Biden signs new order to review foreign capital investment in U.S. chips
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U.S. President Joe Biden signed an executive order on Thursday raising Washington's national security concerns as it reviews foreign investment in key industrial sectors such as semiconductors.
The order directs the Committee on Foreign Investment in the United States (CFIUS) to consider the impact of any foreign transaction in four areas to better align the committee with the Biden administration’s national security priorities: resiliency of critical supply chains, technological leadership, cybersecurity, and sensitive personal data.
It also requires CFIUS to consider foreign transactions in the context of investment trends that could threaten national security, such as the acquisition of multiple companies in a single industry sector.
Image source: White House official website
According to a White House fact sheet, areas listed as impacting U.S. national security include microelectronics, artificial intelligence, quantum computing, biotechnology and advanced clean energy.
A senior U.S. government administration official said that some countries take advantage of the United States' open investment ecosystem to advance their agenda in ways that directly contradict U.S. values and interests, and that this new executive order is a key part of the U.S. government's efforts to maintain U.S. economic and technological leadership and protect U.S. national security.
The executive order details two existing statutory factors:
1. Certain transactions may have an impact on supply chains related to U.S. national security, including transactions outside the defense industry.
If foreign investors transfer ownership or control of certain manufacturing capabilities, services, critical mineral resources, or technologies critical to national security to foreigners, the United States may be vulnerable to future disruptions in the supply of critical goods and services.
2. Specific transactions will affect the technological leadership of the United States in the field of national security.
Including but not limited to semiconductors, artificial intelligence, biotechnology, quantum computing, advanced clean energy and other technologies, the regulations mention that although foreign investment can help promote domestic innovation in the United States in many cases, it is more important to protect the United States’ technological leadership. .
The executive order identifies three additional factors for the committee to consider:
1. Certain transactions may affect investment trends in industries related to U.S. national security.
Taken individually, the threat posed by foreign investment in a certain industry or technology is limited, but judging from previous transactions, these investments may promote the transfer of sensitive technology in key industries or other fields and further endanger the United States. National Security.
2. Cyber security risks that threaten national security.
The reason is that investments by foreigners with the capability and intent to engage in cyber intrusions or other malicious cyber activities could pose a risk to national security.
According to this provision, in addition to considering the cybersecurity posture, capabilities, and access rights of each party, the Commission shall also consider whether covered transactions may provide foreigners or their related third parties with the opportunity to conduct such activities.
3. Risks related to sensitive data of Americans.
Data is an increasingly powerful tool that can be used to monitor, track, and locate individuals or groups, which can have an adverse impact on U.S. national security. In addition, technological advances have made it possible to re-identify or de-anonymize more and more previously unidentifiable data.
An unnamed senior administration official said that these considerations have always been a focus of CFIUS and relevant actions have been taken to address such risks. This time, the signing of the executive order is to emphasize and strengthen the committee’s understanding of these changing and emerging issues. Focus on risks and help and guide committees, companies and investors to identify national security risks arising from transactions earlier to help them determine whether to declare to CFIUS.
The signing of this executive order does not expand or limit the legal authority or jurisdiction of CFIUS, which remains committed to a broad focus on assessing and mitigating any national security risks arising from covered transactions.
“That’s the biggest point in the [executive order] that could actually have an impact on how deals are evaluated,” said Sarah Bauerle Danzman, associate professor of international studies at Indiana University and a former foreign investment analyst at the U.S. State Department.
“The committee takes very seriously the wording in the regulations regarding conditions that prevent or mitigate transactions,” she said.
By expanding that language, the order adds room for CFIUS to be more skeptical of transactions.
The order does not change or expand CFIUS’s legal authority, but Bauerle Danzman said she was concerned that expanding the categories of technology with national security implications could lead to the review process being abused for competition purposes, not just national security.
“I hope the commission will continue to act in a relatively restrained manner and not over-interpret its mandate to block all these types of transactions,” she said.
While China was not named this time, the order targets areas that overlap with some of the national security concerns the United States has raised about Beijing's technological ambitions.
The Biden administration's efforts to protect American technology have also mobilized the Commerce Department, which recently tightened restrictions on chip exports to China.
China condemned the move, with Shu Jueting, a spokesperson for the Ministry of Commerce, saying that "the U.S. approach deviates from the principle of fair competition and violates international trade rules."
A senior Biden administration official stressed that the new executive order is not directed at China.
“There’s nothing about this order or CFIUS that’s specific to China,” the official said Wednesday. “Now, having said that, where the investment is coming from and who the investors are are going to be important.”
“People are concerned not only about the actual actors trying to acquire the company, but also about the possibility of third-party risk,” said Sarah Bauerle Danzman. For example, companies that do not themselves pose a risk may be flagged if they have poor cybersecurity practices.
“It’s a mistake to think this is just one China,” she said.
This is the first time since CFIUS was established in 1975 that a president has given specific direction to CFIUS from the various U.S. federal departments and agencies that review national security concerns raised by foreign investments.
The White House said the executive actions are intended to sharpen CFIUS's focus and communicate with foreign investors about their priorities and concerns.
Emily Kilcrease, who has worked at the Office of the U.S. Trade Representative and CFIUS, said CFIUS assessments can be a black box of confidential information for the parties under review, who are unaware of the classified information the government uses to make its decisions.
Outlining new priorities in this executive order may alleviate some of this disconnect, especially with new areas of focus such as climate-related technologies.
Source: Nikkei, White House official website, etc.
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