Background Press Call on the Foreign Investment Risk Review Modernization Act (FIRRMA)

Via Telephone

8:39 A.M. EDT

MS. WALTERS: Good morning. Thank you for joining us today. I'm here with [senior administration officials]. We are going to be hosting a call this morning on the President's roundtable on Foreign Investment Risk Review Modernization Act.

The call is embargoed until the conclusion of this conference, as well as the attribution is attributable to senior administration officials. Both [speakers] will be attributed as senior administration officials.

With that, I'm going to turn the call over to [senior administration official].

SENIOR ADMINISTRATION OFFICIAL: Thanks a lot, Lindsay. And thank you, everyone, who is on the line today. We're here to talk about a major, major legislative victory for the administration, and that is the passage of the FIRRMA legislation, which we strongly endorsed and were very involved, working with the Hill, under the very, very strong leadership of the Treasury Department, in order to get a piece of legislation that would really achieve two major objectives.

The first of these objectives, of course, is to deal with some of the significant threats to our national security, from predatory investment policies, in particular some of the concerns that we've had with respect to China. And we recognize that there was a need to strengthen the CFIUS authorities to better deal with these. And we worked with the Hill and came up with a bipartisan piece of legislation that got strong support that achieves that.

At the same time, it was really critical to us that we also help the President continue to grow the economy. The President has led a very strong economic growth with the tax cuts and with regulatory relief, and it was very critical that the U.S. maintain (inaudible). And so we worked with the Hill and throughout the administration to ensure that the legislation we passed would achieve that. And I think that what we've come up with is a very, very balanced approach.

And so today, the President is going to be meeting with some of the critical senators and members in the House who were involved in this broad effort. And we're really excited about the implementation of this. We think that this will situate the United States in a much better place from a national security perspective, as well as ensuring that we continue to have economic growth.

I'm going to turn it over to my colleague in a second to get into the details of the FIRRMA legislation, but I also just want to note two things. The first is that this does come against the backdrop of some of our efforts with respect to China. And we had many conversations with the President about the best way to address some of the concerns that had been raised. This was the President's decision to work with the Hill on this piece of legislation, and we think it is incredibly responsive to the concerns that had been raised in USTR Section 301 Report and in other contexts.

I also wanted to mention that another part of the broader NDAA is the export controls piece. And in addition to ensuring that our most critical technologies can be protected from pervasive investment, it's also important that there can be other means used to export critical technology and obtain the same advantage from a national security standpoint.

So we're very happy that this legislation also includes reforms to our export control system, and we look forward to having the Commerce Department, working with DOD and the rest of the interagency, on implementing that section as well.

We're going to focus today on FIRRMA, but I just wanted to mention that this is part of a larger strategy and a larger picture of what we're doing to deal with some very, very important policy issues.

So without any further preamble, I'm going to hand it over to my colleague to talk about FIRRMA.

SENIOR ADMINISTRATION OFFICIAL: Terrific. Thank you very much. And thank you all for being on this call. It's great to be with you here this morning.

As my colleague mentioned, this is a major legislative victory for the administration, and probably the greatest bipartisan victory by the administration. This was something where, over a series of -- over about a year, the administration, Treasury, along with the White House and the various agencies and departments that constitute CFIUS, worked with both sides of the aisle, both houses of Congress, as well as pretty much every industry group in the United States, from our core manufacturing and hard -- sort of heavy industry, to Silicon Valley and some of our cutting-edge technology companies.

And we really came up with something that we think really hits that golden mean between ensuring that we have both national security but, at the same time, that open investment climate. And that was really key for us. It doesn't have to be an either/or. The United States, since its founding, has always been a place for foreign investment. And it's the number-one destination for foreign investors still today. And the Treasury Department, as chair of CFIUS, obviously wants to maintain that.

