The defense spending bill that was approved by the Senate July 27 includes bipartisan language for an outbound investment notification mechanism aimed primarily at China, a separate amendment that would bar China from acquiring or leasing U.S. farmland, and another provision that would require the federal government to evaluate threats to U.S. ports posed by cranes manufactured in China and other suppliers of concern.

The outbound investment notification language would establish a program to require covered U.S. entities to notify the Treasury Department 14 days prior to making various investments in sensitive technologies in economies of concern, such as China, Russia, Iran, and North Korea, as well as 14 days after secured transactions. It would also direct Treasury, in coordination with the Department of Commerce, to establish a process to receive notifications of such investments. In addition, the U.S. government would be required to coordinate with allies and partners on the implications of a notification process and work to implement outbound investment screening in partner countries.

The term “covered activity” is defined in the legislation as any activity engaged in by a U.S. person in a covered sector that involves:

- an acquisition of an equity interest or contingent equity interest, or monetary capital contribution, in a covered foreign entity, directly or indirectly, by contractual commitment or otherwise, with the goal of generating income or gain;

- an arrangement for an interest in the short- or long-term debt obligations of a covered foreign entity that includes governance rights that are characteristic of an equity investment, management, or other important rights;

- the establishment of a wholly owned subsidiary in a country of concern, such as a greenfield investment, for the purpose of production, design, testing, manufacturing, fabrication, development, or research related to one or more covered sectors;

- the establishment of a joint venture in a country of concern or with a covered foreign entity for the purpose of production, design, testing, manufacturing, fabrication, or research involving one or more covered sectors, or other contractual or other commitments involving a covered foreign entity to jointly research and develop new innovation, including through the transfer of capital or intellectual property or other business proprietary information; and

- the acquisition by a U.S. person with a covered foreign entity of (1) operational co-operation, such as through supply or support arrangements; (2) the right to board representation (as an observer, even if limited, or as a member) or an executive role (as may be defined through regulation) in a covered foreign entity; (3) the ability to direct or influence such operational decisions as may be defined through such regulations; (4) formal governance representation in any operating affiliate, like a portfolio company, of a covered foreign entity; or (5) a new relationship to share or provide business services, such as financial services, marketing services, or maintenance or assembly functions, related to a covered sector.

Covered sectors would include advanced semiconductors and microelectronics, artificial intelligence, quantum information science and technology, hypersonics, satellite-based communications, and networked laser scanning systems with dual-use applications. Exemptions would be provided for transactions with a de minimis value, ordinary business transactions as may be regulatorily defined, and any category of transactions deemed to be in the national interest of the U.S.

A separate provision that also made it to the Senate defense spending bill would bar China, Russia, and North Korea from acquiring or leasing U.S. farmland. According to a statement from Sen. Jon Tester, D-Mont.’s office, the Committee on Foreign Investment in the United States would be able to review all significant agriculture-related foreign investments using expert data from the Department of Agriculture and would be empowered to prohibit future purchases of farmland by foreign adversaries of the U.S.

Lastly, another provision would require the federal government to evaluate threats to U.S. ports posed by cranes manufactured in countries of concern, especially those made by China’s Shanghai Zhenhua Heavy Industries Company. Specifically, the Director of National Intelligence and the Secretary of Defense would be required to conduct an assessment of the threats posed by cranes manufactured by countries of concern and commercial entities of those countries, and these evaluations would examine the potential to collect intelligence, disrupt operations, and impact national security.

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