US to Push for Improved Screening of Sensitive Technology Transactions, in Meetings With Japan, EU, Treasury Official Says

U.S. administration officials will meet with the European Union and Japan next month to lobby for increased scrutiny of transactions involving sensitive technologies, a top Treasury Department official said. The meetings will also feature discussions of recent U.S. reforms to foreign direct investment screening, said Thomas Feddo, Treasury’s assistant secretary of investment security, and come as the U.S. begins to implement those reforms as part of the Foreign Investment Risk Review Modernization Act (see 2001140060). Feddo spoke during a Feb. 26 event hosted by the Asia Society.

Feddo also expressed little concern that FIRRMA’s definition for critical technologies contains a category -- emerging and foundational technologies -- that has yet to be clearly defined (see 2002110042). FIRRMA, which Feddo called a “generational update” to CFIUS, will adapt to any rulemaking changes in those technology sectors, he said, adding that Treasury has prioritized improving investment screening among allies and has quadrupled the staffing in its Office of Investment Security as the administration focuses on maintaining a technological edge over China. “Our collective security depends on our ability to address these risks together,” he said.

The Trump administration has “heavily engaged” with allies concerning its CFIUS reforms, Feddo said. He added that “many countries” have recently adopted improved investment screening mechanisms, including Japan, and Treasury wants to share details of its CFIUS process as those foreign screening mechanisms take effect. “CFIUS has 40 years of experience in this area,” Feddo said. “One of the things we can share and export to our allies and partners is how we do our work.” The meetings in March will include discussions of Treasury’s “best practices” for interagency collaboration and how the U.S. pinpoints and addresses foreign investment risks from start to finish, Feddo said.

When Treasury released proposed regulations for FIRRMA last year, industry responded with concerns about the lack of clarity involving CFIUS’s expanded jurisdiction to screen transactions involving critical technologies (see 2001140060). While FIRRMA defines those technologies as certain goods controlled under the State Department’s U.S. Munitions List and the Commerce Control List, the definition also mentions emerging and foundational technologies, which are currently being reviewed for potential export controls by the Commerce Department, as mandated by the Export Control Reform Act. But more than a year after ECRA was enacted, Commerce has yet to release a rule for emerging technologies under ECRA authority (see 2002040057) and has not released an advance notice of proposed rulemaking for foundational technologies (see 2002210026), leading to confusion over what the critical technology definition will ultimately cover.

Treasury “does not have a lot of latitude” to define emerging and foundational technologies, Feddo said. For now, the agency is awaiting direction. “Obviously we’re looking to the Commerce Department to develop and designate emerging technologies,” he said. Despite the lack of emerging and foundational technology rules, Feddo said FIRRMA’s ability to review or clear transactions involving critical technologies will not be impacted.

“I think the way FIRRMA was built was to be nimble and adaptable to the changing technological environment,” Feddo said. “So to the extent that there’s an emerging technology or foundational technology that Commerce, through a rulemaking, identifies as something we need to protect, and then there’s a foreign investment in that technology, we have the ability to look at it.” He said the Office of Investment Security is “conducting business as usual.”

That office has grown substantially in the last two years as the Trump administration has emphasized maintaining a technological advantage over China. Feddo said it has “quadrupled” its staff size. “We’re definitely growing,” Feddo said. “I expect that number to increase.”

Although Treasury and Commerce have prioritized increasing controls over investment screening and exports of advanced technologies, Trump has said he wants to make it easier for the U.S. to export goods and wants to sell to China (see 2002180057). Trump chided the “always used National Security excuse” and warned that foreign buyers will import from “someplace else.” Feddo said Trump’s remarks are not in conflict with CFIUS priorities. “I say all the time: The United States is open for investment,” Feddo said. “My remarks are consonant with the president in that regard.”

CFIUS is aligned with the president’s comments because it only examines a small portion of foreign investments, Feddo said. “There are tens of thousands of business transactions in the United States. CFIUS looks at roughly 250 a year,” he said, adding that the “vast majority” are cleared. “So I'm confident that we’re maintaining that open investment environment.”