But over the years, we discovered that investments aren't always benign; there are some predatory practices that my colleague mentioned, and some things that potentially endanger our national security. So in 1988 -- again, 30 years ago -- the first CFIUS statute was created. And from then until now, the fundamental jurisdiction of CFIUS remained exactly the same. There was legislation 10 years ago in the wake of the Dubai Ports controversy, but in many ways that was more procedural, making sure there was accountability and (inaudible) signed off. The actual scope of CFIUS, in terms of what we could review, has been the same for 30 years.

And given that we've seen a lot of different investments, particularly in the last 5 to 10 years that were critical to national security and in many ways raised the same kinds of concerns that we are seeing with the transactions that we can review, it was time to strengthen and modernize CFIUS.

And so, essentially, what FIRRMA does is it both strengthens and modernizes CFIUS. So how does it strengthen it? Well, first and foremost, it expands the jurisdiction of covered transactions. And there are sort of two -- two big buckets of transactions that I think CFIUS now has jurisdiction over that it didn't for those 30 years.

The first is real estate, as well as leaseholds and concessions, where we've got ports -- whether they're maritime ports or seaports, as well other real estate purchases, land included, next to sensitive or in close proximity to sensitive military installations. The jurisdiction from 1988 referred only to the acquisition of U.S. business.

So you had very odd situations that we saw, where someone would buy a business in close proximity to a very sensitive site; we could review that. But if someone bought a vacant piece of land, and later on put a business on it, we couldn't review that. So there were some anomalies. And so that's the first thing that FIRRMA does, is it expands our jurisdiction in that respect.

The second thing I think -- and arguably, that should have been -- that was something that we probably should have had since 1988. The second group of categories deals with what I think is the fundamental difference in our knowledge economy that we have now, as well as the vulnerabilities that big data and everything else has created. And what we found -- and so it had to be a U.S. business before it; it also had to be a controlling transaction, meaning that the foreign investor had to actually control the U.S. business.

And what we found is that, for certain companies, people could make investments -- foreign investors -- that didn't necessarily rise to the threshold of control, but gave that foreign investor insight into critical technologies, the ability to make key decisions or participate in decisions with respect to critical infrastructure, and in some cases, access to Americans' personally identifiable information.

And so this second class of categories basically allows transactions involving companies that have critical technology, companies that are involved with critical infrastructure, as well as companies that house personal data, PII, on Americans. For those companies, those sorts of companies, if the investment results in a board seat, if it results in the investor getting access to non-public technical information that's non-financial in nature, or if there are other sort of ownership -- sort of managerial rights that that investor gets, we can look at those transactions, even if they don't rise to the level of control.

So that, I think, in many ways is what strengthens CFIUS. There's also additional authority given to us for mitigation, so we can strengthen the use of mitigation agreements. Sometimes we see a transaction that comes in. There are national security concerns, but through a series of mitigation agreements, we can actually allow the investment to go through, allow that money to come into the United States to create jobs, but we have safeguards in place to make sure that the national security threat is eliminated.

And then finally, apart from strengthening CFIUS, it modernizes it. There's a process now -- we have many investors who are repeat players in CFIUS, from allied countries where they don't pose a major national security threat, but yet they still have to file the long traditional notice. We now have a provision that allows us to have a declaration -- basically a short-form process for situations where we think that it's easier to, again, attract more foreign investment in the United States without increasing any national security risk.

And then there's a whole panoply of other things that are in there just to make the process run more efficiently, more effectively, be targeted, and at the same time ensure that we continue to attract foreign investment.

So that's sort of a topline overview. Again, I think this literally -- hundreds of people, maybe thousands of people, at the end of the day, were part of this decision-making process and providing input on this legislation over a period of close to a year, and the fact that the legislation passed with such a huge bipartisan majority -- not just simply the final NDAA, but the actual parts of the bill, through the Senate Banking Committee, was unanimous, through the Health Financial Services Committee was unanimous. And the House itself, when it passed FIRRMA on a standalone basis, before it put it into the NDAA, the vote was 400 to 2.

So it took a lot of work to get to that point in time, but it really is a unique, in many ways, bipartisan victory for the administration and for the American people.

MS. WALTERS: With that, we can take a few questions.

