On June 12, 2022, a bipartisan group of Senate and House lawmakers announced agreement on a new National Critical Capabilities Defense Bill of 2022 (NCCDA), which would establish a broad outgoing review mechanism for investments and other transactions in specified countries of concern, including China. The project is based on a bill introduced in the Senate last year that was ultimately not included in the United States Competition and Innovation Act (USICA), which passed, while the House included a similar measure in its America COMPETES Act, which also passed, and both bills are now in conference.
If signed into law, the NCCDA would establish a new interagency group to review and potentially interdict outbound transactions on national security grounds. The Committee on National Critical Capabilities (CNCC) would operate similarly to the Committee on Foreign Investment in the United States (CFIUS), which reviews inbound foreign investment. U.S. persons and foreign entities that engage or plan to engage in a “covered activity” would be required to submit a mandatory written notification 45 days prior to engaging in the activity. It is unclear how the requirement would apply to a foreign entity that has no connection to the United States.
“Covered Activities” includes an extremely broad range of transactions, including any activity of a U.S. Person or foreign entity or their affiliates that:
- Builds, develops, produces, fabricates, manufactures, refurbishes, expands, relocates, maintains, manages, operates, uses, sells or relocates a Critical National Capability to or within a Country of Concern;
- Shares, discloses, contributes, transfers or licenses to a relevant entity any design, technology, intellectual property or know-how, including through open source technology platforms or research and development, that supports, contributes to or enables a capacity national criticism by an entity of concern or in a country of concern; Where
- Invests in, provides capital or consults for, or gives advice, related to enhancing capacity or facilitating access to financial resources for a critical national capacity for an entity or country of concern.
Covered activities would also include the transactions of certain entities that receive financial assistance under the Bipartisan Innovation Act (the presumed name of the legislation resulting from the conference), as well as the activities of entities that benefit from government contracts d amount (for- TBD) with a US national security agency regarding an entity or country of concern.
Besides China, “countries of concern” include Russia, Iran, North Korea, Cuba and Venezuela. The term “entity of concern” is broadly and loosely defined to include entities “affiliated with” or “influenced by” a country of concern. Covered activities would not include de minimis value transactions, as well as “ordinary commercial transactions”, which generally include transactions involving the sale or license of a finished product.
“National Critical Capabilities” are defined as those identified as necessary for the supply chains identified pursuant to the Supply Chain Review mandated by Executive Order 14017, including:
- semiconductor manufacturing materials,
- large capacity batteries,
- minerals and critical materials,
- pharmaceuticals and active pharmaceutical ingredients, and
- “critical and emerging technologies”, such as artificial intelligence, bioeconomy and quantum information science and technology.
Once a notification is submitted, the CNCC would undertake a review to determine whether the activity is likely to cause “unacceptable risk to one or more national critical capabilities”. If it determines that such a risk exists, it will make a recommendation to the President to address the risk, including imposing mitigating measures, possibly including a divestment. The Committee would also have the power to initiate an investigation into a covered activity if a notification is not made.
Although lawmakers announcing the deal called the bill “a polished proposal,” it remains extremely broad. Key terms and concepts are vague and ill-defined or left to regulators to fill in the blanks, and industry groups including the US China Business Council and the US Chamber are raising their voices in opposition.[View source.]