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Reform of Foreign Investment in the U.S.: France and Other Allied Countries Might be Exempt

The U.S. House of Representatives passed a bill on Tuesday, July 10, expanding and increasing the powers of the Committee on Foreign Investment in the United States (CFIUS). The bill is called the Foreign Investment Risk Review Modernization Act (FIRRMA).

The 400-2 passage in the House shows an overwhelming bipartisan momentum behind FIRRMA and signals that the bill is likely to be on the President’s desk for signature as soon as the House and Senate reconcile their versions. The timing of the actions is not coincidental. It appears that the Trump Administration has decided to let Congress take the lead on increasing scrutiny of foreign investments.

We have reported on the proposed content of FIRRMA (here and here), and the list of the bill’s main points have been recited throughout the law-blogging world. However, now that the bill is on the brink of passage, we believe it is worth examining three key elements that will have significant impact on foreign investors and U.S. companies.

Exemptions from the CFIUS Process

It will come as good news for certain investors that the bill may make it easier for numerous U.S.-allied countries including France to invest in the United States. The draft bill authorizes CFIUS to exempt from its review transactions in which all foreign persons involved are from a country identified by the Committee (i) as having processes which effectively safeguard national security interests the country shares with the U.S.; (ii) is a NATO member country or is a major non-NATO ally; or (iii) as adhering to nonproliferation control regimes. That likely creates a list of candidates for exemption to include:

  • The NATO Countries;
  • Australia;
  • New Zealand;
  • South Korea;
  • Japan; and
  • The Philippines

Investments from that group of countries comprise the majority of foreign direct investment in the United States, particularly as we understand that Chinese investment in the United States has dropped 90%.

Expansion of Covered Transactions

FIRRMA will significantly expand CFIUS’s authority to review inbound foreign investments, particularly in technology, even where those investments do not result in control of the U.S. company by a foreign entity. The definition of “covered transactions,” that is, transactions which CFIUS has jurisdiction to review, would be expanded to include any investment (other than a passive investment) by a foreign person in any U.S. critical technology company or U.S. critical infrastructure company, regardless of whether such investment would result in foreign control. It also would include the purchase or lease of real estate located at a land, air or maritime port, or that is in close proximity to a military installation or other sensitive government facility.

Enhanced Export Controls

Beyond the changes to CFIUS’s mandate, FIRRMA would also require the update and enhancement of U.S. controls on exporting leading-edge technologies. Currently, U.S. export controls lag behind emerging technology. Much of the straight-from-science-fiction developments coming out of Silicon Valley and elsewhere are simply not contemplated by the years-old regulations.

FIRRMA would require a group of executive agencies, led by the Secretary of Commerce, to identify “emerging and foundational technologies” that “are essential to the national security of the United States.” The bills do not specifically list technologies to target, but we can expect that robotics, autonomous vehicles, and artificial intelligence will be at the top of the list. None of those technologies are specifically controlled under current U.S. export regulations.

While the expansion of CFIUS powers would likely be implemented fairly directly through regulation, FIRRMA’s export control changes would be promulgated through changes to the Export Administration Regulations already in place. Because the export control changes would require changing or adding to complex and nuanced rules, as well as years of established practice by exporters, it is possible, even likely, that changes by that route may take years to take any major effect.

The Takeaway

A wide variety of companies will be affected by FIRRMA. U.S. companies developing new technology or exporting controlled items, and non-U.S. companies considering investments in the United States will need to make planning adjustments based on the changes we see coming out of Congress this Summer.

Copyright © 2021, Sheppard Mullin Richter & Hampton LLP.National Law Review, Volume VIII, Number 194

About this Author

Robert Magielnicki, Legal Specialist, Sheppard Mullin,Antitrust,Trade Regulation

Robert L. Magielnicki is a partner in the Antitrust and Trade Regulation Practice Group.  He has a multi-disciplinary practice and engages in a diverse commercial practice with emphasis on antitrust, domestic and international business transactions, and complex civil and criminal litigation.

Areas of Practice

Mr. Magielnicki has more than 40 years of experience in the fields of antitrust and trade regulation, and business law, both domestically and internationally, including having served as General Electric Company's Associate Litigation and Antitrust...

Reid Whitten, partner, Sheppard Mullin Law Firm

Reid Whitten works with clients around the world to plan, prepare, and succeed in global business transactions.

In the areas of U.S. and international sanctions, export and defense export controls, and anti-corruption regulations, he supports clients in detecting and deterring potential compliance issues as well as conducting and defending investigations and enforcements. Mr. Whitten also advises on anti-dumping, anti-money laundering, and anti-boycott regulations.

Mr. Whitten is a thought leader on cross-border business regulations. He teaches a seminar on The Law of...

Malika Levarlet, Attorney, Sheppard Mullin, Corporate Practice, mergers

Ms. Malika Levarlet is an associate in the Corporate Practice Group in the firm's Washington, D.C. office.

Areas of Practice

Ms. Levarlet's practice focuses on advising international and domestic companies in connection with mergers and acquisitions, cross-border transactions (with a focus on U.S. and European companies), joint ventures, licensing agreements, and corporate governance. She represents clients operating in a wide range of industries including technology, hospitality, fashion and apparel, healthcare, financial services, and aerospace and defense...