Q: Hi, this is Andrew Feinberg with Breakfast Media. Thanks for doing this call. I have two questions. First, you referred to the provision of the bill that allows transactions involving companies that have critical technology to be reviewed even when there's not a controlling interest. Is that going to include things like encryption software, which used to be designated as a munition?

SENIOR ADMINISTRATION OFFICIAL: Yeah, so the definition of "critical technology" in FIRRMA is tied, first and foremost, to existing things that are subject to export controls. So if it's on the USML, the munitions list, as you said, or it's otherwise subject to the EAR, the Export Administration Regulation.

Q: Okay, so it doesn't --

SENIOR ADMINISTRATION OFFICIAL: I'm sorry, there was some background noise. And then, in an addition to that, as I think we sort of alluded to, is a separate process that was passed as part of the NDAA that provides for export controls. So certain critical technologies, there's a directive, actually, to the President and to whoever -- who the President designates to focus on the merging and foundational technologies.

Q: Right. Thank you. My second question: The President has spoken many, many times of the Uranium One deal, which was unanimously approved by CFIUS under the current regime of the foreign investment review. Did that factor -- did his desire to prevent things like that factor into this administration's support for this bill at all?

SENIOR ADMINISTRATION OFFICIAL: Well, what I would say is we don't talk about any specific case. I think you're referring to a case that was during the Obama administration. What we certainly -- what we did was, and I can tell you what I did was, we looked back particularly in those situations where we were thinking about what additional jurisdiction that we need. One of the key exercises that we undertook was thinking back throughout the years to those cases that we wished we would have had the authority to review but didn't.

And so there were a number of cases that we either tried to bring before CFIUS or work before CFIUS initially, but then were concluded to be not within our jurisdiction. So, lawfully, we couldn't review them. We generated that list, and based on those real-life experiences, that was what we used in requesting for Congress the additional limbs of jurisdiction.

Q: Thank you.

Q: Hey guys, this is Justin Fink from Bloomberg. I'm wondering if you have any, kind of, updated timeline on when you expect the implementing regulations on this to come out. And more broadly, I guess you did a good job of, kind of, explaining what the law does, but is there a new development or some new piece of news, I guess, that we expect to come out of today's meeting?

SENIOR ADMINISTRATION OFFICIAL: Yeah, so let me take the timeline question first. So the statute requires us to issue the final regulations within 18 months. So we either -- we will start -- we have already started, sort of, working expeditiously to lay out, kind of, where a timeline would be. It would involve a notice-and-comment rulemaking. But the idea would be we would want FIRRMA fully implemented within 18 months.

SENIOR ADMINISTRATION OFFICIAL: Yeah, and with respect to the second question, I would just say -- I mean, the delegation from China is here, and the President is closely following the conversations that we're having. He's been open to us engaging with Chinese officials on these issues.

I would say that in terms of what's going to happen, I think we have been clear with China from the outset that it's important that is address some of those serious concerns that were raised in the context of the Section 301 investigation but also, more broadly, about many of the unfair trade practices that are going on in China. And we're just continuing to press China on those issues.

And I don't want to create any expectation of any announcement coming out of that, but we are very open to engaging with China. We hope that they will take seriously the concerns (inaudible) raised, and that that can put us on a better posture, both with respect to the issues that have been raised, but also with the broader trade relationship.

Q: Hi guys, Jessica Stone from CGTN. Thanks so much for doing the call. About the meeting today, I wonder if you scheduled it for today to send a message to China, because you could have done it anytime since it was passed. And secondly, what can you tell us about who will be in attendance? Thank you.

SENIOR ADMINISTRATION OFFICIAL: You know, we're here to talk about the FIRRMA legislation, so I don't want to get too far afield into the China talks. But I just would reiterate, we have said consistently since the beginning of this administration that we're open to talking to China about the problems that we have had with their trade practices, with their industrial subsidies, and with a whole range of state-led intervention in the economy that is affecting global markets. We remain open to that.

