Foreign Investment Bill Could See Panel Vote Soon (1)

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By Alexei Alexis

Legislation aimed at bolstering the U.S. vetting process for foreign investments could be ready to advance within weeks, Rep. Andy Barr (R-Ky.), a key player in the effort, told Bloomberg Law.

The Senate Banking Committee on May 11 released a discussion draft of the legislation that appears to address one of the key sticking points on cross-border joint ventures such as routine technology transfers. It has the support of both Republican Chairman Mike Crapo of Idaho and Democratic ranking member Sherrod Brown of Ohio.

Before the Senate draft was released, Barr said there had been a growing consensus around dropping language that has prompted concerns from companies like tech giant IBM Corp, Barr leads the House Financial Services Subcommittee on Monetary Policy and Trade.

Critics said the bill, as originally drafted, might hold up non-sensitive cross-border transactions such as hardware sales and service and unnecessarily duplicate an existing “export control” process handled by the Commerce Department. The Senate’s draft would allow that agency to compel names of foreign people who would have a “significant ownership interest” in U.S. technology when companies are applying for export licenses.

“We need to focus on the truly problematic transactions so that we’re not blocking or burdening a lot of benign foreign investments, which create a whole lot of jobs in this country,” Barr said in an interview.

Senate Majority Whip John Cornyn (R-Texas), lead sponsor of the Senate version, circulated modest changes in March, but he faced pressure from industry to go further by completely dropping the contentious technology-related provisions regarding joint ventures.

The legislation ( S. 2098, H.R. 4311) would give the Committee on Foreign Investment in the United States (CFIUS) expanded power to review cross-border transactions involving “critical” U.S. technologies in the name of national security.

CFIUS is a multi-agency committee housed in the Treasury Department that reviews pending tie-ups for their impact on national security. The legislation to expand its authority is largely driven by concerns that China is strategically trying to acquire U.S. technologies through foreign investments.

Committee Vote Soon

The House Financial Services Committee could be ready to mark up a revised bill within weeks, assuming the final sticking points are resolved, Barr said.

His goal was to get a bill to President Donald Trump’s desk by August, he said this year. While that’s still possible now, he said it would be a mistake to rush the process.

The bill is backed by the White House and enjoys broad bipartisan support in Congress. But the question of how to deal with technology transfers is among key sticking points. House members are negotiating with the administration to figure out what types of deals needed to undergo national security review from CFIUS and what parts can be handled by the Commerce Department’s export control system, which governs the transfer of sensitive U.S. technology to other countries.

Barr said he “fully supports” a parallel effort by Foreign Affairs Committee Chairman Ed Royce (R-Calif.) to update the export control system, Royce’s bill ( H.R. 5040) would add more safeguards for U.S. technology into the export control review system and give the agency new authority to identify and protect critical emerging technologies.

The administration has had its own internal differences to resolve, according to Barr. The Treasury Department has been open to keeping joint ventures under the export control system. The Defense Department initially pushed back on the idea, although it appears to be turning around, he said.

“I think what I’m hearing is that we’re getting to a good place in terms of having the administration on the same page,” Barr added.

The DOD doesn’t comment on pending legislation, agency spokesman Christopher Sherwood said. A Treasury Department spokesman didn’t respond to a request for comment.

As originally drafted, the legislation would allow CFIUS to scrutinize a broader range of transactions, including joint ventures and real estate deals near sensitive national security facilities, such as military bases. CFIUS now focuses primarily on foreign investors who seek to acquire full control of a U.S. company. The bill would also add “emerging technologies” to the CFIUS definition of “critical technologies.”

Multiple Versions

The measure has undergone so many changes that it’s not clear to outsiders exactly what the language now looks like. What is clear is that the overall effort has momentum in Congress.

“I think there’s a high likelihood that something will pass this year,” Rod Hunter, a partner at Baker & McKenzie LLP in Washington who advises corporate clients in national security reviews, told Bloomberg Law. “There’s a uniform sense of urgency when it comes to this issue. To the extent that there’s a diversity of opinions, it seems to be more about the means.”

Hunter is among industry representatives who have raised concerns about the bill in testimony before Congress.

Chinese deals are already getting heightened attention. President Donald Trump issued an executive order in March blocking Broadcom Ltd. from acquiring Qualcomm Inc., scuttling a $117 billion deal. Trump’s order came after an investigation by CFIUS, which had said Broadcom’s acquisition would undermine Qualcomm’s leadership in 5G wireless technology.

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

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