U.S. Secretary of Commerce Gina Raimondo recently expressed support for a screening regime to review outbound investments. This, as well as similar statements from the White House and the passage of legislation calling for such a process earlier this year, signals that certain outbound investments could be subject to U.S. regulatory review and approval in the near future.
In February 2022, the U.S. House of Representatives passed the America COMPETES Act. This followed the U.S. Innovation and Competition Act (USICA) passed by the Senate in June 2021. While both pieces of legislation seek to bolster U.S. economic and national security, the America COMPETES Act includes provisions that, if enacted, would establish a new regulatory regime and review process targeting certain outbound investments related to or otherwise resulting in the offshoring of advanced technology, capabilities, and supply chain activities deemed critical to U.S. domestic manufacturing. In particular, the America COMPETES Act calls for the creation of the Committee on National Critical Capabilities (CNCC), a new interagency committee that would operate similar to and resemble the Committee on Foreign Investment in the United States (CFIUS), but would be chaired by the United States Trade Representative (USTR) (in consultation with the Secretaries of Commerce and Defense) rather than the U.S. Department of the Treasury.
Proposed Outbound Investment Screening Structure
Pursuant to the America COMPETES Act, the CNCC would have jurisdiction to review any “covered transaction,” which is broadly defined as any transaction by a U.S. business that (1) shifts or relocates to a “country of concern,” or transfers to an “entity of concern,” the design, development, production, manufacture, fabrication, supply, servicing, testing, management, operation, investment, ownership, or any other essential elements involving of one or more “national critical capabilities;” or (2) could result in an unacceptable risk to a national critical capability.
“National critical capabilities” are defined as “systems and assets, whether physical or virtual, so vital to the United States that the inability to develop such systems and assets or the incapacity or destruction of such systems or assets would have a debilitating impact on national security or crisis preparedness.” Although we expect this term, as well as other terms and concepts, would be more fully defined in implementing regulations, the following systems and assets have been preliminarily identified as vital to U.S. national security and crisis preparedness:
- medical supplies, medicines, and personal protective equipment;
- articles essential to the operation, manufacture, supply, service, or maintenance of critical infrastructure;
- articles critical to infrastructure construction after a natural or manmade disaster;
- articles that are components of systems critical to the operation of weapons systems, intelligence collection systems, or items critical to the conduct of military or intelligence operations; and
- supply chains and services related to any of the abovementioned systems and assets.
U.S. businesses engaged in covered transactions would be required to submit written notifications to the CNCC. The CNCC also would have the authority to unilaterally initiate a review of any covered transaction for which a written notification is not submitted and would be required to initiate a review of a covered transaction upon the request of certain Congressional committees. Within 60 days of receiving a notification, the CNCC must decide whether to review the transaction for “unacceptable risk to one or more national critical capabilities.” If the CNCC reviews a transaction and determines that it poses an unacceptable level of risk, it can recommend that the President take action to avoid or otherwise mitigate that risk, including by suspending or prohibiting the transaction.
A number of issues remain unclear, including if and how the House and Senate will reconcile differences between the America COMPETES Act and the USICA (and whether the result of such reconciliation will include an outbound investment review regime), what exactly will constitute or rise to the level of an “unacceptable risk” under an outbound investment review regime, where the USTR and the CNCC member agencies will receive the funding, staffing, and other resources necessary to stand up an outbound investment screening regime, how and when the regime will be implemented, and whether the scope of the regime will ultimately be limited to or focused on certain countries currently subject to higher levels of CFIUS scrutiny, such as China and Russia.
 If the America COMPETES Act is enacted, the U.S. would become the first major western nation to adopt an outbound investment screening regime. According to the Rhodium Group, the America COMPETES Act, as drafted, and the proposed outbound investment regime, would have captured approximately 43 percent of all U.S. transactions in China between 2000 and 2019. See https://rhg.com/research/tws-outbound/;
 The term U.S. business means a person engaged in interstate commerce in the United States. See https://rules.house.gov/sites/democrats.rules.house.gov/files/BILLS-117HR4521RH-RCP117-31.pdf.
 Country of concern means any foreign government or foreign non-government person engaged in a long-term pattern or serious instances of conduct significantly adverse to the national security of the United States or security and safety of United States persons, or any non-market economy that is later identified by the Committee. Ibid.
 Entity of concern means any entity the ultimate parent entity of which is domiciled in a country of concern; or that is directly or indirectly controlled by, owned by, or subject to the influence of a foreign person that has a substantial nexus with a country of concern. Ibid.
 The America COMPETES Act also would require a study of the following industries to identify other potential critical capabilities: (1) Energy; (2) Medical; (3) Communications, including electronic and communications components; (4) Defense; (5) Transportation; (6) Aerospace, including space launch; (7) Robotics; (8) Artificial intelligence; (9) Semiconductors; (10) Shipbuilding; and (11) Water, including water purification.
 The CNCC’s review would be based on several enumerated factors, including “the long-term strategic economic, national security, and crisis preparedness interests of the United States,” the “distortive or predatory trade practices” of each country of concern, the “control and beneficial ownership of each foreign person” in the transaction, and the impact of the transaction on domestic industry. Ibid.
 Whereas the Foreign Investment Risk Modernization Act of 2018 (FIRRMA), which is the recent statute pursuant to which, among other things, the jurisdiction of CFIUS was expanded, included specific provisions regarding funding, the America COMPETES Act does not include such provisions, but instead simply says “[t]here are authorized to be appropriated such sums as may be necessary to carry out” the America COMPETES Act.