New Outbound Investment Regime Could Face 'Significant' Industry Pushback, Ex-CFIUS Officials Say
The U.S. should try to use existing tools to better screen outbound investments rather than create a new investment regime, which could burden American companies and damage U.S. competitiveness, two former U.S. officials and an international investment expert said. But one member of a bipartisan congressional commission said a new outbound investment regime is necessary to better protect U.S. critical technologies and national security.
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Congress could consider a bipartisan bill introduced last year by Sens. Bob Casey, D-Pa., and John Cornyn, R-Texas, that would establish an interagency outbound investment review committee, which would seek to better protect sensitive U.S. technology transfers. The committee, which could function like the Committee on Foreign Investment in the U.S. except for outgoing investments, has received support from the bipartisan U.S.-China Economic and Security Review Commission.
But it will undoubtedly receive “significant private sector opposition,” said Ben Joseloff, a former lead counsel for CFIUS, speaking during a Jan. 15 event hosted by the Atlantic Council. Another government investment screening regime could create a large amount of uncertainty for a range of technology companies, said Clay Lowery, a former CFIUS head, especially those who are just growing accustomed to the changes introduced by the Foreign Investment Risk Review Modernization Act.
“You're going to almost assuredly create vagueness and bureaucracy, and you're going to create almost a guessing game. What is it that the investor can do and can't do?” said Lowery, now the executive vice president for the Institute of International Finance. He said the government would need to come up with specific terms and parameters for screening investments, or else employ a screening strategy of “we'll know it when we see it.”
The regime could be made more complicated by Bureau of Industry and Security efforts to control emerging and foundational technologies, Lowery said, which has been criticized by some lawmakers for moving too slowly (see 2110250035 and 2111170064). Lowery said he is unsure whether the outbound investment regime would be used as a substitute for export controls.
“What you're really doing, in some respects, is you're creating this supra export-control regime,” Lowery said. “This is going to hurt our competitiveness, and that, in my mind, would harm our national security just as much as basically whether or not we do actual business with China.”
Sarah Bauerle Danzman, a professor at Indiana University Bloomington and a nonresident international investment expert with the Atlantic Council, suggested Congress’ bill is too broad and said she is also concerned that an outbound investment regime could stifle U.S. innovation and competitiveness. “What I find most concerning are the potential negative effects of having firms go to the government every time they are making a decision about moving some aspects of their business,” she said.
And similar to the U.S.’s multilateral efforts on incoming foreign investment screening (see 2201050039 and 2109290083), it would also need to convince allies to establish their own outbound investment regimes, so U.S. companies aren’t investing on an uneven playing field, Bauerle Danzman said. “For export controls to really work, they usually need to be multilateral,” she said. “It's not just about what rules the U.S. can put in place to govern its companies and its place in the global economy, but also how we need to work with partners and allies if we want to be truly effective in a lot of these areas.”
Joseloff said the U.S. may be able to “plug” its outbound investment gaps by tweaking CFIUS rather than creating a new regime. He also said CFIUS already has the authority to screen certain types of outbound investment. “Before lawmakers design and implement an entirely new regulatory review process, they should first focus on identifying specific gaps in the current system and then assessing whether our existing tools could be used to fill those gaps,” said Joseloff, now a corporate lawyer.
But Jeffrey Fiedler, a USCESRC commissioner, said the commission believes there “needs to be a new tool” even though it will be a difficult process. “The integration of Chinese and American economies has created a different set of problems than we have ever faced,” he said. “And it seems to me that it requires a different set of tools or a different dynamic in the use of the tools.”
While Fiedler said he isn’t “wedded to any single currently proposed solution,” he said Congress should take a “comprehensive look” at an outbound investment regime. “We have recognized that inbound investment is potentially dangerous, and we are now recognizing that outbound investment and money is dangerous,” Fiedler said. “I understand the pushback, because the pushback is all about making money. So it's going to be an interesting dynamic, and I hope we resolve it before we feel the real impact of the problems.”