The United States government has proposed new regulations that would increase the scrutiny of foreign investments coming into the country. This comes against the backdrop of decreased Chinese investments in the U.S.
Controlling foreign investment
If passed, the laws give the Committee on Foreign Investment in the U.S. (CFIUS) the power to block transactions involving foreign companies or individuals based on national security. The new investment rules will apply to industries deemed critical by the U.S. government.
“Critical infrastructure includes telecommunications, energy, and transportation, and sensitive personal data includes geolocation, financial or health-related information that may be exploited at the risk of national security, including data related to targeted populations such as military personnel, the official said. The rules also target real estate deals involving or near specific airports, maritime ports, and military installations,” according to Bloomberg.
The rules also target real estate deals involving or near specific places, including certain ports. (Image: Sheila Fitzgerald via Dreamstime)
Parties that have objections to the proposal can voice their disapproval until October 17 this year. By considering the remarks, CFIUS will develop the final rules and implement them by February 13, 2020. It will also implement the Foreign Investment Risk Review Modernization Act (FIRRMA) passed last year. The move is hoped to allow the U.S. to block China from acquiring sensitive and cutting-edge American technologies.
“It is clear that this represents a fundamental rewrite of the CFIUS process aligned with the significant expansion of authority Congress provided CFIUS in August 2018,” John P. Kabealo, a Washington lawyer specializing in cross-border transactions, said to The New York Times. The proposed rules will affect transactions that negatively affect the U.S. and “other investments” that offer foreign-born individuals access to American businesses.
Exemptions
According to Mark Plotkin, a lawyer at Covington & Burling who represents clients before CFIUS, the proposed regulations will clarify to investors which kind of deals are safe to invest in. However, there is one provision that may spark a debate. This specific provision allows the U.S. to create a “white list” of countries subjected to a more lenient approach. As such, if some countries feel they’re unfairly treated while others are given preference, that could trigger diplomatic conflicts.
Senator Chuck Schumer warned about allowing Chinese telecommunication companies to operate in the U.S. (Image: via Wikimedia Commons)
If all foreign individuals from an “excepted foreign state” will also be deemed an “excepted investor,” chances are slim. “The proposed regulations identify criteria that a foreign person must meet to qualify as an ‘excepted investor’ regarding, for example, its principal place of business, place of incorporation, and ownership. Likewise, the proposed regulations also identify criteria that would preclude a foreign person from qualifying as an excepted investor, such as noncompliance with the law,” according to an FAQ released by the U.S. Department of Treasury, Office of Public Affairs.
Concerns about the dangers of Chinese investment in the U.S. have increased over the past months. Recently, Senator Chuck Schumer from New York and Senator Tom Cotton from Arkansas asked the Federal Communications Commission to review the licenses provided to China Telecom and China Unicorn. The licenses basically give these companies the right to use networks in the United States. They argued that these firms could potentially reroute communications to China, thereby compromising the country’s security.
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