Longstanding concerns on Capitol Hill about certain “outbound” activities conducted by U.S. companies and investors, particularly in the technology sector, both in China as well as outside of China with a China nexus, have given rise to significant legislative developments this year.
Background
Last summer, a bipartisan group of seven senators, led by Senators Bob Casey (D-PA) and John Cornyn (R-TX), introduced a bill called the National Critical Capabilities Defense Act (NCCDA), and a House companion bill was then introduced by a similar bipartisan group of members last December. At its core, the NCCDA would create a new federal interagency screening process, with mandatory notifications to a committee, for certain types of transactions and other activities by US companies that pose major risks to US “critical capabilities.” Some of the concerns behind the legislation are the same ones that Congress considered in recent years during the debate on the Foreign Investment Risk Review Modernization Act, which was enacted in 2018 and represented the most sweeping overhaul of the CFIUS process since its creation in 1975.
After an unsuccessful attempt by the Senate authors to add the NCCDA as an amendment to the Senate’s version of a large China-focused competitiveness bill called the US Innovation and Competition Act (USICA), the House sponsors and their allies were able to tuck the NCCDA into the House’s rival bill on competition with China, the America COMPETES Act, before that broader package was passed this past February. Now, Senate and House negotiators are ironing out the differences between the two packages in conference negotiations, with over a hundred congressional committee leaders and other members having been appointed to lead the unwieldy discussions. Without question, the NCCDA is one of the most active areas of debate, perhaps because of its direct relevance to the aims of USICA and the COMPETES Act, which include strengthening crucial US supply chains, spurring innovation in areas of emerging technology, bolstering economic competitiveness with China, and incentivizing domestic manufacturing and production of certain high-demand technologies such as semiconductors.
On June 13, the bicameral, bipartisan sponsors of the NCCDA floated an updated, more focused “discussion draft” of the provisions to stakeholders in an effort to address specific concerns that had been raised about the original bill, including its broad scope, imprecise definitions, feasibility of implementation, and impacts on industry.
Jurisdictional Scope and Definitions
As the NCCDA’s name suggests, the updated legislation aims to strengthen the United States’ “national critical capabilities” – namely by regulating certain “covered activities” that involve “countries of concern” or “entities of concern.” Below is an explanation of some of the draft legislation’s key terms.
Covered Activity
The discussion draft creates a new key term – “covered activities” – to lay out the scope of the new interagency committee’s jurisdiction, with each activity requiring a nexus with either a country of concern or an entity of concern. Initially, there are three specific jurisdictional buckets, which include any activity by a US person, a “foreign entity,” an “affiliate” of a US person, or an affiliate of a foreign person that:
- “builds, develops, produces, manufactures, fabricates, refurbishes, expands, shifts, services, manages, operates, utilizes, sells, or relocates a national critical capability to or in a country of concern;”
- “shares, discloses, contributes, transfers, or licenses to an entity of concern any design, technology, intellectual property, or know-how, including through open-source technology platforms or research and development, that supports, contributes to, or enables a national critical capability by an entity of concern or in a country of concern;…