Hold Off on Outbound Screening Regime, Lawmakers, Former US Officials Say
A potential provision in the bipartisan China package (see 2207120049) that would create an outbound investment screening mechanism received more opposition (see 2206280051 and 2201140038) this week, including from lawmakers on the Senate Banking Committee and former U.S. investment screening officials. While opponents of the provision say some form of outbound screening may eventually be necessary to further restrict sensitive technology transfers to China, they also said the current wording is too broad and leaves too many questions unanswered.
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The provision, outlined in several draft bills, would create a new Committee on National Critical Capabilities (CNCC), similar to the Committee on Foreign Investment in the U.S., to review outgoing U.S. investments that could potentially cede American technology or manufacturing capacity (see 2206140048 and 2206270013). The idea has received support from Commerce Secretary Gina Raimondo (see 2205130036) and the Bureau of Industry and Security (see 2206290035), and other proponents believe it could close an important loophole in existing export restrictions (see 2205120042).
But Pat Toomey of Pennsylvania, the top Republican on the Senate Banking Committee, said the provision needs more work. “Doing outbound CFIUS and getting it wrong could actually impede national security,” Toomey said during a July 14 hearing, “including the work of security agencies such as BIS or CFIUS that are already doing important work with respect to China.”
The CNCC would receive “vast, potentially unchecked authority” to block investments, Toomey said. It would also give the president “extremely broad” authority to determine which industries would be subject to the regime's screening powers, he said.
“It's not an overstatement to suggest that hundreds or thousands of U.S. companies and tens if not hundreds of billions of dollars in commerce could be impacted by outbound CFIUS,” Toomey said. “It's not just semiconductor firms that we'd be talking about.”
Committee Chair Sen. Sherod Brown, D-Ohio, didn’t criticize the provision, but said it should be dropped from the China package so House and Senate conferees can push through negotiations and pass the competition bill this month. “I'll work with my colleagues on this issue,” Brown said at the hearing. “But we should do so in another vehicle.”
The comments by Brown and Toomey came just after they received a letter from three former U.S. export control and investment screening officials, who urged them not to rush the legislation before its parameters could be carefully crafted. The regime would cause “considerable confusion and potential economic disruption at a time when the U.S. economy is strained by inflation and geopolitical turmoil,” said former BIS officials Mira Ricardel and Richard Ashooh and former CFIUS chair Thomas Feddo.
Ricardel and Feddo, who now work as consultants, and Ashooh, a government affairs official at Lam Research, praised Congress’ work on the Export Control Reform Act and the Foreign Investment Risk Review Modernization Act. Both were “long-overdue revisions” to U.S. authorities to address “technology security concerns,” “precisely tailored,” that didn’t duplicate existing authorities and gave the government enough long-term resources to implement and enforce them.
“FIRRMA and ECRA clearly meet these tests,” the former officials said. “It is not at all clear to us that the CNCC does.” They said the idea of an outbound regime is “overly broad” and carries an “unspecified mandate” that “leaves far too much authority subject to the interpretation and implementation” by U.S. agencies. “It is critical that these concerns and any others be fully addressed before any new program or authorities are created,” the letter said.
Congress should spend more time on the idea by holding hearings and soliciting public feedback, the former official said. “Taking steps without adequate consideration and deliberation” could “be severely detrimental to the very national security interests we all seek to preserve.”
Toomey echoed those concerns, saying there are too many unanswered questions. Congress should clearly determine the problem that an outbound investment regime is “attempting to solve,” he said, discuss how existing export controls “fall short” and better understand how the regime would affect the U.S.’s ability to attract capital and technological innovation.
“Given these concerns,” Toomey said, “I think Congress really has to take the time to properly evaluate outbound CFIUS as a concept rather than rushing to enact legislation that is not properly vetted.”