WASHINGTON – A bill awaiting final congressional approval would beef up a Treasury program’s ability to review foreign investments for national security threats, especially related to intellectual property – a measure that experts say is largely aimed at China.
The House and Senate last month passed different versions of the bill, which now awaits a final okay after minor differences between the two versions are resolved.
The measure would expand the jurisdiction of the Committee on Foreign Investment in the United States, a Treasury group, in screening international transactions.
In a statement issued June 27, one day after the House passed its version of the bill, President Donald Trump applauded the congressional move to address “predatory” foreign investments that “threaten our critical technology leadership, national security and future economic prosperity.”
The countries addressed by the bill fall in two categories: those that tend to be hostile to the U.S. and those that have a considerable degree of government involvement in business activities, including some Middle East countries, Russia, China and North Korea, according to Joseph Minarik, senior vice president and director of research at the Committee for Economic Development of The Conference Board.
Although the White House has retreated from imposing direct investment restrictions on China and opted for a less confrontational approach, China is still the “implicit focus” of the bill among the countries that are of “special concern,” said Zhiyao Lu, a research analyst at the Peterson Institute for International Economics, a respected research organization that focuses on international economic issues.
Lu cited the fact that U.S. Trade Representative Robert Lighthizer has invoked Section 301 of the 1974 Trade Act, which allows the U.S. to cite another country for illegal or unfair trade practices and negotiate a settlement, to investigate China’s policies and practices related to technology transfer, intellectual property and innovation.
“China exploits loopholes in our existing safeguards to acquire sensitive, cutting-edge technology and then turns this technology against us to undermine our military advantage,” Sen. John Cornyn, the Texas Republican sponsoring the bill, said in a statement.
Tightening control of foreign direct investment from certain countries has been ongoing for a while, Lu said. Stricter scrutiny from CFIUS led to the decline in Chinese direct investment last year, she added.
According to the data compiled by Rhodium Group, a research provider focusing on economic data analytics and policy insight, Chinese direct investment in the U.S. dropped by 35 percent to $29 billion of consummated deals in 2017. Although much of the decline was attributable to China’s regulatory crackdown on outbound capital flows, growing regulatory hurdles in the U.S. were the second punch to the investors, according to a report by Rhodium Group.
Restrictions on foreign investments and the trade disputes that the U.S. has with other countries “go hand in hand” to reduce the U.S. trade deficit, said Robert E. Scott, a senior economist and director of trade and manufacturing policy research at Economic Policy Institute, a Democratic-oriented economic policy think tank.
Although the restrictions on foreign investment apply to the flow of capital while tariffs relate to goods, Minarik said, they could be viewed as “essentially an escalation of the trade differences” that the U.S. has with other countries under the Trump administration.
“The countries that are cited for particular concern in this legislation would expect this as a more hostile, less attractive aspect of the U.S. trade policy in the current time,” Minarik said.