Treasury Official Names Sectors That Could Be Subject to Outbound Restrictions

The U.S. is considering an outbound investment regime that could restrict capital flows in the advanced semiconductor, artificial intelligence and quantum computing sectors, a senior Treasury Department official said this week, the administration’s first public confirmation of a potential scope for upcoming restrictions that have been under construction for months. Paul Rosen, the head of the Committee on Foreign Investment in the U.S., said the government is still working on the mechanism and declined to provide a release date, but stressed those three sectors are a priority.

Speaking during a May 31 Senate Banking Committee hearing, Rosen said the Biden administration is “thinking and currently working towards” a tool that “restricts the flow of U.S. investment dollars that comes with know-how and expertise into certain and specific sectors and sub sectors of concern.” He added that semiconductor, AI and quantum technologies can be used by “countries of concern,” including China, “for the benefit of their military intelligence capabilities and mass surveillance” efforts.

Asked whether the administration has a timeline to issue the new investment review program, he said the government is “working quickly but diligently,” adding that the administration is still speaking with industry and allies about the restrictions. “Obviously the ultimate decision is up to the president,” said Rosen, Treasury’s assistant secretary for investment security. “But we're working hard on it.”

Rosen’s comments come amid months of speculation about what a new outbound investment review mechanism could capture, with some experts suggesting it first start off as a mandatory notification regime that only captures “smart money” investments in critical technology industries in China (see 2304130034 and 2304210034). Rosen earlier this month said the investment restrictions could tackle “narrow” national security concerns and investments that risk transferring “technological know-how” to China (see 2305180065).

He echoed some of those same comments this week, telling lawmakers the administration is “focused” on a “tailored, narrow, administrable, understandable approach that gets at these core equities that would clearly and directly impact U.S. national security.” A major priority, Rosen added, is that the rules can be followed by the companies that are “going to have to comply with them.”

The administration is specifically looking to restrict investments that aren’t captured by existing trade restrictions, he said, such as export controls and sanctions. “We currently assess we don't have an effective tool to target the money and sophistication with know-how that goes into these sensitive and most critical technologies into countries of concern.”

He added the “goal” of the restrictions would be to “get at the U.S. investment dollars that [are] coupled with particular expertise” in “certain specific cutting edge technologies -- for instance, in artificial intelligence and semiconductors and quantum computing," He said the U.S. could look to curb any investments that would help China “advance the development of those” technologies “in ways that could negatively impact U.S. national security.”

The administration has been working on the rules “for some time," he said, "because we want to get it right and we want to be careful.” The U.S. “wants to ensure that when we do something in this area that it is targeted and tailored,” Rosen said, “but also takes into account any potential unintended consequences.”

The three technology sectors mentioned by Rosen were included in the updated National Critical Capabilities Defense Act released in May, a bipartisan bill that would create an interagency committee to screen investment transactions across certain sectors (see 2305090046). Those sectors include quantum computing, large capacity batteries, critical minerals and materials, active pharmaceutical ingredients, automobile manufacturing, semiconductors and AI.