The draft, released Monday by supportive congressional offices, is intended to be a compromise between legislation originally proposed last year by Sens. Bob Casey (D-Pa.) and John Corny (R-Texas), and a less strict Treasury Department Proposal aired this spring that focused on corporate disclosure of new investments in China, with no new regulatory powers.
Major business groups, as well as the Treasury, have been skeptical of giving the government new powers to scrutinize US investments in the world’s second-largest economy, fearing increased scrutiny could hamper companies’ competitiveness Americans and does not suppress investments. But the seven lawmakers proposing the compromise say the new authority is needed to address concerns about US funding and technology ultimately helping the Chinese government and military.
“Creating an outbound investment review mechanism is a critical tool as Congress works to provide safeguards on taxpayer funds and protect our supply chains from countries of concern, including the United States. People’s Republic of China,” Casey and Cornyn, along with representatives, said. Rosa DeLauro (D-Conn.), Bill Pascrell, Jr. (DN.J.), Michael McCaul (R-Texas), Brian Fitzpatrick (R-Pa.) and victoria spartz (Rind.).
The new compromise differs from the original bill in a few key areas. Instead of making the office of the U.S. Trade Representative the head of the government’s new watchdog group, it leaves that designation to the president. This change was made after widespread concern that the USTR was not large enough or did not have enough resources to handle the leadership of the new interagency group.
Transactions covered by the law would include financing new facilities such as factories, joint ventures involving technology transfers to China, as well as capital investments in Chinese startups and tech companies, according to the draft text. This potentially expands the jurisdiction of the original bill, which did not explicitly focus on capital flows to Chinese companies, although its language is broad enough to potentially include them if the White House sees fit. The new draft also includes exemptions for so-called “ordinary commercial transactions” that do not involve transfers of advanced technology or American intellectual property.
Lawmakers hope the new draft text will address concerns about the original legislation held by industry and some free trade lawmakers. The new proposal “enjoys bipartisan and bicameral support and addresses industry concerns, including the scope of forward-looking activities, industries covered and the prevention of duplicate authorities,” the lawmakers wrote to their colleagues, adding that the project “aligns the United States with the overseas investment mechanisms of our allies.
But it’s unclear whether the compromise will garner wider support. Previous iterations, like a draft distributed by Cornyn last month, failed to gain ground in negotiations on economic competitiveness legislation. Already, some critics of the push say the new draft will do little to appease critics of the legislation.
“People are going to have the same complaints about this as they did about the other,” said Clete Willems, an Akin Gump partner who served on the National Security Council and the National Economic Council during the Trump administration. “It does not address many of the concerns about the original bill, including that it is too broad or that it will put companies at a competitive disadvantage when trying to sell in China.”
Sen. Pat Toomey (R-Pa.), a proponent of free trade and a longtime critic of the push to expand outbound investment controls, quickly indicated on Monday that he was unhappy with the new draft, arguing that Congress should address the issue with public hearings and markup, rather than behind-the-scenes negotiations.
“I have yet to be convinced that existing export control laws fall short,” he said in a statement. “Furthermore, I fear that this proposal will grant the federal bureaucracy new authorities to dramatically disrupt and shut down the free flow of trade and investment, risking slowing economic growth and raising prices for consumers. Such a dramatic expansion of the administrative state would first have to be carefully considered through regular order.
Supporters, led by Casey and Cornyn, are seeking comment from congressional offices and outside groups by Wednesday as they try to move forward with a conference committee on the broader bill, which is anchored by $52 billion in national semiconductor manufacturing incentives. House leaders have said they want a vote on the package before the July 4 recess, but the overarching bill has been locked in broader negotiations for months.
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