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American Shipper

Administration hopes CFIUS reform passage is near

Testifying Thursday before a House Energy and Commerce subcommittee, Trump administration officials pushed for passage of the Foreign Investment Risk Review Modernization Act of 2017.

   A senior Trump administration official expressed optimism Thursday that legislation to reform the Committee on Foreign Investment in the United States (CFIUS) process would pass Congress this year and noted that the executive branch is working to build more consensus atop the already broad congressional support for the Foreign Investment Risk Review Modernization Act of 2017 (FIRRMA).
   “It already has broad bicameral, bipartisan support, but the goal is to make sure that it has what it needs to be able to pass quickly,” the official said.
   Sen. John Cornyn, R-Texas, and Rep. Robert Pittenger, R-N.C., introduced identical bills on Nov. 8 to reform CFIUS, although amendments to the legislation are expected.
   The administration is exploring the possibility that the legislation would absorb new language to require U.S.-foreign joint ventures that might involve sensitive technology transfers to go through “a robust process” outside the normal interagency review mechanism “that involves elements of CFIUS and elements of export controls, the official said.
   “The idea, basically, is that at this point, CFIUS isn’t looking at joint ventures because of jurisdictional constraints,” the official said. “Export controls looks at tech transfers. But some combination of the process between the two can work to address the joint venture loophole.”
   Administration officials endorsed the legislation testifying before the House Energy and Commerce Digital Commerce and Consumer Protection Subcommittee on Thursday.
   FIRRMA would increase CFIUS’ jurisdiction to certain types of transactions that have been avoiding review, yet also includes several measures to modernize the review process and “streamline, a bit, for those transactions that are least likely to raise national security issues,” Treasury Assistant Secretary for International Markets and Investment Policy Heath Tarbert said during the hearing.
   One of the ways FIRRMA would benefit the CFIUS process is by creating a declaration to provide more clarity, case by case, for foreign companies intending to merge with or acquire U.S.-based companies, Tarbert said.
   Currently, Treasury, which chairs CFIUS, is sometimes unable to provide clear answers to foreign companies on whether they should file a merger notice for review purposes, Tarbert said.
   Foreign companies that seem unlikely to pose a national security risk will often describe their plans to Treasury and ask whether they need to file CFIUS notices, which can total 50 to 300 pages, Tarbert said.
   “We have to then say, ‘Well, we can’t tell you not to file, but based on what you’re saying and what we know about the companies, there may not be a national security concern,’ but that’s difficult,” he said.
   Among CFIUS’ authorities are the ability to retroactively unwind unnotified transactions and block notified transactions before they occur.
FIRRMA would give CFIUS the authority to require a pre-transaction declaration, which would essentially be a “short version” of a CFIUS notice and cost businesses less money while allowing the interagency committee to determine whether it wants a fuller notification, Tarbert said.
   The bill would make transactions likely to involve certain technology transfers mandatory for declaration submittal, he said.
   That would include mergers and acquisitions involving foreign state-owned enterprises that would have a “substantial interest” in a U.S. firm, Tarbert said.
   Rep. David McKinley, R-W.Va., expressed concern that foreign entities might be able to acquire critical technology such as energy from U.S. firms even if it has less than a substantial interest in one.
   “If I get a seat at the door and I get access to all the information I need [as a foreign firm], how are you aware of that?” he asked.
   Tarbert responded that, if FIRRMA passes, Treasury would gather input from stakeholders during the regulatory notice-and-comment period about “what are the kinds of transactions, to your point, that we don’t want to be learning about them after the fact, that we want an advance declaration?”
   FIRRMA would help the U.S. export control system, as well as Washington’s work with international allies in preventing technology from getting transferred to potentially dangerous entities, Assistant Secretary of Commerce for Export Administration Richard Ashooh said during the hearing.
   “We’re talking about evasion and cases where the adversary nation wants to obtain something in the U.S. and can’t get it,” he said. “It wouldn’t do us any good to control it if they can get it from Europe or somewhere else. So we have a number of ways to work with our allies to control technology, and FIRRMA … acknowledges the need to work internationally.”
   When considering legislative changes to CFIUS, Congress should ask a couple of essential questions, said Kevin Wolf, who was assistant secretary of commerce for export administration from 2010 to 2017, in written testimony for the hearing. Those questions include whether statutory authority already exists to address investment issues through a regulatory or process change, whether action and related enforcement in another area of law — like trade remedies, export controls or intellectual property — address the issue more directly and with less collateral damage and whether the actual solution lies in providing CFIUS more resources to do its job, Wolf wrote.
   “If the answer to any of these questions with respect to investment-related concerns is no, then that is the sweet spot for consideration of change to CFIUS legislation,” he wrote.
   Wolf commended several provisions of the bill in its current form, including declaration requirements if investment involves significant foreign government interest, expanding the list of national security factors CFIUS may consider during reviews, ensuring sufficient funds for additional CFIUS staff at Treasury and other CFIUS member agencies, and encouraging the executive branch to work with allies and on foreign investment screening and export control regimes.
   Wolf endorsed a FIRRMA provision that charts a process for expanded export controls jurisdiction in cases involving certain emerging technologies and end-users.
   “In particular, I applaud the FIRRMA sponsors’ efforts to bring attention to the need to identify and control to countries and end users of concern emerging critical technologies that are not now controlled for release under the export control system to foreign persons but, after an interagency review and public notice and comment process, should be,” he said.

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