Senate Passes NDAA With Outbound Investment Notification Measure

The Senate last week passed its version of the FY 2024 National Defense Authorization Act with several trade-related amendments, including one that could establish a notification regime for, but not restrict, certain outbound investments (see 2307260029).

The outbound investment screening notification measure will allow Congress to get “our foot in the door to holding foreign adversaries like China and Russia accountable,” said Reps. Rosa DeLauro, D-Conn., and Bill Pascrell, D-N.J., who helped introduce the House version of the National Critical Capabilities Defense Act. The lawmakers said that legislation, which would have created a new committee to review and potentially block certain outbound investments, was “unfortunately denied consideration” by the House Rules Committee when it passed its version of the NDAA earlier this month (see 2307140068).

“We continue to believe that comprehensive review, rather than just notification, is the preferable approach to developing an outbound investment mechanism,” DeLauro and Pascrell said. They said they “look forward to continuing to work with all stakeholders to pass the most robust trade tool possible” so the U.S. can “act on investments that undermine supply chains and impede our national security.”

The Senate’s “strong support” for the amendment establishing an outbound notification regime “suggests that it has a good chance of being included in the final version of the NDAA,” Akin Gump said in a July 27 client alert. The Senate and House must reconcile their differing NDAA versions before it can become law. Crowell & Moring also said the inclusion of the bill in the Senate NDAA, “indicates renewed enthusiasm for scrutiny of U.S. investment in China, and should put U.S. companies and investors with exposure to China on alert for additional measures.”

But Akin Gump noted that “key members” of the House have “raised concerns” about a notification regime and “may look for alternatives to address the issue,” which could risk its place in the must-pass defense spending bill. The firm specifically pointed to comments made by House Financial Services Chair Patrick McHenry, who had advocated for stronger sanctions over a new investment screening regime.

Akin Gump called McHenry’s comments “particularly significant” because his committee has jurisdiction over the issue. “It suggests that the Chairman would prefer an alternative approach to addressing concerns about investment in China that focuses on strengthening existing sanctions regimes” instead “of creating a new program.”

The disagreement among some lawmakers comes as the Biden administration crafts its own outbound investment screening regime, which will first be issued as a proposed rule (see 2307170029). DeLauro and Pascrell said they are “eager to see the administration move forward on executive action that will lay the foundation to our legislative acts that is able to quickly detect supply chain vulnerabilities and protect national and health security, and American jobs.”

Another amendment included in the Senate NDAA would add the USDA secretary to the Committee on Foreign Investment in the U.S. It also would expand CFIUS jurisdiction to “require review of certain agricultural transactions.”

Other amendments would block certain U.S. petroleum sales to entities located in China, Russia, North Korea and Iran; restrict certain grants to universities from sanctioned Chinese parties; make Taiwan eligible for the Commerce Department’s strategic trade authorization for certain exports; impose sanctions on criminal organizations trafficking of fentanyl; and more.