Shaking up trade: New tool could bring big changes | Bass, Berry & Sims APIs

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On August 9, President Biden plans to enact the CHIPS and Science Act in the White House Rose Garden. The bill provides $52.7 billion in subsidies and incentives to domestic semiconductor makers to strengthen existing supply chains and better compete with China. While the details of the bill were debated as the legislation went through several rounds of revisions and changes, elected officials remained focused on the goal of enacting a bill that secures the funding to promote domestic businesses rather than not American. To realize these ambitions, the legislative authors have taken a page from the Committee on Foreign Investment in the United States (CIFUS) playbook, producing a near-outbound investment screening mechanism that could bring big changes.

While many believe Tuesday’s Rose Garden ceremony embodies a major step towards regaining ground in the tech race, the bill’s legacy will likely be more accurately derived from “the railing layout” and what it means for the future of trade, industrial and national security policy, as well as globalization more broadly. Specifically, the bill requires a “covered entity” seeking CHIPS funding to enter into a “safeguard provision” agreement with the Department of Commerce (DOC) – prohibiting the entity from engaging in any “significant transaction” promoting “material expansion of semiconductor manufacturing”. in China or any other “foreign country of concern”. A “foreign country of concern” is defined to include China, North Korea, Russia and Iran.

Covered entities will be required to notify the DOC of all planned significant investments in any “foreign country of concern”. The DOC then has 90 days to decide whether the transaction violates the covered entity’s agreement and notify the entity of the decision. If the DOC determines that there is a violation, the covered entity has the opportunity to remedy the problem by providing tangible evidence within 45 days that “the anticipated material transaction has ceased or been abandoned.” Violations may result in the DOC recovering the full amount of financial assistance provided.

The “guardrail provision” could set a precedent as it has the potential to be implemented in other critical sectors of the economy. The provision sets up a quasi-outbound investment screening tool that can be used repeatedly to meet national security imperatives.

This provision is only the latest step in recent collective notions of prioritizing the free flow of trade and investment to support economic growth, lower prices for consumers and greater competitiveness. During debate on the bill, Senators Bob Casey (D-PA) and John Cornyn (R-TX) pushed to include language that would have created a National Critical Capacities Committee to screen outbound investments. This failed to make it into the final CHIPS legislation.

While support for such a mechanism has not had support in Congress, the White House is publicly behind the idea. Moreover, a bipartisan group of lawmakers has already crafted a bill — the National Critical Capabilities Defense Act — that would make such a mechanism a reality. Under the proposed bill, U.S. companies planning to invest in high-tech sectors in China (or other relevant countries) would be required to notify those plans. The bill would also allow the president to prohibit transactions deemed to pose a risk to national security.

Even without the passage of new legislation to create such a mechanism, the wheels are in motion and Congress now has a tool with the provision of guardrails to limit U.S. investment in certain sectors of economies. foreign. We think this could have important implications for the future of business investment abroad. Any company considering investing outside of the United States should recognize that momentum is building for increased investment control and plan its business activities and corporate strategies accordingly.

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