Bill Aims To Screen Investment Abroad

"Congress is pressing ahead with legislation that could rewrite the rules for U.S. companies investing abroad, proposing the screening of investments in countries like China that are seen as adversaries in hopes of protecting U.S. technologies and rebuilding critical supply chains.

The measure, part of broader legislation to bolster U.S. competitiveness with China, would require U.S. companies and investors to disclose certain new outbound investments and authorize the executive branch to form a new interagency panel to review and block investments on national security grounds, according to congressional aides and a revised draft of the bill reviewed Monday by The Wall Street Journal.

Democratic and Republican supporters in the Senate and the House have in recent days agreed on revised text narrowing the investment screening to certain specified sectors and technologies deemed critical, the aides said. The broader legislative package has been stuck in debate for months over its scope, though House Majority Leader Steny Hoyer (D., Md.) said last week that he wants a vote before the July 4 recess.

While the U.S. has for decades regulated foreign investment in U.S. entities and limited American companies' exports of sensitive technologies abroad for national security, the new bill expands the federal government's purview over Americans' investment activities overseas.

The U.S.-China Business Council -- which represents U.S. companies doing business in China and is among business groups opposing the measure -- has criticized the concept as "unprecedented in 250 years of American history" and warned that such screenings risk generating uncertainty and harming U.S. competitiveness.

Supporters of the measure, which was first proposed by Sens. Bob Casey (D., Pa.) and John Cornyn (R., Texas) and has since picked up wider bipartisan backing, defended the screening as targeted and necessary for economic and national security.

"Creating an outbound investment review mechanism is a critical tool as Congress works to provide guardrails on taxpayer funds and safeguard our supply chains from countries of concern, including the People's Republic of China," Messrs. Casey and Cornyn and five House members said in a statement Monday.

The revised screening measure would enable the federal government to restrict certain future transactions in any "country of concern," defined as "foreign adversary" countries including China, according to the new text. The provisions would apply to greenfield investments, such as the construction of new plants, to deals such as joint ventures that involve the transfer of knowledge or intellectual property and to capital contributions including venture capital and private equity transactions, the text says.

The bill would require U.S. entities and their affiliates to notify the federal government of activities in China if they concern sectors previously specified by the Biden administration as crucial to supply chains. Also covered would be investments that involve "critical and emerging" technologies identified by the National Science and Technology Council and the Director of National Intelligence as vital to maintaining the U.S. position as the world's leading superpower, the text says.

Those sectors and technologies include semiconductors, large-capacity batteries, pharmaceuticals, rare-earth elements, biotechnology, artificial intelligence, quantum computing, hypersonics, financial technologies and autonomous systems such as robots.

Companies can get exemptions for various deals including those deemed an "ordinary business transaction," such as a software licensing agreement, according to the text.

Nearly a quarter of the members of Congress have taken part in negotiating the broader package, which is packed with hundreds of billions of dollars in spending for semiconductor manufacturing, research in frontier technologies, clean energy and other initiatives.

Lawmakers have touted it as a way to end U.S. supply-chain woes and improve U.S. competitiveness with China. Democrats facing tough re-election races particularly want to see it passed soon and are worried that prospects will slip as the midterm elections approach.

In a closed-door meeting on Thursday focused on the proposed support for U.S. semiconductor manufacturing, Sen. Mark Kelly (D., Ariz.) implored about 20 lawmakers to agree on provisions to pass the bill quickly, according to a person familiar with the meeting.

Some in Congress who oppose the larger package object to the price tag, with Sen. Rick Scott (R., Fla.) calling it "unpaid-for economic policy." The screening proposal has drawn objections from pro-free-trade lawmakers like Sen. Pat Toomey (R., Pa.), as well as from venture capitalists and business groups representing technology.

The White House didn't respond to requests asking about its position on the bill. 

 When briefed on the revised text by congressional sponsors two weeks ago, White House economic and national security officials reiterated concerns about U.S. venture-capital money flowing into key technology sectors in China, according to a person familiar with the matter.

The push to regulate U.S. business activity abroad reflects the solidifying consensus in Washington that China aims to supplant U.S. global leadership and that U.S. capital and expertise are aiding the buildup of Chinese military and economic power.

China's embassy in Washington criticized the screening bill, saying it "stretches the concept of national security and abuses state power. It runs severely against market competition and other international economic and trade rules that the U.S. claims to value."

After business groups criticized the initial investment screening proposal as overly broad, a discussion paper from Mr. Cornyn's office proposed narrowing the legislation's scope to "meet U.S. business halfway." 

But, the paper said, supporters of the bill have no tolerance for "efforts by members, backed by industry that wish to continue to build the scale and technological capabilities of foreign adversaries."

The updated legislative text calls for the creation of a Committee on National Critical Capabilities to screen investment, though it doesn't specify which agency would lead it." [1]

1. Bill Aims To Screen Investment Abroad
O'Keeffe, Kate; Andrews, Natalie. 
Wall Street Journal, Eastern edition; New York, N.Y. [New York, N.Y]. 14 June 2022: A.1.