideration of an array of bipartisan legislation to counter China in a variety of areas.BackgroundOn 23 February 2021 Schumer announced that he had directed the chairs of multiple Senate committees to "start drafting a legislative package to outcompete China and create new American jobs". He set out three ambitious goals for the legislation:"enhance American competitiveness with China by investing in American innovation, American workers and American manufacturing";"invest in strategic partners and alliances: NATO, Southeast Asia and India"; and"expose, curb, and end once and for all China's predatory practices which have hurt so many American jobs".To those ends, for the past several months multiple Senate committees have been drafting and internally negotiating bipartisan legislative contributions to this effort. These separate pieces are likely to be merged into one China-centric bill on the Senate floor and passed before the 4 July 2021 recess. The Endless Frontier Act will serve as both the centrepiece of this bipartisan legislative package and also the legislative vehicle for the Senate's floor debate thereon.Many chefs in Senate kitchenWhen the Endless Frontier Act reaches the Senate floor, one of the most significant additions will likely be the Senate Foreign Relations Committee's Strategic Competition Act, which was marked up by the committee on 21 April 2021 and reported out on an overwhelming 21-to-one bipartisan vote (further details are provided below).In addition, the leaders of the Senate Banking Committee, Chair Sherrod Brown (Democrat, Ohio) and Ranking Republican Member Pat Toomey (Republican, Pennsylvania), have unveiled an aggressive proposal that includes new mandatory sanctions on "Chinese actors engaged in cyberattacks against the U.S., or in the theft of intellectual property from U.S. firms". Brown characterised the amendment as enabling the United States to "hold China accountable by imposing real economic costs and responding directly to aggressive Chinese behavior with a broad range of political, diplomatic, and economic – including sanctions – tools".Likewise, the leaders of the Senate Finance Committee, Chair Ron Wyden (Democrat, Oregon) and Ranking Republican Member Mike Crapo (Republican, Idaho), are working cooperatively on their own legislative contribution, which they have yet to unveil. However, Wyden suggested at a recent hearing on US-China trade relations that the package would likely include an ambitious array of provisions:Cracking down on the use of forced labor. Fighting censorship. Protecting U.S. jobs by rooting out counterfeits. Shoring up supply chains, including semiconductors and medical products. Stepping up trade enforcement and oversight.Lastly, the Senate Homeland Security and Governmental Affairs Committee is also expected to make a bipartisan contribution to the overall legislative package on the Senate floor. The committee held a mark-up on 12 May 2021 and advanced 11 different bills – including some on cyber breaches, AI and restrictions on government procurement of Chinese-made drones, as well as several on Buy America. The committee is expected to offer at least some of these proposals for the broader Senate package. When viewed together, the various committee proposals represent a multi-pronged legislative approach to more aggressively counter China's effort to overtake the United States as the top global superpower.Emergency fundingAs part of the overall package, Schumer has also stated an intention to "make serious investments in strengthening the U.S. semiconductor industry to outcompete China and stop depending on foreign sources". He has suggested that the overall package will include emergency funding for semiconductor programmes, partly to address the recent global chip shortage that has hampered the US economic recovery.Senator John Cornyn (Republican, Texas), one of the Senate's strongest proponents of denying China access to US technology and bolstering US capabilities, has played a key role in the semiconductor funding push. In 2020 Cornyn championed the bipartisan CHIPS for America Act (CHIPS Act), which was enacted in January 2021 as part of the Fiscal Year 2021 National Defence Authorisation Act. In 2021 Cornyn has been pushing hard for robust funding to implement the CHIPS Act, which created new incentives for domestic manufacturing of semiconductors. Cornyn recently suggested that $50 billion in emergency funding for those programmes will be added via an amendment to the Endless Frontier Act package on the Senate floor, and that the move would receive broad bipartisan support, including from the White House.In addition, with an eye on the build out of 5G mobile telecoms networks in both the United States and the jurisdictions of its allied and partner nations, the Senate may also add emergency funding for the implementation of new programmes created by the USA Telecommunications Act, which was also enacted as part of the most recent National Defence Authorisation Act. The new programmes aim to support and expand the ecosystem of companies that can supply open radio access network solutions, which are a key piece of the transition to 5G, as well as reduce reliance on risky foreign suppliers from China or elsewhere.Multi-pronged approach to tackling China challenge – legislative detailsEndless Frontier ActThe Endless Frontier Act was originally introduced in the previous Congress. Schumer and Young reintroduced the bill in expanded form on 20 April 2021 (summary available here), ahead of the recent Senate Commerce Committee mark-up, proposing billions of dollars in new programmes to be run by the National Science Foundation and the Commerce Department in order to reinvigorate the United States' advanced technological research, development and production capabilities. At the same time, a House companion bill was introduced by Representatives Ro Khanna (Demorat, California-17) and Mike Gallagher (Republican, Wisconsin-8).According to Schumer, the Endless Frontier Act:will enhance American competitiveness with China and other countries by investing in American innovation, building up regions across the country to lead in the innovation economy, creating good-paying American manufacturing and high-tech jobs, and strengthening America's research, development, and manufacturing capabilities. Complementing the Strategic Competition Act, the Endless Frontier Act approaches the competition with China from a domestic and technological perspective.Specifically, the legislation would create a new Directorate for Technology and Innovation at the National Science Foundation. The directorate would focus on funding research, commercialisation and innovation relating to 10 key technology areas with global strategic implications for the United States:AI, machine learning and other software advances;high-performance computing, semiconductors and advanced computer hardware;quantum computing and information systems;robotics, automation and advanced manufacturing;natural or anthropogenic disaster prevention or mitigation;advanced communications technology;biotechnology, medical technology, genomics and synthetic biology;cybersecurity, data