Biden Admin Likely to Add Japan to CFIUS Excepted Foreign States List, Lawyers Say

The Biden administration will likely build on the U.S.’s recently revised investment screening regulations by expanding the list of countries that qualify as excepted foreign states, trade lawyers said. The Committee on Foreign Investment in the U.S. currently only recognizes Australia, Canada and the United Kingdom as excepted states (see 2002270049) -- a designation that reduces the likelihood that CFIUS will heavily intervene in deals from those countries -- but could soon also recognize Japan, said Richard Sofield, a Wiley Rein trade lawyer.

“I think they will” add Japan, Sofield said during a May 6 webinar hosted by the law firm. Sofield, a former Justice Department official who worked on foreign investment reviews, said Japan’s “new robust” investment law “puts them in the category of a country that is going to get an early look.”

Nova Daly, a Wiley public policy advisor who oversaw CFIUS at the Treasury Department, called Japan’s investment regime “very stringent and broad with significant mandatory filing requirements,” which could make them a frontrunner to qualify as a foreign excepted state. The U.S. chooses excepted states -- a concept that was introduced under the Foreign Investment Risk Review Modernization Act (see 2001140060) -- based on whether the country “is effectively utilizing a robust process to assess foreign investments for national security risks” and coordinates with the U.S. on investment security.

Although Sofield thinks the Biden administration will add Japan, he isn’t sure it will happen immediately. “I feel like they've got a lot on their plate right now with CFIUS, so I don't know if I would hold my breath for that to happen this year,” Sofield said. “But I do think Japan is certainly a candidate for the next round of excepted foreign states.” The White House and Treasury didn’t comment.

While companies should monitor whether the excepted foreign states list is expanded, they should also be closely following action from Congress, which is debating several bills that will impact supply chains and CFIUS. One of the bills, which includes a provision that would give CFIUS the authority to review transactions involving certain gifts to universities valued at more than $1 million (see 2104210038 and 2104270005), has broad bipartisan support but strong opposition from U.S. academic groups.

“For companies, it behooves themselves to really look at who their suppliers are, because an amalgamation of bills coming from the hill, including new spending and new enforcement, is going to change the nature of the economics of production,” Daly said. “So this is just a big time for companies to really keep an eye on what's happening in different respects and where spending is going to occur.”