USA and China

U.S. businesses and investors may be subject to new compliance requirements for outbound investments in certain technology sectors pursuant to U.S. President Joe Biden’s Executive Order (“EO”), titled “Addressing United States Investments in Certain National Security Technologies and Products in Countries of Concerns,” and the corresponding the Advance Notice of Proposed Rulemaking (“ANPRM”) issued by the Treasury Department.  Our colleagues at our sister blog The Trade Practitioner recently posted on this topic here and we wanted to take a moment and call this to your attention.

Background

The EO and ANPRM establish a “program” to prohibit or require notification concerning certain outbound investments by U.S. persons involving the People’s Republic of China (including Hong Kong and Macau), however other countries may be added in the future.

Whether a U.S. person is subject to a prohibition or notification requirement will be based on the type of activity that the “covered foreign person” conducts with a “covered national security technology or product,” which are defined technologies and products in the following sectors:

  • semiconductors and microelectronics
  • quantum information technologies
  • artificial intelligence

The EO indicated that China’s “rapid advancement” in these three sectors “significantly enhances [China’s] ability to conduct activities that threaten the national security of the United States . . . such as the development of more sophisticated weapons systems, breaking cryptographic codes, and other applications that could provide [China] with military advantages.”

The ANPRM program proposes to regulate the following types of activities: acquisitions of equity or contingent interests, greenfield investments, joint ventures, certain debt financing transactions by U.S. persons, and potentially “indirect” transactions to the prohibition or notification requirement (“potentially” because the ANPRM stated Treasury was “considering” including this activity as well). U.S. businesses and their controlled subsidiaries operating in semiconductors and microelectronics, quantum information technologies, or artificial intelligence sectors are wise to take steps to manage compliance with the forthcoming requirements.