On April 8, 2021, the Senate Foreign Relations Committee Chairman, Senator Robert Menendez (D-New Jersey), and the Committee’s ranking member, Jim Risch (R-Idaho), introduced the Strategic Competition Act of 2021 (the “Act” or “bill”).[1] The nearly 300-page bill seeks to counter the expanding global influence of the People’s Republic of China by formalizing the policy objective of the United States to “sustain its global leadership role” and declaring that the Chinese government is leveraging its political, diplomatic, economic, military, technological, and ideological power to compete with the United States on a global stage.

Among other measures, the bill broadens the authority of the Committee on Foreign Investment in the United States (CFIUS) by expanding the definition of a CFIUS “covered transaction,” adds the Secretary of Education as a voting member of CFIUS, and responds to concerns about China’s international economic behavior by tracking intellectual property violators.

Broadening Definition of CFIUS Covered Transactions

The bill proposes to expand CFIUS covered transactions to include any gift to a U.S. institution of higher education from a foreign person or a contract between a U.S. institution of higher education and a foreign person, if the value of the gift or contract exceeds $1,000,000 (whether individually or in the aggregate) over a two-year period. To qualify as a “covered transaction,” the gift or contract must either (1) relate to research, development, or production of critical technologies and provide the foreign person with potential access to material nonpublic technical information, or (2) restrict or condition the gift or contract to establish control. This expansion highlights that CFIUS will remain at the forefront of U.S. government efforts to scrutinize the use of foreign capital to influence or access U.S. businesses and technology.

While the proposed changes would broaden CFIUS’s jurisdiction, it is worth noting that targeting foreign gifts to U.S. institutions of higher learning is not new. The Department of Education recently began enforcing Section 117 of the Higher Education Act of 1965, which requires U.S. colleges and universities to report foreign gifts and contracts in excess of $250,000.[2] In October 2020, the Department of Education published a report regarding Section 117 compliance, which noted that the Department opened 12 investigations and spurred the disclosure of over $6.5 billion in foreign donations.[3]

Department of Education’s New Role

Further emphasizing the focus on higher education and research and development, the bill would add the Secretary of Education as a voting member of CFIUS to ensure the protection of academic freedom. Additionally, the Secretary’s input extends to defining “control” as it pertains to foreign gifts or contracts considered under the ambit of the Act, which will enable the Department of Education to craft the scope of transactions subject to CFIUS’s expanded jurisdiction.

Expanding Sanctions

Sections 302 and 303 of the bill would authorize additional China-related sanctions by amending the already-enacted Uyghur Human Rights Policy Act of 2020 (UHRPA). The revised UHRPA would allow the U.S. government to impose economic sanctions against foreign persons (which may include Chinese public officials and entities, state-owned enterprises, and private entities and individuals) for involvement in an additional set of specified activities, namely “serious human rights abuses in connection with forced labor,” and “systematic rape, coercive abortion, forced sterilization, or involuntary contraceptive implantation policies and practices.” The sanctions are expressly limited to the U.S. government’s concerns over human rights in Xinjiang.

Naming and Shaming

The bill also proposes the publication of a long-anticipated intellectual property violators list. This list will identify Chinese-owned firms determined to have benefited from intellectual property theft from a U.S. economic sector, or an act or Chinese government policy of “involuntary or coerced technology transfer of intellectual property” against a company incorporated in the United States. The list will include entities that have violated U.S. laws protecting intellectual property rights, as found by a U.S. court, and can also be based on credible information provided to CFIUS describing coercive conduct or theft of intellectual property. There is no mention whether this list would function similarly to a denied parties list, or other sanctions lists.

Similar to the intellectual property list, the bill proposes creating a list describing the “Government of the People’s Republic of China Subsidies” to enterprises favored by the Chinese government, Chinese enterprises shielded from competition, recipients of Chinese government financial subsidies, and state-owned enterprises that “materially benefit [Chinese] enterprises over foreign market participants.”

Status of the Act

On April 15, 2021, the Act cleared the Senate Foreign Relations Committee receiving near-unanimous bipartisan support, and will shortly go to the Senate floor for debate. Senate Majority Leader Chuck Schumer (D-NY) is expected to push for a vote on the Act in the coming weeks, as reports indicate it is part of a push by the majority leader to pass a bipartisan package to confront China’s economic and geopolitical power before the summer.[4] Notably, in his opening remarks, Ranking member Risch stated he expects the bill to pass the Senate with over 75 votes.

As Morrison & Foerster’s National Security Practice has detailed at length in several client alerts (for example, see 19 January 2021, 16 January 2021, and 1 April 2021 alerts), tensions between the United States and China have significantly escalated over the last few years and resulted in numerous laws and administrative measures. The Strategic Competition Act of 2021 is yet another manifestation of this conflict, and signals bipartisan support for wide-ranging measures to counter China’s growing global influence.