Global Trade & Foreign Policy Insights

It’s been another big year on the national security front. The Biden administration finally published its long-awaited Executive Order (E.O.) restricting U.S. investors from making investments in Chinese companies working on certain technologies and products. Evidence is mounting that the Committee on Foreign Investment in the United States (CFIUS or the Committee) is taking longer than ever to process transactions and, even when foreign investors can avoid CFIUS review, local communities are starting to fill the gaps in CFIUS’s authorities by making certain investments untenable. Finally, the Department of Energy (DOE) issued proposed guidance on its interpretation of “foreign entity of concern” (FEOC), a term that is becoming popular in national security-related statutes and regulatory frameworks.

The annual report for 2022 shows that the CFIUS process is becoming more difficult to negotiate in a timely and predictable manner, and in some cases, transactions can get bogged down in the CFIUS quagmire for several months.

The Committee on Foreign Investment in the United States recently issued two new frequently-asked-questions on its website. The new FAQs provide additional guidance on (1) timing for mandatory filings and (2) ownership disclosure requirements for investment funds. CFIUS does not have many FAQs—and they are not frequently updated—so the new FAQs are particularly noteworthy and provide helpful insight into the areas where CFIUS is most focused.

The Department of Commerce’s Bureau of Industry and Security (“BIS”) recently announced a two-day hybrid conference later this month on brain-computer interface (“BCI”) technology.

On September 15, President Biden issued a new Executive Order (E.O.) titled, “Executive Order on Ensuring Robust Consideration of Evolving National Security Risks by the Committee on Foreign Investment in the United States.”  This is the first E.O. since CFIUS was established in 1975 to provide presidential direction on the factors that CFIUS is required to consider when evaluating foreign investments in U.S. businesses.  Specifically, the E.O. states that CFIUS is required to consider the following four factors when evaluating transactions: (1) the transaction’s effect on supply chain resilience and security, both within and outside of the defense industrial base; (2) the transaction’s effect on U.S. technological leadership in areas affecting U.S. national security; (3) cybersecurity risks that may impair national security; and (4) risk to U.S. persons’ sensitive data.  The E.O. also clarifies that if a foreign person has made multiple investments in an industry or sector, CFIUS will not look at each new investment in a vacuum, but rather will consider the cumulative effect of all of a foreign person’s investments in a particular industry or sector when evaluating the national security risks arising from each new investment.  Finally, the E.O. requires CFIUS to provide regular reports to the White House’s National Security Advisor regarding its regulations, processes, and procedures.

On September 13, 2022, the U.S. Department of Commerce’s Bureau of Industry and Security (“BIS”) published an advance notice of proposed rulemaking (“ANPRM”) to impose export controls on automated peptide synthesizers and associated software and technology under Section 1758 of the Export Control Reform Act. BIS noted in the ANPRM that Export Control Classification Number (“ECCN”) 1C351 currently contains mostly advanced peptides and proteins that could be used as toxins for biological weapons purposes, but there is no appropriate control on the automated synthesizers or associated software and technology capable of producing those toxins.

On the heels of President Biden signing into law the CHIPS and Science Act of 2022, the Department of Commerce recently launched a new website at CHIPS.gov to publish information relating to the CHIPS Act.

President Biden recently signed into law the CHIPS and Science Act of 2022, which, among other things, provides billions of dollars of federal financial assistance to semiconductor companies to construct, expand, and modernize semiconductor manufacturing facilities in the United States.

On August 2, 2022, the Committee on Foreign Investment in the United States (“CFIUS” or the “Committee”) published its annual report for 2021. As we have noted in the past, the publication every summer of the annual report is a major event for CFIUS watchers. CFIUS’s annual report is one of the only times each year that CFIUS provides information to the public about its operations. The annual report provides hard data about the number of transactions that CFIUS reviewed the previous year, the time it took to complete those reviews, and the high-level results of those reviews, among other things. The annual report is the best resource for dealmakers to use when attempting to anticipate how the CFIUS process may affect a deal. 

ACI held its annual CFIUS conference from April 27 to 28 in Washington, D.C., bringing together practitioners and government officials to discuss a range of CFIUS topics. On the government side, the two-day event involved significant participation by the Department of Defense (DoD), which was represented by officials on a majority of the panels. The following are the key takeaways.

On Tuesday, March 1, The Wall Street Journal reported that the Committee on Foreign Investment in the United States approved a Chinese investment in Icon Aircraft, Inc., a California-based maker of small recreational vehicles.

In October 2020, the White House published the National Strategy for Critical and Emerging Technologies (“NSCET”).  The NSCET identifies 20 high-priority technology areas that are regarded as critical, or potentially critical, to the United States’ national security advantage, including military, intelligence, and economic advantages.  According to the NSCET, the U.S. Government’s strategy is to continue to maintain technology leadership in each of these high-priority areas, and to remain vigilant in protecting the United States’ technology advantage from a variety of licit and illicit technology transfer mechanisms. 

Last month, Winston & Strawn’s International Trade attorneys hosted a webinar on the most significant International Trade highlights of 2021, as well as our team’s predictions for 2022.

As predicted, and addressed in a previous client alert, Chinese private equity (PE) firm Wise Road Capital and U.S.-based Magnachip Semiconductor Corp. (Magnachip) terminated their billion dollar-deal after failing to receive approval from the Committee on Foreign Investment in the United States (CFIUS).

In an earlier client alert, we noted that Wise Road Capital’s proposed acquisition of Magnachip Semiconductor Corporation was on life support: the Committee on Foreign Investment in the United States (CFIUS) had issued a Due Process letter, and the transaction parties could either abandon the transaction or allow the matter to be referred to the President, who would likely block it. 

Earlier this year, Wise Road Capital, a Chinese private equity firm, entered into an agreement to purchase Magnachip Semiconductor Corporation, a South Korean chip manufacturer. On August 27, 2021, Magnachip submitted an SEC filing indicating that the Committee on Foreign Investment in the United States is preparing to block the deal.

Tyler McGaughey, a partner in Winston’s Washington office, and the former Deputy Assistant Secretary for Investment Security at the U.S. Department of the Treasury, offers his thoughts on the key takeaways from CFIUS’s recently published annual report for 2020. 

Tyler McGaughey lists 17 things that dealmakers need to know about CFIUS and semiconductors.

Although it did not receive much attention in the press, President Biden recently issued a statement reiterating the United States’ commitment to the open investment policy, the longstanding policy of the United States to encourage foreign investment in the U.S. economy.

The U.S. Department of the Treasury has built a new team whose only mission is to scour commercial databases, press releases, bankruptcy filings, and other sources, searching for transactions that were not filed with the Committee on Foreign Investment in the United States (CFIUS or the Committee).