Lack of Clarity Still Surrounds Critical Technology Definition as FIRRMA Regulations Take Effect

As the final regulations for the Foreign Investment Risk Review Modernization Act take effect this week, FIRRMA’s definition for critical technologies remains unclear due to a lack of proposed rules by the Commerce Department on emerging and foundational technologies, trade lawyers said.

Among several changes, FIRRMA expands the jurisdiction of the Committee on Foreign Investment in the U.S. to review certain investments involving critical technologies, which includes goods and technologies listed under the State Department’s U.S. Munitions List and the Commerce Control List. But FIRRMA’s definition of critical technologies also includes emerging and foundational technologies, which overlaps with an effort by Commerce to restrict exports of certain technologies mandated by the Export Control Reform Act of 2018 but which has faced a series of delays (see 2002040057). Industry will have to wait for Commerce to release more emerging technology rules to gain clarity on FIRRMA's critical technology definition, trade lawyers said, even as the regulations take effect Feb. 13. The lack of clarity on critical technologies has drawn concern from industry (see 2001140060).

Commerce “has really issued just one set of regulations that could possibly cover emerging and foundational technologies,” said Vinson & Elkins trade lawyer Dave Johnson, referencing an interim final rule to restrict exports of geospatial imagery software released by Commerce in January (see 2001030024). “There's a lot of work they have to do in this area.”

Johnson, speaking alongside Vinson & Elkins trade lawyer Damara Chambers at a Feb. 11 panel hosted by the law firm, said the scope of businesses impacted by FIRRMA’s regulations that deal in critical technologies could be significant. “There are a lot of different companies that could be involved,” Johnson said. Aside from emerging and foundational technologies, the critical technology definition can extend CFIUS reviews to companies manufacturing or producing USML goods covered under the International Traffic in Arms Regulations and a range of dual-use and commercial items controlled on the CCL. This includes goods controlled for national security, chemical, biological, nuclear proliferation, missile technology and regional stability reasons, Johnson said. “That's a lot of stuff,” he said, adding that the definition “basically leaves out relatively benign technology that's controlled for antiterrorism purposes.”

The effort to control emerging technologies stems from an advance notice of proposed rulemaking issued by the Bureau of Industry and Security in November 2018. The notice had “very, very broad categories that scared a lot of people in the industry,” Chambers said. Although Commerce has only issued one rule within the vein of emerging technologies -- the rule stemmed from a pre-existing process in place within Commerce before ECRA (see 2002040057) -- companies were reassured by the rule, Chambers said. “It does seem like they’re going to be very discrete rules that are very narrowly defined,” she said. “We’re waiting to see what actually comes out.”

Companies will likely gain more clarification as Commerce issues more rules, Johnson said. “This area will be a growing space as Commerce starts to issue regulations identifying what constitutes emerging and foundational technologies,” he said.

Another change introduced by the final FIRRMA regulations is voluntary declarations, Johnson said, which allow for shorter filings and, in some cases, shorter reviews by CFIUS. Companies who wish to submit a voluntary declaration to CFIUS can fill out a five-page “short-form document” for a transaction or investment that could be eligible for a 30-day review period, he said. The declaration is mostly meant for “benign transactions,” Johnson said, or transactions that involve “tried and true trusted investors that have gone through CFIUS multiple times” and are “not controversial.” Johnson said “those two categories are really the ones that are going to benefit from a voluntary declaration.”

The declaration, however, does come with a risk: If CFIUS isn’t able to review and approve the transaction within 30 days, it could request a full “formal filing,” Johnson said. That could take five to six months, he said. But for transactions that qualify, the declaration may be very helpful, Chambers said. “For benign transactions that ... aren’t complicated for CFIUS to get their arms around, those should move very quickly under this voluntary filing process,” she said. ”I’m very excited about the concept.”