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Foreign Investment Restrictions Being Implemented Through Pilot Program

Monday, October 15, 2018
Sandler, Travis & Rosenberg Trade Report

Under a pilot program set to begin in November, the Committee on Foreign Investment in the U.S. will conduct national security reviews of an expanded range of proposed foreign investments in 27 sensitive industries. The pilot will implement certain provisions of the Foreign Investment Risk Review Modernization Act by assessing and addressing ongoing national security risks resulting from (1) the ability and willingness of some foreign parties to obtain equity interests in U.S. businesses in order to affect certain decisions regarding, or to obtain certain information relating to, critical technologies; and (2) the rapid pace of technological change in certain U.S. industries. This pilot will begin Nov. 10 and end no later than March 5, 2020.

A Treasury Department fact sheet provides the following information about the pilot.

Notice or declaration. The pilot establishes mandatory declarations (abbreviated notices that generally should not exceed five pages) for certain transactions involving investments by foreign persons in covered U.S. businesses. Declarations must be filed at least 45 days prior to a transaction’s expected completion date and CFIUS will have 30 days to take action.

However, parties may choose to file a notice under CFIUS’s standard procedures rather than a declaration.

Parties that are required to file with CFIUS but do not can be assessed a civil monetary penalty up to the value of the transaction.

Investments. Covered investments are those that give the foreign investor (a) access to any material nonpublic technical information in the possession of the target U.S. business, (b) membership or observer rights on the board of directors or equivalent governing body of the U.S. business, or the right to nominate an individual to such a position, or (c) any involvement, other than through voting of shares, in substantive decisionmaking of the U.S. business regarding the use, development, acquisition, or release of critical technology.

Foreign persons. The pilot covers all foreign persons and is not country-specific.

U.S. businesses. The pilot covers any U.S. business that produces, designs, tests, manufactures, fabricates, or develops a critical technology that is (1) utilized in connection with the U.S. business’s activity in one or more specified industries (see below) or (2) designed by the U.S. business specifically for use in one or more such industries.

Critical technologies. All critical technologies, as defined by FIRRMA, including emerging and foundational technologies controlled pursuant to the Export Control Reform Act of 2018, are covered. The Department of Commerce said that in a parallel rulemaking it will identify, review, and potentially control such technologies.

Industries. The pilot covers the following 27 industries for which the federal government has determined certain strategically motivated foreign investment could pose a threat to U.S. technological superiority and national security.

- aircraft manufacturing

- aircraft engine and engine parts manufacturing

- alumina refining and primary aluminum production

- ball and roller bearing manufacturing

- computer storage device manufacturing

- electronic computer manufacturing

- guided missile and space vehicle manufacturing

- guided missile and space vehicle propulsion unit and propulsion unit parts manufacturing

- military armored vehicle, tank, and tank component manufacturing

- nuclear electric power generation

- optical instrument and lens manufacturing

- other basic inorganic chemical manufacturing

- other guided missile and space vehicle parts and auxiliary equipment manufacturing

- petrochemical manufacturing

- powder metallurgy part manufacturing

- power, distribution, and specialty transformer manufacturing

- primary battery manufacturing

- radio and television broadcasting and wireless communications equipment manufacturing

- research and development in nanotechnology

- research and development in biotechnology

- secondary smelting and alloying of aluminum

- search, detection, navigation, guidance, aeronautical, and nautical system and instrument manufacturing

- semiconductor and related device manufacturing

- storage battery manufacturing

- telephone apparatus manufacturing

- turbine and turbine generator set units manufacturing

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