March 15, 2018
House Financial Services Subcommittee on Monetary Policy and Trade “Evaluating CFIUS: Administration Perspectives”
Key Topics & Takeaways
- Timelines: Roger Williams (R-Texas) noted complaints from companies about the time already required to clear CFIUS reviews, noting that CFIUS currently takes more than the statutorily-mandated 75 days to clear transactions. He asked whether delayed timelines would encourage investors to instead invest in other economies to avoid prolonged investigations. Tarbert underscored the importance of CFIUS having adequate time to complete national security reviews, and estimated that the average case time will be “shortened” under the FIRRMA framework.
- Open Investment Policy: Greg Meeks (D-N.Y.) expressed concern about the possibility that CFIUS could abuse its authority for cases that do not necessarily have a national security nexus. He argued that the recent decision to block the Broadcom acquisition of Qualcomm, coupled with the Sect. 232 tariffs, indicate that the U.S. is no longer welcoming FDI. Tarbert clarified that the U.S. does maintain an open investment policy, so long as it does not undermine national security.
- Unintended Consequences: Trey Hollingsworth (R-Ind.) expressed concern about the unintended effects of the provisions in FIRRMA affecting outbound transactions, which he said could undermine American competitiveness. Tarbert clarified that CFIUS already has the authority to scrutinize outbound transactions. While he agreed that CFIUS is mindful of American firms’ competitiveness, ultimately the Committee focuses on national security, he said.
- Heath P. Tarbert, Assistant Secretary for International Markets and Investment Policy, U.S. Department of the Treasury
- Richard E. Ashooh, Assistant Secretary for Export Administration, U.S. Department of Commerce
- Eric D. Chewning, Deputy Assistant Secretary for Manufacturing and Industrial Base Policy, U.S. Department of Defense
Rep. Andy Barr (R-Ky.), Chairman, House Financial Services Subcommittee on Monetary Policy and Trade
Barr highlighted the broad bipartisan support for modernizing the U.S. investment review process to ensure that “bad actors” do not gain access to sensitive, dual-use technologies or know-how. At the same time, he argued, reforming the Committee on Foreign Investment in the U.S. (CFIUS) must not create disincentives for “benign foreign investment in the U.S.,” which contributes to economic growth. To strike that balance, Barr maintained that policymakers need to be “precise” about what national security is and what real threats or vulnerabilities pose harm to the U.S. Barr acknowledged the threat posed by China to American national security, but he also underscored the importance of foreign investment to U.S. economic growth and competitiveness.
Barr also noted that consideration of CFIUS reform has also been “overshadowed” by the Administration’s decision to impose tariffs on steel and aluminum imports under Section 232 of the Trade Expansion Act of 1962. He noted that many policymakers on Capitol Hill have expressed “significant disagreement over their wisdom.” He noted that trade-related authorities delegated to the executive branch can have unintended consequences and argued that imposing protectionist policies will invite retaliation from abroad, which he said could actually undermine U.S. national security. Barr urged his colleagues to keep these issues in mind as they consider how to reform the CFIUS to properly balance the needs of the economy with the “imperative” of national security.
Rep. Gwen Moore (D-Wisc.), Ranking Member, House Financial Services Subcommittee on Monetary Policy and Trade
Moore expressed support for reforming CFIUS to address “holes” in the investment security framework, while continuing to encourage foreign direct investment (FDI) in the U.S. She also stated her desire to ensure that the export control regime remains complementary to the CFIUS process, cautioning against “overlay[ing]” competing regulatory regimes that are conflicting or duplicative.
Rep. Denny Heck (D-Wash.)
Heck expressed his support for reforming CFIUS to protect American “technological edge.” He recognized that strategic competitors “want what we know,” and specifically highlighted China’s “aggressive” industrial policy as a growing threat. Heck referenced the recent decision by President Trump to block Broadcom’s acquisition of Qualcomm, which he said further underscores the need for a modernized, well-resourced CFIUS. Heck noted that he and other co-sponsors of the Foreign Risk Review Modernization Act (FIRRMA) are incorporating feedback t make it “stronger” and “more narrowly focused” on national security.
Rep. Robert Pittenger (R-N.C.)
Pittenger underscored growing efforts by Chinese firms to acquire U.S. and other foreign dual use technologies, including by private firms with “close ties” to the Chinese government. He argued that these acquisitions have been “critical” to the buildout of the Chinese military, which has “alarmingly depleted” U.S. technological edge to the detriment of national security. Pittenger maintained that FIRRMA upgrades and modernizes CFIUS in a “laser-like” manner to address these growing threats.
Heath Tarbert, Assistant Secretary for International Markets and Investment Policy, U.S. Treasury
Tarbert stated that his top priority is “ensuring that CFIUS has the tools and resources it needs to fulfill its critical national security function,” and he reiterated the Administration’s support for FIRRMA to meet those goals. Tarbert cautioned policymakers that foreign investment “isn’t always benign.” He revisited the legislative and geopolitical history that provided impetus for CFIUS reviews, and declared that the U.S. is now at “another historic inflection point” at which the statutory mandate for CFIUS must be upgraded. Tarbert explained that CFIUS’s growing caseload, and, more pressingly, the complexity of cases has overwhelmed the Committee’s resources, and also revealed new threats that must be addressed. He stated that the rise of the data-driven economy has unveiled “vulnerabilities we’ve never before seen.”
