US ‘Engaged’ With Allies on Restricting Outbound Investment, Official Says

The Biden administration is making progress in its effort to persuade American allies to adopt outbound investment restrictions similar to the ones the U.S. is pursuing, a Treasury Department official said July 25.

Those allies share U.S. concerns about outbound investment, and “a number of them” are studying the issue, said Paul Rosen, Treasury’s assistant secretary for investment security. “We’re engaged and we’re committed to continuing that engagement,” Rosen testified before the Senate Banking Committee.

Sen. Chris Van Hollen, D-Md., told Rosen the administration needs to push hard on the issue to ensure the rule doesn't put U.S. investment firms at a competitive disadvantage. Without allied cooperation, the U.S. will "shut the front door of the barn but leave the back one open,” Van Hollen said.

Treasury published a proposed rule July 5 that would impose new prohibitions and notification requirements on U.S. outbound investments in China’s artificial intelligence, quantum technology and semiconductor sectors (see 2407030009). At least one expert has cautioned that it might be difficult to convince the EU to follow suit because Europe’s venture capital funds are far smaller than those of the U.S. (see 2406280041).

Treasury, meanwhile, is gearing up to review public comments on the proposed rule. The deadline for those comments is Aug. 4. Rosen urged Congress to fully fund the $16.7 million the department has requested in FY 2025 to implement the outbound investment effort. “The program’s success ultimately will depend on the resources we receive,” he said.

Turning to inbound investment, committee Chairman Sen. Sherrod Brown, D-Ohio, said he’s introduced an amendment to the FY 2025 National Defense Authorization Act (NDAA) that would impose reporting requirements on foreign investment in critical infrastructure. Rosen agreed to work with Brown on the issue.

“I think the challenge is figuring out how do you do that in a way that mandatorily requires what we need to see, what we want to see, but sort of weeds out some of the broader noise, and I think there are ways we can do that through regulations and otherwise,” Rosen said.

Also during the hearing, Sen. Tim Scott, R-S.C., the committee’s ranking member, criticized the administration’s restrictions on firearms exports, saying a firearms business in his state had export licenses worth more than $71 million revoked by the Bureau of Industry and Security for “foreign policy” reasons, such as the “furtherance of world peace.” Scott said the contracts, including orders from the Ecuadorian police and military and Colombian military, ended up being filled by other countries, including China.

"You haven't prevented the sale of firearms," he said. "You've merely used a political tactic to harm an American business" and further the administration's goal of trying to "shut down or cut off gun manufacturing in our own country."

Thea Kendler, assistant secretary for export administration at BIS, told Scott she wasn’t “in a position to speak to a specific company’s situation, but I certainly feel sorry for your constituent and I’d like to follow up with you in an environment where we can talk about a specific company.”

Turning to BIS funding, Kendler told Sen. Catherine Cortez Masto, D-Nev., the agency could use about $100 million to modernize its antiquated information technology systems and “turn them into useful, productive data and analytic support." The existing systems have caused a host of problems, including "issues in providing answers to the Hill in a timely way," Kendler said. A recently introduced Senate NDAA amendment would provide $100 million over four years for such upgrades (see 2407180045).