FIRRMA, ECRA Represent Biggest Changes to Trade Compliance in a 'Generation', Former Trade Official Says

A former top Commerce and trade official said the U.S.’s recent efforts to reform export controls and foreign investment screening are some of the most consequential developments the trade industry has seen in years. “The passage of [the Export Control Reform Act] and [the Foreign Investment Risk Review Modernization Act] together represents one of the biggest changes in trade compliance probably in at least a generation,” said Chris Padilla, former undersecretary for international trade and former assistant U.S. trade representative.

Padilla -- speaking during an Oct. 30 Washington International Trade Association event centered on FIRRMA, export controls and the Trump administration's May supply chain executive order -- said this area of trade had not been this significantly changed in 25 years. Equally important, he said, is the effort’s broad bipartisan support. “It constitutes a fundamental modernization and reorientation of the U.S. trade and investment compliance system,” he said. “This is a really big deal.”

Padilla applauded the administration's work in reforming the Committee on Foreign Investment in the U.S. Treasury recently issued proposed regulations for FIRRMA, which expands CFIUS’s jurisdiction when reviewing foreign investment, in September (see 1909180018). The regulations are expected to take effect by mid-February. Padilla is now vice president for Government and Regulatory Affairs at IBM.

While FIRRMA’s regulations were written under the Trump administration, Padilla said industry stakeholders should not assume the U.S.’s focus on export controls and investment screening will be lessened when Trump leaves office. “This is not just a Trump administration phenomenon,” Padilla said, pointing to the bipartisan support for export control reform. “These changes are reflective of a fundamental shift in the perception by the United States across administrations of the nature of the national security threat that we’re facing.”

Even if Trump is not elected to a second term, the effort will continue, said John Miller, senior vice president of policy for the Information Technology Industry Council. “I think some are hopeful that if there is an administration change, all of this just goes away. That’s not likely to happen whatsoever from our perspective,” Miller said during the event. “It’s not going away anytime soon.”

While the U.S. technology industry is monitoring the FIRRMA regulations, it is deeply concerned about the upcoming information and communications technology and services supply chain executive order released earlier this year, Miller said. Companies are nervous about the potential restrictions that may arise from the order, which required Commerce to issue regulations barring certain ICT-related transactions within 150 days (see 1907220011).

The regulations’ due date was in October, but no regulations have been issued. “There’s been understandably a high degree of anxiety regarding what these rules may look like when they come out,” Miller said. The order was broader than the technology industry expected, Miller said, causing some to fear the order’s scope could impact a wide range of technologies and goods. “I guess the easiest way to say it is that it potentially impacts all ICT products and services -- full stop,” Miller said. “Not just telecommunication networks.”

This could lead to impacts on a broad range of transactions and significantly impact trade, Miller said. “It names acquisition, importations, transfer, installation, dealing in or use of ICT products and services,” he said. “It’s a pretty wide scope of potential companies that are impacted.”

The order could also create a licensing regime, Miller said, but he does not expect Commerce to introduce a regime when the regulations are first imposed. He also said, despite industry’s fears, Commerce does not intend the regulations to be significantly restrictive. “Based on our understanding of what to expect from the rules,” Miller said, “Commerce’s approach was to try to do this in a minimally invasive way from an industry standpoint.”