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1 1 (December 10, 2024)

handle is hein.crs/goverpg0001 and id is 1 raw text is: Con r s&onal flesear h Se iribu inn Ln iativ~ dea -. co 1914 Updated December 10, 2024 Regulation of U.S. Outbound Investment to China Introduct Ion The U.S. government has generally supported an open investment environment at home and abroad to promote U.S. economic growth, sustain the U.S. position as a premier destination for foreign direct investment, and ensure U.S. competitiveness. The U.S. government's interagency Committee on Foreign Investment in the United States (CFIUS) reviews a small subset of foreign inbound investments, primarily mergers and acquisitions, that could result in foreign control of a U.S. business and raise potential national security concerns. Since 2016, some Members of Congress have focused on the potential U.S. economic and national security effects of certain U.S. outbound investments to the People's Republic of China (PRC or China), including the transfer of U.S. technology and know-how in sensitive or strategic sectors. In response, the 118th Congress is considering legislation to strengthen foreign investment review authorities and restrict some U.S. investment in the PRC and other countries of concern that involves dual-use and critical technology. In response to congressional activity, in August 2023, President Biden issued Executive Order (E.O.) 14105 to establish a targeted outbound investment program. While the E.O.'s scope of covered activity is limited, new rules are considered a departure from traditional U.S. economic policy. Opponents argue that existing tools like sanctions and export controls can address risks. Proponents argue that new measures are needed to preserve a market-based climate and counter PRC policies that incentivize and require the transfer of U.S. technology and capabilities to PRC competitors to benefit the PRC government. ack round and Po cy Debate Since 2016, Congress has led efforts to strengthen U.S. foreign investment review and has considered regulating some outbound investment. Enactment of the Foreign Investment Risk Review Modernization Act (FIRRMA, Title XVII, Sub. A, P.L. 115-232) in 2018 enhanced CFIUS authorities to review, mitigate, or restrict inbound foreign investments in U.S. firms involved in critical technologies, critical infrastructure, or sensitive personal data, and certain real estate transactions. Other proposed provisions-e.g., on U.S. outbound investment-were diluted or eliminated during congressional and executive branch deliberations over FIRRMA, following business pressure and other policy considerations. Instead, Members reformed U.S. export controls to regulate some critical and emerging dual- use technologies and technology transfer abroad. Since then, Congress has returned to these investment issues, in part in response to high-profile PRC greenfield investments in the United States and U.S. investments in China in strategic sectors (e.g., semiconductors and biotechnology). U.S. investments in China include the creation of research and development centers, production facilities, and joint ventures (JVs) with the PRC government and PRC firms. Some Members say U.S. portfolio investments support PRC firms in strategic sectors and also should be regulated. U.S. firms have benefitted from the ability to invest and sell in China as a top global market since the 1990s. Despite the commitments it made to join the World Trade Organization in 2001, the PRC maintains policies and practices that require firms to localize production in China and transfer technology to PRC firms in order to sell or operate in the market. Since 2014, the PRC government has issued additional industrial policies and economic security measures. The U.S. Chamber of Commerce, among other business groups, has expressed support for the Biden Administration's efforts to develop a thoughtful regime that safeguards American national security and economic leadership without unnecessarily restricting beneficial U.S. business activity. At the same time, the Chamber advocates for an approach that is narrowly tailored to target specific national security concerns in a transparent, efficient, and predictable manner, follows clear, workable rules, and avoids creating a chilling effect on firm activity. The Semiconductor Industry Association warns that foreign firms could fill any loss of U.S. market share in countries of concern that might result from any new restrictions. Congressiona Actvties Congress has sought to address what some Members see as statutory, regulatory, and implementation gaps with regard to CFIUS and export controls (see text box). Select Legislation in the II 8t Congress * National Critical Capabilities Defense Act of 2023 (H.R. 3136) would create a committee to review and regulate or prohibit certain U.S. investments involving national critical capabilities in countries of concern. * Outbound Investment Transparency Act of 2023 (S. 2678) proposed notification of certain outbound investments in certain sectors. It was part of a Senate- version of the National Defense Authorization Act for FY2024 (S. 2226) and excluded from the enacted NDAA. * Preventing Adversaries from Developing Critical Capabilities Act (H.R. 6349) would prohibit or require notification for certain activities of U.S. persons involving covered sectors in countries of concern. It would codify aspects of E.O. 14105. A modified version was included in the broader bill H.R. 7476, introduced in Feb 2024. Some legislation broadly aims to sustain and rebuild U.S. production, technology, and innovation capabilities and counter PRC trade and investment policies of concern. Proposals include notification requirements, prohibitions in key sectors, and a case-by-case review process broadly similar to CFIUS that some call a reverse CFIUS. Some Members advocate for an entity-based sanctions approach

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