Foreign Investment Bill Regains Traction After Concessions

Legislation to overhaul U.S. reviews of foreign investments advanced in a Senate committee on May 22, after months of negotiations to resolve business community objections.

The Senate Banking Committee approved the measure (S. 2098) 25-0 with an amendment designed to rein in White House interference in penalties levied against Chinese telecommunications companies. Sen. Chris Van Hollen (D-Md.) inserted the amendment in the wake of President Donald Trump’s recent request to the Commerce Department to alter ZTE Corp.’s penalties for selling sensitive U.S. technologies to Iran and North Korea in violation of U.S. sanctions laws.

The House Financial Services Committee separately passed its version of legislation (H.R. 5841) 53-0.

The legislation is advancing after it was stripped of contentious language targeting technology-related joint venture deals between U.S. firms and their overseas partners, among other revisions. A joint venture is a business arrangement in which two or more parties agree to pool their resources for a specific project. Typically, the venture is its own entity, separate from the participants’ other business interests.

The changes regarding joint ventures will likely help ease the path for the president’s signature, as lawmakers push to get it quickly through Congress and to President Donald Trump’s desk, analysts told Bloomberg Law.

“The risk of industry opposition has been substantially reduced,” said Doreen Edelman, a global trade attorney who specializes in foreign investment matters in the Washington office of the law firm Baker Donelson.

The legislation would update the rules governing the Committee on Foreign Investment in the United States (CFIUS), a multiagency committee led by the Treasury Department that reviews proposed mergers and acquisitions for their impact on national security. The bill is largely driven by concerns that China is strategically trying to acquire U.S. technologies through foreign investments.

In its original form, the measures would have significantly expanded CFIUS’s jurisdiction over cross-border technology deals. Outbound investments by U.S. companies via arrangements such as joint ventures would have become subject to CFIUS oversight for the first time. CFIUS currently focuses on inbound investments in which a foreign acquirer seeks control of a U.S. entity or assets. The current version of the bill leaves outbound investments in the jurisdiction of the Commerce Department’s export control system, with updated language.

New Bill Language

The new version from Senate Banking Committee Chairman Mike Crapo (R-Idaho) and ranking member Sherrod Brown (D-Ohio) excludes joint ventures from the list of deals that would be reviewed by CFIUS. Instead, their bill would update an existing “export control” regime run out of the Commerce Department. It would establish a new interagency process, led by the president, to identify emerging technologies that are not subject to export controls.

The Senate bill retains language that would give CFIUS authority to review deals in which a foreign person seeks to purchase or lease real estate near a sensitive U.S. national security facility, such as a military base. It would also require notification of investments in which a foreign government has a substantial interest. Failure to provide a required filing could result in a penalty.

The House Financial Services Committee is considering similar language from Rep. Robert Pittenger (R-N.C.), the chief House sponsor. “I think we’re moving along the same track,” Pittenger told Bloomberg Law ahead of today’s vote.

The House and Senate originally had identical companion bills. The new versions are virtually identical, according to Richard Sawaya, vice president of the National Foreign Trade Council in Washington. Any differences will ultimately have to be reconciled, but that tends to happen quickly when the differences are small. Sawaya said the decision to drop the joint venture language was a key step that significantly improves the outlook.

“I believe the legislation is ripe for committee action,” he told Bloomberg Law.

Win for Industry

The U.S. Chamber of Commerce and other groups worried that the original version would hold up many non-sensitive transactions and unnecessarily duplicate the export control process. But in a May 21 letter, those groups threw their support behind the bill. “We support the broad consensus that the Committee on Foreign Investment in the United States (CFIUS) should focus exclusively on assessing the national security risks of inbound investments, while export controls should address national security risks associated with outbound technology transfers to countries of concern,” the letter said.

It was signed by the chamber, the Business Roundtable, and other tech business groups such as the Information Technology Industry Council.

Pittenger initially vowed that he would “never” soften the bill to appease business concerns raised by IBM Corp. and ITIC. Senate Majority Whip John Cornyn (R-Texas), lead sponsor of the Senate version, also resisted these industry calls.

“I think I’d call the current bill maybe an 80 percent solution,” Cornyn told Bloomberg Law. “It’s not perfect, but I think it’s much better than where we are right now” under current law.

To contact the reporter on this story: Alexei Alexis in Washington at aalexis@bloomberglaw.com

To contact the editor responsible for this story: Fawn Johnson at fjohnson@bloomberglaw.com