Tarbert highlighted the broad support from the government and business community for FIRRMA, albeit with some changes. He closed by stating that FIRRMA will enable CFIUS to preserve the U.S.’s longstanding open investment policy but also ensure national security.
Richard E. Ashooh, Assistant Secretary for Export Administration, U.S. Department of Commerce
Ashooh explained that the export control system, coordinates with the Defense, Energy and State Departments to impose block exports of dual use technologies. He explained that these authorities also enable the U.S. government to block sales of sensitive technology even within the U.S. to foreign national as “deemed exports.” Ashooh expressed support for modernizing CFIUS through FIRRMA, as distinct from the export control regime, to strengthen national security.
Eric D. Chewning, Deputy Assistant Secretary for Manufacturing and Industrial Base Policy, U.S. Department of Defense
Chewning noted that CFIUS reform is of increasingly importance to the Department of Defense (DoD). He countered the notion that FIRRMA should be viewed as another “regulation,” rather, he said it is a “whole of government response” to emerging national security threats and an “insurance policy” on what the U.S. invests in its defense industrial base. Chewning asserted that strategic competitors are acting to diminish U.S. technological edge by acquiring technologies critical to military success. Chewning recognized that CFIUS reform is “not a panacea” and should be complemented by export controls that can help stem the flow of sensitive technologies to potential adversaries.
Question and Answer
Overlap with Export Controls
Ashooh noted the legislative effort underway to modernize the export control system, as well as CFIUS. He stated that the two regimes are complementary and “support each other.”
Tarbert added that a specific provision in FIRRMA allows CFIUS to address “acquisition by another name,” which enables firms to gain a capability of a U.S. business and replicate it overseas without actually acquiring the business. He stated that the Treasury Department will help develop technical amendments to tighten the language to ensure that there is no “unnecessary duplication” between export controls and CFIUS.
Rep. Ed Royce (R-Calif.) explained that the export control system and CFIUS have different, independently important, and complementary capabilities. He urged his colleagues to pursue a “whole of government” strategy to “build strength on strength” by modernizing both of these regimes. Royce stated that his bill, H.R. 5040, the Export Control Reform Act of 2018, is necessary to modernize the export control framework and lay out clear policies and procedures for use of dual use technologies to respond to 21st century demands. Ashooh agreed that such an effort is “overdue,” noting that the current statute was established during the Cold War and provides “anachronistic authorities.” Royce argued that the export control system is best placed to lead a whole of government solution to counter Chinese and other adversaries’ efforts to acquire sensitive technologies; and he encouraged his colleagues to support these reforms in tandem with CFIUS modernization.
Rep. Roger Williams (R-Texas) noted complaints from companies about the time already required to clear CFIUS reviews, noting that CFIUS takes more than the statutorily-mandated 75 days to clear transactions. He asked whether delayed timelines would encourage investors to instead invest in other economies to avoid prolonged investigations. Tarbert underscored the importance of CFIUS having adequate time to complete national security reviews, and estimated that the average case time will be “shortened” under the FIRRMA framework. He added that declarations for short-form filings will allow many cases to be cleared more quickly. Finally, Tarbert stated that other countries’ screening timelines are much longer than those required by CFIUS. Later, in response to Rep. Trey Hollingsworth (R-Ind.), Tarbert countered claims that CFIUS review is a “speed bump” that delays firms’ research and development.
Open Investment Policy
Rep. Greg Meeks (D-N.Y.) expressed concern about the possibility that CFIUS could abuse its authority for cases that do not necessarily have a national security nexus. He argued that the recent decision to block the Broadcom acquisition of Qualcomm, coupled with the Sect. 232 tariffs, indicate that the U.S. is no longer welcoming FDI. Tarbert clarified that the U.S. does maintain an open investment policy, so long as it does not undermine national security. He explained that every transaction is examined solely based on its risks to national security. Ashooh added that export controls are narrowly focused to allow companies to freely trade other technologies that do not pose security risks. He added that it is beneficial for companies and innovators to develop technologies in the U.S. precisely because the government does protect technologies and intellectual property developed here.
In response to Pittenger, Tarbert explained that there is no evidence that FIRRMA will pose an overwhelming burden to companies and investors. He argued that the U.S. remains the preeminent destination of FDI, precisely because investors seek legal systems that protect IP and technology. Further, Tarbert added that FIRRMA will create a declarations process and has other provisions that, he said, will actually make investment in the U.S. easier.
Rep. Trey Hollingsworth (R-Ind.) expressed concern about the unintended effects of creating such broad authorities under FIRRMA, which he said could have a chilling effect on American competitiveness. He cautioned that the bill’s provisions affecting outbound transactions could put American firms at a competitive disadvantage around the world. Tarbert clarified that CFIUS already has the authority to scrutinize outbound transactions. While he agreed that CFIUS is mindful of American firms’ competitiveness, ultimately the Committee focuses on national security, he said.
Much of the discussion revolved around risks posed by China’s industrial strategy, and Ashooh articulated concerns about the volume of dollars invested by China to acquire sensitive technologies with military application. The more challenging issue, he argued, is that China uses its massive market to “bludgeon” U.S. industries that need access to large markets to develop scale.
Additional information about this hearing can be accessed here.