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Congress Approves FIRMMA/CFIUS Modernisation Bill

The U.S. Congress has passed a defence bill that includes the provisions introduced as the Foreign Investment Risk Review Modernization Act, which will modernise the operation of the Committee on Foreign Investment in the United States.

On 1 August, the U.S. Senate passed by an 87-10 vote a defence bill that includes the provisions introduced as the Foreign Investment Risk Review Modernization Act (FIRRMA), which will modernise the operation of the Committee on Foreign Investment in the United States (CFIUS). The enactment was part of the John S. McCain National Defense Authorization Act (H.R. 5515), which is “must-pass” legislation to keep the U.S. Armed Forces authorised. Since this version of the defence bill had already passed the House of Representatives, it can now go to President Trump’s desk for signature into law.

FIRMMA was passed as Title XVII (Sections 1701 through 1733) of the NDAA. Section 1727 provided for penalties for mainland Chinese firm ZTE but the final version of the law includes a later section (Section 6701) that specifically invalidates Section 1727. The only reference to mainland China that remains in effect for the FIRMMA/CFIUS provisions are more detailed reporting requirements on mainland Chinese investments in the United States, found in Section 1718. 

The law includes export control provisions, including a permanent statutory basis for the regulation of dual-use and military exports licenced by the DOC. Since the lapse in 2001 of the Export Administration Act of 1979, emergency presidential authority under the International Emergency Economic Powers Act has been used to ensure that executive agencies can continue to administer the export control system. The Export Controls Act sections of the NDAA/FIRRMA expand controls to include some items with no U.S. content, including software. They allow export controls to cover re-exports and transfers between foreign countries and require the establishment of an inter-agency process to identify “emerging and foundational technologies” that are essential to national security and not already subject to export controls, to specify an appropriate level of control for those items.

According to an earlier but very complete report issued on 3 July by the non-partisan Congressional Research Service, the FIRRMA legislation will do the following.

  • Broaden the scope of transactions under CFIUS’ purview by including for review real estate transactions in close proximity to a military installation or U.S. government facility or property of national security sensitivities; any non-passive investment in a U.S. critical technology company, U.S. critical infrastructure company or critical technologies; any change in foreign investor rights regarding a U.S. business; transactions in which a foreign government has a direct or indirect substantial interest; and any transaction or arrangement designed to evade CFIUS regulations.
  • Shift the filing process for foreign firms from voluntary to mandatory in certain cases and provide for a two-track method for reviewing investment transactions, with some transactions requiring a declaration to CFIUS and receiving an expedited process and transactions involving investors from countries of special concern requiring a written notification of a proposed transaction and receiving greater scrutiny.
  • Provide for additional factors that CFIUS and the president could use to determine if a transaction threatens to impair U.S. national security, as well as formalise CFIUS’ use of risk-based analysis to assess the national security risks of a transaction by assessing the threat, vulnerabilities and consequences to national security related to the transaction.
  • Authorise CFIUS to suspend transactions that it determines “may pose a risk to the national security of the United States,” in contrast to existing provisions that limit CFIUS’ authority to review transactions that threaten “to impair the national security of the United States.”
  • Lengthen most time periods for CFIUS reviews and investigations as well as for a national security analysis by the Director of National Intelligence. Timing differs regarding the permitted extension of an investigation by CFIUS in the event of “extraordinary circumstances.”
  • Provide for more staff to handle an expected increased workload as well as additional funding for CFIUS.
  • Modify CFIUS’ annual reporting requirements, including its annual classified report to specified members of Congress and non-classified reports to the public, to provide for more information on foreign investment transactions.
Content provided by Picture: HKTDC Research
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