storage and data management technologies;advanced energy, batteries and industrial efficiency; andadvanced materials science, engineering and exploration relevant to the other focus areas.While the final text of the Endless Frontier Act (as reported out of committee) has not yet been publicly released, the earlier 20 April 2021 bill would have authorised $100 billion for the new directorate to invest in these key areas over five years. However, this funding level appears to have been reduced by both the Cantwell-Wicker substitute amendment and a major amendment from Senator Ben Ray Luján (Democrat, New Mexico), diverting upwards of $17 billion from the National Science Foundation funding pots to the Department of Energy's National Laboratories, which address large-scale, complex research and development challenges.In addition, the bill would authorise $10 billion in spending by the Department of Commerce to invest in 10 regional technology hubs with the intention of positioning these communities as global centres for the research and development of new key technologies.Importantly, the Endless Frontier Act would also establish a Supply Chain Resiliency and Crisis Response Programme at the Department of Commerce, intended to strengthen domestic "critical technology supply chains" for products with a national security nexus. The Biden administration has signalled an intent to reduce reliance on foreign-made inputs needed by critical US industries, and this provision of the Endless Frontier Act can be seen as the legislative branch preparing to get on board with that effort. Finally, the Endless Frontier Act also authorises a $2.4 billion investment in the Manufacturing USA Network, a collection of domestic research institutes focused on developing advanced manufacturing.Ahead of the 12 May 2021 mark-up in the Commerce Committee, a slew of more than 230 bipartisan amendments to the Endless Frontier Act was filed. Nearly 100 of those were agreed to prior to the mark-up, and during the mark-up the committee adopted 53 additional amendments, including:new incentives for the production of mature semiconductor technology, AI, research security (including assistance from the National Institute of Standards and Technology for colleges and universities to strengthen their cybersecurity), critical minerals mining research, workforce development in quantum networking and precision agriculture capabilities;new requirements for online sellers to provide country-of-origin information on their products; andnew limitations on US nuclear cooperation with China.Strategic Competition Act 2021As mentioned above, Senators Bob Menendez (Democrat, New Jersey) and Jim Risch (Republican, Idaho), chair and ranking Republican member of the Senate Foreign Relations Committee, teamed up on the bipartisan Strategic Competition Act. The committee advanced the bill on 21 April 2021 in an effort to:mobilize all United States strategic, economic, and diplomatic tools for an Indo-Pacific strategy that enables the U.S. government to compete effectively with the People's Republic of China and the challenges it poses to our national and economic security for decades to come. Menendez called the bill:the first of what we hope will be a cascade of legislative activity for our nation to finally meet the China challenge across every dimension of power, political, diplomatic, economic, innovation, military and even cultural. It primarily approaches the China challenge through:increased commitment to diplomatic, economic engagement and security assistance in the Indo-Pacific;greater emphasis on economic statecraft tools aimed at China; andthe bolstering of international relationships.The bill attempts to establish a robust competitive posture against China using a wide range of means. Its most noteworthy provisions would:call for hundreds of millions of dollars in funding for foreign military sales and Indo-Pacific security initiatives, as well as a closer relationship with Taiwan;introduce measures to counter IP violations and Chinese governmental subsidies;provide measures to monitor Beijing's attempts to circumvent US export controls through Hong Kong and to track the presence of Chinese firms listed on US exchanges;expand the role of the Committee on Foreign Investment in the United States in countering Chinese attempts to conduct influence and malign operations through the provision of certain gifts and contracts to American universities;mandate reports on Chinese ballistic, hypersonic glide and cruise missiles, as well as conventional military forces, nuclear, space, cyberspace and other capabilities;impose sanctions relating to forced labour, forced sterilisation and other human rights abuses in the Xinjiang Uyghur Autonomous Region; andconfront Beijing's "brand of hyper-nationalism" by authorising a broad range of human rights and civil society measures, including supporting democracy in Hong Kong.Next stepsThe House of Representatives is also getting into the China game and is likely to pursue its own unified legislative package. It is reasonable to expect at least some overlap with the Senate legislative package, although the extent of that remains unclear at this early stage. Speaker Nancy Pelosi has directed house committees to draft a legislative package on China and the house is expected to be ready to consider this legislation at some point prior to the 4 July 2021 recess.The Endless Frontier Act's strong emphasis on the National Science Foundation has also drawn the attention of the House Committee on Science, Space, and Technology, which has jurisdiction over this area. On 26 March 2021 Chair Eddie Bernice Johnson (Democrat, Texas-30) and Ranking Republican Member Frank Lucas (Republican, Oklahoma-3) introduced their own National Science Foundation bill, the NSF for the Future Act (summary available here), which has some similarities to the Endless Frontier Act but provides much more modest levels of funding. Some members and staff of the House Science Committee apparently view the Endless Frontier Act's intense focus on the China challenge and technology development as misplaced. The House Foreign Affairs Committee is also likely to play a leading role in the formulation of the house legislative package, and the House Financial Services Committee is also expected to be involved.The policy issues and processes involved in these legislative efforts are complex. Although the relevant legislative proposals from several Senate committees have not been publicly released, it can be concluded from the Endless Frontier Act and the Strategic Competition Act alone (and the senators who are playing leadership roles here) that this is a serious and coordinated effort to counter China and is likely to result in the enactment of landmark bipartisan legislation that will help shape US policy in these areas for decades to come.For further information on this topic please contact David Hanke or John A Gurtunca at Arent Fox LLP by telephone (+1 202 857 6000) or email ([email protected] or [email protected]). The Arent Fox LLP website can be accessed at www.arentfox.com.Steve Burke, project assistant, assisted in the preparation of this article.