Chinese investment in the United States is about to get a bit harder.
Legislation expanding the powers of a federal body that reviews foreign investments in the United States for national security threats passed the Senate 87-10 on Wednesday as part of a $717 billion defense policy bill, and it is now headed to President Trump for his signature.
The bill, known as the Foreign Investment Risk Review Modernization Act, broadens the jurisdiction of the Committee on Foreign Investment in the United States, or Cfius (pronounced SIFF-ee-yus). The committee will soon have more power to investigate, and possibly block, foreign deals.
“We cannot continue to let bad actors, like China, erode our national security advantage by circumventing our laws,” said Senator John Cornyn, the Texas Republican sponsoring the bill. “This bill will modernize the process and help put an end to the backdoor transfer of dual-use technology that has gone unchecked for too long.
Mr. Trump has previously said an expansion of Cfius would be a powerful tool national security and economic tool “that better protects the crown jewels of American technology and intellectual property from transfers and acquisitions that threaten our national security — and future economic prosperity.”
Here is what an expanded Cfius will look like:
What does the current Cfius look like?The current committee investigates only cases in which a foreign company’s attempt to acquire or merge with an American company poses a national security risk.
The committee, which is made up of members of the State, Defense, Justice, Commerce, Energy and Homeland Security Departments and is led by the Treasury secretary — sends its findings and a recommendation to the president, who has the power to suspend or prohibit the deal. Cfius’s ruling, however, is typically enough to kill even the largest billion-dollar deals.
Past rejected proposals include a planned takeover of Qualcomm, the San Diego-based chip maker, by a Singapore rival, Broadcom. Cfius voted it down in March over concerns that it would pose a national security risk by depriving the United States of a telecommunications leader.
A $1.2 billion deal between MoneyGram, a money transfer company based in Dallas, and Ant Financial, a Chinese electronic payments company, fell apart after Cfius refused to approve it early this year. And in 2015, Cfius blocked a deal involving Asian buyers and the California-based automotive lighting and LED business of the Dutch electronics giant Philips.
Cfius can scrutinize more transactions.Cfius’s expanded jurisdiction will give it a say in deals beyond mergers and acquisitions. Under the bill, joint ventures, minority stakes, and real estate transactions near military bases or other sensitive national security facilities all could be investigated — and potentially squashed — by Cfius.
Cfius will also be able to expand the kinds of risks it can consider — not just national security but also the United States’ competitive edge in emerging industries.
The committee will update its definition of “critical technologies” it reviews to possibly include new innovations and cutting-edge technology. That way, Cfius could block a deal if it determined that such a relationship would hinder the United States’ edge in technological and industrial industries, or if it posed a national security risk.
There are still limits on what Cfius can review, however. The legislation does not expand investigative powers on joint ventures that pass American technology on to foreign companies of interest. Instead, it strengthens the existing export controls managed by the Commerce Department.
China is still a focus, but so are countries of ‘special concern.’Many on Capitol Hill and at the White House were focused on how an expanded Cfius could curb Chinese investments and prevent the country’s growing economic and technological dominance. Between 2013 to 2015 — the latest years for which the committee has made data public — about 20 percent of deals that Cfius reviewed involved Chinese investors.
But the committee also reviews transactions from dozens of other countries of “special concern,” and the bill gives it more leeway to review them, too. The bill describes those countries as ones that have a “demonstrated or declared strategic goal of acquiring a type of critical technology” that an American company possesses.
Additionally, Cfius will look into cases that would give foreign governments a technological edge for a possible cybersecurity attack against the United States, such as activities “designed to affect the outcome of any election for federal office.”
Cfius’s expanded power worries some.Supporters see the bill as an important way to prevent foreign investors from sidestepping Cfius’s authority. But criticism remains, with some saying Cfius could reject a potential deal that would bolster American jobs and growth.
“Foreign investment in the United States — including foreign investment by way of acquisitions of U.S. firms — generates important benefits for U.S. workers and welfare gains for the U.S. economy,” wrote Theodore H. Moran, an international economics professor at Georgetown University.
Other opponents worry that additional investigations will unfairly limit American companies and help foreign countries, arguing that existing export laws are enough to address national security concerns.
