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Legislation to beef up national security reviews of foreign investments — with new provisions designed to safeguard U.S. critical infrastructure like the power grid — passed the House 400-2 June 26.
The bill (H.R. 5841) would expand the authority of the Committee on Foreign Investment in the United States (CFIUS), a multi-agency task force that assesses the national security risks of cross-border business transactions. The CFIUS legislation is largely fueled by worries that China is trying to vacuum up critical U.S. technologies by exploiting loopholes in the current process. The legislation would expand CFIUS to cover non-controlling minority investments, among other changes.
The bill “closes real gaps in CFIUS’s jurisdiction that could otherwise be exploited by bad actors, but it doesn’t give the government a foothold to go after deals or entire sectors on a whim,” House Financial Services Committee Chairman Jeb Hensarling (R-Texas) said on the House floor. The legislation is the first update of its kind in over a decade, he said.
The vote happened the same day the President Donald Trump suggested that he would use CFIUS to protect U.S. intellectual property from China, a less confrontational path than an earlier plan to impose restrictions on Chinese investment.
The House took up an amended version of the bill with new language to ensure that CFIUS reviews deals that would give overseas investors access to U.S. critical infrastructure like the electric grid.
“The concern is that you could have attempts by hostile foreign powers to operate in elements of our critical infrastructure, without CFIUS having the statutory right to review that,” Denny Heck (D-Wash.), sponsor of the new language, told Bloomberg Law before the vote. “This will fix that.”
The House debated the bill under “suspension of the rules,” a process typically reserved for noncontroversial measures in which amendments are barred and a two-thirds majority vote is required for passage.
The Senate’s version of CFIUS overhaul, currently part of a broader defense policy bill, doesn’t include the Heck language on critical infrastructure. The defense bill passed the Senate June 18.
The House has passed a defense measure that lacks CFIUS provisions altogether, and the vote on the stand-alone bill is designed to allow the CFIUS language to be folded into the broader House defense measure.
The defense bills then are expected to be reconciled by a House-Senate conference committee.
“The House can send instructions to consider the House-passed CFIUS bill when we go to conference with the Senate on the defense legislation,” Rep. Andy Barr (R-Ky.), who chairs the House Financial Services Committee’s Subcommittee on Monetary Policy and Trade, told Bloomberg Law. Barr is a key player in shepherding the CFIUS bill through the House.
The House is expected to appoint conferees to the defense bill later this week.
A key sticking point in the CFIUS negotiations could be a Senate provision to reinstate penalties on the Chinese telecommunications company ZTE Corp., which would bar U.S. companies from doing business with it.
The White House is opposed to the provision because the Commerce Department negotiated a reduced penalty for ZTE. A meeting between members of the administration and senators about the issue last week yielded no resolution.
The House-passed defense measure has a less stringent ZTE provision banning the Pentagon from buying telecommunications equipment from the Chinese company.
Lawmakers in both the House and Senate agreed to drop a controversial provision that would have exposed joint venture deals to more rigorous scrutiny. That language drew strong push back from the business community. Under the current version, U.S. investments in foreign companies, some of which require joint ventures, would be reviewed as they are now by the export control system housed in the Commerce Department.
The House bill includes provisions authored by House Foreign Affairs Committee Chairman Ed Royce (R-Calif.) to update the export control system. Similar language is in the Senate version.
“Modernized U.S. export controls and CFIUS reforms are critical responses to the challenges posed by China, Russia, and others,” Royce said in his floor remarks. “This bill will help keep America safe and strong.”
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