The U.S. Congress is now revisiting America’s foreign investment procedures, specifically the Committee on Foreign Investment in the United States (CFIUS), just as governments in other advanced markets are reconsidering their own screening procedures.
Reform on the Horizon
Congressman Andy Barr (R), Subcommittee Chairman of the Monetary Policy and Trade Subcommittee of the Committee on Financial Services in the U.S. House of Representatives plans to send a CFIUS reform bill to President Trump before August.
While the subcommittee has not yet focused on specific legislative language, a number of bill and studies have been proposed: the Defense Department’s recent recommendations; the United States Foreign Investment Review Act of 2017, a bill introduced by Senators Chuck Grassley and Sherrod Brown; and, mostly importantly, the Foreign Investment Risk Review Modernization Act of 2017 (FIRRMA), a bill introduced by Senator John Cornyn and Representative Pittenger which proposes to add onto CFIUS a technology control regime governing joint ventures and other “arrangement[s],” at home and abroad, of U.S. “critical technology” companies.
Critical Technology Control
The subcommittee on Monetary Policy and Trade recently held a hearing that examined the “history, operations and any operational challenges of the multi-agency panel known as the Committee on Foreign investment in the United States (CFIUS).” In my testimony before the subcommittee, I raised issues for consideration when re-examining CFIUS’s scope and procedures including: the adequacy of CFIUS’s legal jurisdiction; whether CFIUS can identify all relevant foreign investments and whether some form of mandatory reporting is necessary; the timeliness of the decisions and the need for more resources.
The largest concern with current legislative ideas is the FIRRMA proposal to expand CFIUS’s role to encompassing a technology control regime, in effect turning U.S. technology companies into regulated industries.
Using the Right Tools
CFIUS is not the right tool for a new technology control regime for several reasons:
- CFIUS, which was designed to manage risks from foreign ownership of U.S. businesses, is reactive, labor-intensive, time-consuming, and already strained under its existing case flow.
- Imposing cumbersome committee process on U.S. companies’ handling of technology could drive R&D abroad, undermining the innovation essential for the U.S. defense industrial base.
- The export control regime was crafted to manage risks arising from transfers of sensitive technologies.
There are legitimate questions about the legal basis for the export control regulations (the regulations are maintained by emergency measures), and whether export control policy is keeping pace with technology and the threat environment, but CFIUS is not the answer.