Meet the obscure federal interagency committee who keeps an eye on foreign investment and national security

Meet the obscure federal interagency committee who keeps an eye on foreign investment and national security

The United States tweet first, tariff second trade policy against China continues to define American -Chinese relations. As both nations pursue the “Cold War light” escalation through tariffs, the United States continues to drum up new regulations to combat Chinese economic influence.

One policy the federal government is embracing is heavily monitoring foreign investment in critical infrastructure and technology. Pressure from Congress and the Federal Communications Commission is rumored to have shut down a deal for AT&T to sell Huawei smartphones in 2018, among others.

But another commission is set to play a larger role in the scrutiny of foreign investment in U.S. based companies.

The Committee on Foreign Investment in the United States, or CFIUS, assists the office of the president in reviewing the national security implications of direct foreign investment in the U.S. economy through the U.S. Department of Treasury and other federal agencies.

The CFIUS review process encompasses a voluntary report by companies and includes a formal review, a 45-day national security review, a national security investigation, and a final recommendation to the president.

One can think of CFIUS as a counter-balance to China’s rampant intellectual property theft and technology transfers in exchange for market access by shutting China out of any opportunities to access U.S.-based intellectual property.

On Aug. 13, 2018, President Trump signed the National Defense Authorization Act, which included the highly touted Foreign Investment Risk Review Modernization Act of 2018.

Norton Rose Fulbright called the provisions in the Foreign Investment Risk Review Modernization Act the most significant change to CFIUS in a decade. The additions to the committee are many, but the key takeaways are that the group has more regulatory tools to stop investment in U.S. companies from foreign actors like China.

CFIUS can now review non-controlling investments by foreign companies, increase restrictions on investments in critical technologies, infrastructure, and personal data, target real estate transactions near sensitive government sites, and require mandatory filings for investments by foreign government-owned entities.

What does that mean? The committee’s scope has increased beyond mergers and acquisitions to what the CFIUS calls “TID” businesses, or critical technologies, critical infrastructure, and personal data.

The federal government has staked out foreign investment as the next battle in their China strategy, and CFIUS will probably be the ones leading the fight.

One needs look no further than recent speculation around TikTok and its parent company, ByteDance. TikTok and ByteDance have become a convenient boogeyman to Congress and is now in the crosshairs of a CFIUS national security inquiry due to ByteDance’s purchase of Music.ly, a U.S. based social media company in 2017.

You might be asking why a social media company would trigger national security implications? As of September 2019, TikTok was the number one downloaded iPhone app in the United States. Worldwide, it’s been downloaded around one billion times, according to Business Insider.

Much like a Facebook or Instagram, TikTok provides access to the personal data and the content of a billion users, including the estimated one hundred million users in the United States. What would happen if the CFIUS found that TikTok threatened national security? ByteDance could be forced to divest all U.S. assets, according to CPO Magazine.

An October 2019 Congressional Research Service report noted that CFIUS has reviewed 925 notices with 333 investigations since 2008. According to the latest data from a CFIUS report to Congress in 2015, China led the number of reviews with 74, followed by Canada, the United Kingdom, and Japan.

If speculation on the Chinese-owned TikTok is an indication of a continued push against Chinese investment in U.S. businesses, a 2018 analysis by law firm Lantham & Watkins found that the CFIUS reviewed and approved numerous deals with Chinese investors. And President Trump has the same number of blocked transactions, stopping Chinese investment in a U.S. company, as President Obama, at two.

The real question is whether the federal government should have used the powers of CFIUS to curb Chinese economic influence instead before going all in on the trade tariffs in early 2017. The case by case powers for national security reviews by CFIUS could offer a more strategic attack on Chinese economic influence without the negative repercussions of tariffs.

The verdicts still out on whether the federal strategies to confront China will pay off, but the current administration should rely on the impressive regulations the CFIUS offers.

Evan Harris is PRI’s media relations and outreach manager.

Nothing contained in this blog is to be construed as necessarily reflecting the views of the Pacific Research Institute or as an attempt to thwart or aid the passage of any legislation.