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Subcommittee Examines Foreign Investment Process

Washington, Jan 9 -

The Monetary Policy and Trade Subcommittee met today to evaluate the operations of the Committee on Foreign Investment in the United States (CFIUS) and the challenges posed by a changing global economy.

“Today, the Monetary Policy and Trade Subcommittee continued our work to evaluate and consider reforms to the Committee on Foreign Investment in the United States,” said Subcommittee Chairman Barr (R-KY).  “Working together we can modernize the CFIUS review process so that it better addresses security threats, while avoiding undue harm to U.S. business at home or to its efforts to compete abroad.”

Key Takeaways

• The free flow of capital is a bedrock tenet of the United States economy.

• While foreign investment can be a force for good, we must take care to ensure that we have proper safeguards in place to protect against any investment that threatens U.S. national security.

• The statute under which CFIUS operates - which has not been updated in a decade - should be modernized so it better addresses threats and protects U.S. businesses.

Topline Quotes from Witnesses

“As flexible and well-conceived as the export control regime is, there is a need for Congressional attention. … In any event, CFIUS would be an ineffective substitute technology control vehicle. … Imposing such a regime on U.S. technology businesses … could undermine U.S. innovation. Uncertainty around CFIUS determinations could encourage investment in research and development to move offshore, beyond the scope of the bureaucratic review process. This in turn could undermine the U.S. innovation and technological development so essential for our defense industrial base and economy more broadly.” -- Rod Hunter, Partner, Baker & McKenzie LLP

“When assessing the current effectiveness of CFIUS and any proposed changes to Section 721, it is essential to maintain as guideposts certain basic principles that shaped the law and current CFIUS regulations. First, foreign investments should be welcomed and subject to regulation only to protect vital national interests. … Second, in the competition for global capital, the United States is well served by regulatory processes that are transparent, predictable, and efficient. … These two fundamental guideposts lead to a third over-arching proposition: Any statutory or regulatory amendments to Section 721 should replicate the rigorous path set by the legislative and rule-making processes followed in 2007 and 2008. Those were models of deliberative consideration and produced an usually well-crafted set of regulations.” -- The Honorable W. Theodore Kassinger, Partner, O’Melveny & Myers LLP, former Deputy Secretary, U.S. Department of Commerce, 2004-2005

“Deciding how to handle Chinese firms requires identifying them correctly. The biggest People’s Republic of China (PRC) acquisition in the US last year was routed through Ireland. It’s still Chinese. Perhaps the most controversial deal saw Lattice Semiconductor briefly try to pretend it was being bought by an US company. Also Chinese. The best way for CFIUS and American policy-makers to determine control of a firm is to trace the money being used. Layers of subsidiaries and shell companies mean any other method of determining control can be gamed. Ultimately Chinese money guarantees influence, no matter the company’s name or location of its headquarters.” -- Dr. Derek M. Scissors, Resident Scholar, American Enterprise Institute

“The scale and scope of the theft of American intellectual property and of other actions by foreign companies against our interests demand robust policy responses that fundamentally change the cost-benefit calculus of foreign companies. Reforming the CFIUS process to include an IP protections evaluation—both before and after acquisition of American firms—and then staffing the CFIUS interagency team with sufficient resources to conduct this more thorough review are important next steps.” -- Admiral Dennis C. Blair, Co-Chair, The Commission on the Theft of American Intellectual Property, and former Director, National Intelligence, National Security Council