I wouldn't read too much into the timing of the conversations happening today versus another time. We have been open to engage. We're still open to engage. But in order for us to get a positive result out of these engagements, it's really critical that they address the fundamental concerns that we have raised. We haven't seen that yet but we are going to continue to encourage them to address problems that we've raised and so has the rest of the international community.

Q: Hi. Thanks. My name is Anshu, with Inside U.S. Trade. My question was -- yeah, we talked -- vis-à-vis China, you know, that the President, back in May, announced that, pursuant to the 311 investigation, would sort of pursue specific investment restrictions on Chinese persons and entities, and then later opt to go with CFIUS, as strengthened by FIRRMA. So what can we expect to see vis-à-vis China? Is it tighter export controls? Is it heightened CFIUS scrutiny? What is the thinking there in terms of responding to Chinese investment with this new bill? Thanks.

SENIOR ADMINISTRATION OFFICIAL: Well, look, the CFIUS reform legislation, as well as export controls are going to apply worldwide. Obviously, there are specific concerns with China that have been raised. And when we briefed the President on this trajectory that the legislation was taking, he was -- he, based on our recommendation, understood that these tools could be used to address some of the specific problems with China, as well as other problems that we have around the world.

And so I think what you're going to see with CFIUS and the export control is we're going to do things that are best for U.S. national security wherever the threat arises. However, it will also be able to use -- be used in a specific way that would deal with some of the concerns with respect to China.

On that point, one other thing -- one other element of the legislation that we haven't yet mentioned that I think is critical when we're talking about threats from China or elsewhere is that there is a section that deals with collaboration, coordination with U.S. allies and partners, and then ensuring that there is a formal process under CFIUS for sharing information. Because I think, as we've seen, there have been instances in the past where a particular investment or a transaction is targeted in one country and then suddenly it moves to another location. And so I think it's important that we're able to coordinate with allies and partners who have faced some of the same problems.

SENIOR ADMINISTRATION OFFICIAL: I can't emphasize the importance enough of that statement that my colleague pointed out. I mean, one of the lessons we've learned over the last few years is that it's simply not enough -- if there's a foreign investor with whom who have concerns who is after a critical technology.

It doesn't matter, in many ways, whether they purchase back technology or company -- that capability here in the U.S. or elsewhere. If they've got that capability and technology and it creates a national security concern, then we want to be in a position to make sure that the same kind of screening that we do here is done in our close allies and partners, given then we rely on one another for globalized supply chains, for supplying our militaries, and for collective security.

Q: Hi. Thanks. This is Andrew Lowenthal with Reorg's Event Driven News. I had a quick question about staffing. During the course of the legislative hearings, and again within the legislation itself, are requirements that dedicated funding and staffing be made not just by Treasury but by all the constituent agencies. And I was wondering how long it would be before we get a chance to see what the agencies are doing to meet the increased staffing needs given CFIUS's expanded role. Thanks.

SENIOR ADMINISTRATION OFFICIAL: Yeah, thank you for that question. This is Treasury again. No, that's a very important point. One of the things we've stressed is: CFIUS is a committee; 11 member agencies. So in many ways we're as good as our weakest link. So we want to make sure not only that Treasury has the personnel to sort of administer the process as shared, but that every agency has the people that they need, the resources, and elsewhere.

One of the things -- and so, obviously, we're working on budget requests right now, working with OMB, who is coordinating that, to make sure those resources are ample and sufficient throughout the committee.

One of the things that -- upon the signing of the NDAA, upon the singing of FIRRMA -- we got immediately was special hiring authority. So we have the ability to go out and try to bring in the best talent in a more streamlined process. So we can try to find the best people and get them through the security clearance process at a more expedited pace, and also recruit, you know, more swiftly. So we've already started to put that in place and other agencies have as well.

MS. WALTERS: Okay. Thank you. Thank you, speakers. Thank you, participants. If you have any additional questions, please feel free to either follow up with the White House or with Treasury.

Have a great day.

END 9:03 A.M. EDT