Ex-Treasury Official Criticizes Administration's Outbound Investment Proposal

The Biden administration’s proposal to impose new restrictions on U.S. investment in certain Chinese technology sectors is a complex undertaking that will be difficult to implement, a former Treasury Department official said on Jan. 30.

The advance notice of proposed rulemaking that the Treasury Department issued in response to an executive order released last year (see 2308090066 and 2310050035) contains many vague terms, such as “artificial intelligence” and quantum computing “components,” that will be hard to define, said Thomas Feddo, who was assistant secretary of the treasury for investment security during the Trump administration.

Another shortcoming is that the proposal will “require a new bureaucracy, new resources, new processes, and new regulations, which will create yet another unique set of compliance requirements and costs,” Feddo testified before the House Financial Services Subcommittee on National Security, Illicit Finance, and International Financial Institutions. He said draft and final versions of the new rule are expected to be published this year.

Feddo said he would prefer restricting outbound investment by placing sanctions on individual entities. Such an approach would use processes Treasury already has in place, providing “the most immediate, efficient, and impactful way to address” the matter, he said.

The Financial Services Committee included the entity-based approach in a bill it approved in September (see 2309200052). “In my opinion, and the opinion of many on this committee, it is the bill that takes the toughest approach towards combating the economic threat” from China, said Rep. Blaine Luetkemeyer, R-Mo., who chairs the National Security Subcommittee.

However, several committee Democrats, including ranking member Maxine Waters of California, said they favor passing legislation to codify and expand on the administration’s approach, as the House Foreign Affairs Committee did with a bill it advanced in November (see 2311140013). Proponents of a sector-based approach said it would be more effective than an entity-based approach, partly because they believe it would be harder for China to evade.

Waters said she wants to go beyond the administration's proposal by extending screening to existing investment contracts, not just future investments; ensuring transparency into private equity and venture capital funds; and screening investments for their impact on environmental and social concerns, such as human rights.

Foreign Affairs Committee Chairman Michael McCaul, R-Texas, said on Jan. 17 that lawmakers are seeking to reach a compromise between the two approaches (see 2401180067).