March 14, 2018

House Foreign Affairs Committee Modernizing Export Controls: Protecting Cutting-Edge Technology and U.S. National Security”

Key Topics & Takeaways

  • Tailored Reforms: Kevin Wolf of Akin Gump argued that export control reform is “infinitely tailorable” to address specific technology, end-user or geopolitical risks, while not adversely impacting a broader swath of countries or end-users that do not pose harm to U.S. national security.
  • CFIUS Reform: Chairman Ed Royce (R-Calif.) noted that the White House blocked what would have been the largest deal in technology history earlier this week and asked whether the Committee on Foreign Investment in the U.S. (CFIUS) is evolving toward stricter framework irrespective of legislative reform efforts. Mancuso argued that the Foreign Investment Risk Review Modernization Act (FIRRMA) would largely implement current agency practice, adding that the transaction blocked indicates that the executive branch is taking these issues seriously “in a blunt way.”

Speakers

  • Mario Mancuso, Partner, Kirkland and Ellis, LLP
  • Alan Larson, Senior International Policy Advisor, Covington and Burling, LLP
  • Kevin Wolf, Partner, Akin Gump Strauss Hauer and Feld, LLP

Opening Remarks

Rep. Ed Royce (R-Calif.), Chairman, House Foreign Affairs Committee

Royce recognized the importance of international trade and investment to U.S. economic vitality, but also cautioned that America’s competitive edge is “increasingly under attack by policies from China, Russia, and others” that aim to obtain sensitive technologies ‘by hook or by crook.’ Royce argued that “turning inward is not the solution to these challenges,” but also maintained that reforms are needed to ensure other countries cannot use American sensitive technologies to undermine U.S. national security.

Royce highlighted his bill, H.R. 5040—the Export Control Act of 2018—which he said would modernize and strengthen export control laws to broaden its authority to safeguard national security. Royce added that export control and appropriate reforms to the Committee on Foreign Investment in the U.S. (CFIUS) are complementary and aim to ensure the U.S. remains the global leader in innovation while protecting sensitive technologies critical to national security.

Testimony

Mario Mancuso, Partner, Kirkland and Ellis, LLP

In his testimony, Mancuso acknowledged that FDI is “critical” to U.S. economic vitality, but highlighted as a concern the decline in the America’s global share of FDI in recent years. He argued that globalization has strengthened U.S. competitiveness in certain areas because of economies of scale and technological superiority. Mancuso also encouraged policymakers to strike the right balance to optimize economic openness while mitigating its greatest risks. He maintained that the central policy question is not how to “balance” economic competitiveness and national security, but rather how to balance systemic and specific national security risks.

Mancuso cautioned that China’s indigenous innovation and industrial policies would have “deleterious impacts on U.S. national security.” While he acknowledged that CFIUS has a vital role to play in safeguarding national security, he noted that its jurisdiction is broad but “not infinite.”  Export controls, Mancuso argued, complement CFIUS and reforms should focus on filling gaps and increasing resources available to fulfill those duties.

Alan Larson, Senior International Policy Advisor, Covington and Burling, LLP

In his testimony, Larson noted that the U.S. benefits “greatly” from foreign investment and trade, and argued that efforts to control or limit the flow of technologies should remain narrowly focused on national security risks.  Larson maintained that export control reform and CFIUS modernization should be pursued in tandem to ensure they continue to complement one another. He also argued that U.S. policy should reflect the complexity and importance of the U.S. bilateral relationship with China.

Kevin Wolf, Partner, Akin Gump Strauss Hauer and Feld, LLP

Wolf’s testimony encouraged policymakers to tailor controls to specific national security concerns in any update to the statutory authority for the Cold War-era Export Administration Regulations.  Wolf recognized that the underlying motives and concerns that the Committee aims to address through the Export Control Reform Act of 2018 are “real and legitimate.”  He lent particular support to Section 109 of the bill, which he said lays out the interagency process by which national security threats would be identified as well as emergent or foundational technologies that need to be controlled. Wolf added that industry should be able to review and comment on potential controls to ensure clear rules of the road and avoid unintended consequences.

Question and Answer

Tailored Reforms

Wolf argued that export control reform is “infinitely tailorable” to address specific technology, end-user or geopolitical risks, while not adversely impacting a broader swath of countries or end-users that do not pose harm to U.S. national security.

CFIUS Reform

Royce noted that the White House blocked what would have been the largest deal in technology history earlier this week and asked whether CFIUS is evolving toward stricter framework irrespective of legislative reform efforts. Mancuso argued that the Foreign Investment Risk Review Modernization Act (FIRRMA) would largely implement current agency practice, adding that the transaction blocked indicates that the executive branch is taking these issues seriously “in a blunt way.”

Outsourcing

Rep. Brad Sherman (D-Calif.) expressed concern that technology transfers will lead to outsourcing American jobs overseas.  Wolf stated that national security is “paramount” to decisions regarding export control and CFIUS interventions, and Mancuso stated that those tools are not used to protect certain markets that do not advance U.S. national security interests.

International Response

Rep. Ann Wagner (R-Mo.) expressed interest in learning how China would potentially implement a FIRRMA-like bill to safeguard its national security interests.  Larson noted that China has a national security law in place already.  He added that it will be important for other western allies to implement a similar approach on inward investment controls to bolster their national security, as well.

Additional information about this hearing can be accessed here.