White House Should Coordinate With Congress on Outbound Investment Controls, Lawmaker Says
The White House should hold off on issuing a “unilateral” executive order on outbound investment screening (see 2209290043 and 2209140041) and should instead work with Congress to address sensitive investment flows to China, said Rep. Patrick McHenry of North Carolina, the top Republican on the House Financial Services Committee. In an Oct. 3 letter to National Security Adviser Jake Sullivan, McHenry said he is “concerned that the Administration may choose to resort to unilateral measures,” including the International Emergency Economic Powers Act, rather than “work with Congress to address the threat posed by China.”
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“An enduring investment policy toward China will embrace, not evade, regular-order deliberations,” McHenry said, adding that 2018 work on the Foreign Investment Risk Review Modernization Act and Export Control Reform Act resulted from “numerous public hearings across multiple congressional committees; robust, line-by-line engagement on legislative text with the interagency; and countless discussions with domestic and foreign stakeholders.”
In the letter, McHenry urged caution on creating a new outbound investment screening regime, saying “arguments for U.S. screening of outbound investments as a channel for high-risk advisory services fail to address why China could not simply procure the services in question, whether from the U.S. or allied countries.” He also pointed to Bureau of Industry Undersecretary Alan Estevez’s testimony before the Senate in July (see 2207150023), in which Estevez said “export controls and his department have ample jurisdiction to capture these very scenarios,” according to the letter.
McHenry also said the administration should “discount” outbound proposals that “cling to reviews at all costs,” which would be ineffective. “They reflect a lack of understanding of investment screening as it exists, and they seem to believe that mitigation agreements would be enforced in China -- an absurd idea,” he said.
He also pointed to reports the administration “still needs to understand outbound investment flows, potentially through company notifications,” which “highlights how backwards the development of outbound policy risks [is] becoming: to effectively combat China, we should first map out the problem and then design solutions, not the other way around.” McHenry said a “ready-fire-aim approach would run counter to decades of U.S. investment policy.”
The lawmaker also noted several “unintended consequences” of an outbound investment executive order, which could “invite all future administrations to extend restrictions beyond their original intent, no matter how narrowly drafted they are initially.” McHenry also said future attempts to change or unwind guidance for certain sectors “could prove vulnerable to politicization” and could undermine U.S. national security.
“Even the most carefully defined sector could overlook technologies and know-how that are not confined to a sector at all, rendering a category obsolete from the start,” he said. “Hopes that a rulemaking process would fix problems after the fact are signs of a proposal that is not fully baked.”
Along with Congress, McHenry said the White House should work closely with Treasury’s Office of Terrorism and Financial Intelligence to assess the effectiveness of existing investment-related restrictions. Entities listed on Treasury’s Non-Specially Designated National Chinese Military-Industrial Complex Companies List are subject to certain U.S. investment restrictions (see 2106030067).
“Any responsible outbound proposal should be informed by the achievements or shortcomings of these initiatives in achieving foreign policy goals,” McHenry said. The White House didn’t comment.