Law.com Subscribers SAVE 30%

Call 855-808-4530 or email [email protected] to receive your discount on a new subscription.

New U.S.-China Investment Dynamic Focuses On AI and Sensitive Technologies

By David A. Holley
September 01, 2023

The Biden Administration released the highly anticipated, "Executive Order on Addressing United States Investments in Certain National Security Technologies and Products in Countries of Concern" (Executive Order) on August 9, which places increased importance on due diligence when investing in specific foreign countries. The Executive Order will regulate outbound investments in China with a focus on key technologies critical to safeguarding U.S. national security. It also directs the Treasury Department and other agencies to promulgate regulations that will place restrictions on investments within three sectors of China's economy: semiconductors and microelectronics, quantum information technologies, and technologies involved with artificial intelligence.

The full implementation of the regulations is a long way away, as the Treasury Department released its Advanced Notice of Proposed Rulemaking (ANPRM) in parallel with the Executive Order. The timeline provides for a 45-day public comment period, to be followed by draft regulations issued by Treasury and a subsequent comment opportunity prior to the finalization of the regulations.

|

Lay of the Land: Fortifying National Security with Economic Security

The key facets of the outbound investment regulations as stated in the Executive Order and proposed in the ANPRM include:

|
  • The Executive Order covers investments in China, which includes Hong Kong and Macau, together "countries of concern."
  • The Executive Order will pertain to U.S. citizens, lawful permanent residents, entities organized under the laws of the U.S. or any jurisdiction within the U.S., including any foreign branches of any such entities, and any person in the U.S. Treasury is considering whether "indirect" transactions will be in scope of the regulations, to prevent U.S. persons from seeking to end-around the rules by utilizing foreign intermediaries.
  • Regarding technologies under consideration for regulation, the Executive Order and accompanying ANPRM defines the term "covered national security technologies and products" to include "sensitive technologies and products in the semiconductors and microelectronics, quantum information technologies, and artificial intelligence sectors that are critical for the military, intelligence, surveillance, or cyber-enabled capabilities."
  • The Executive Order imposes two types of restrictions on outbound investments. The first is an absolute prohibition on U.S. investment in certain Chinese "covered national security technologies and products." The other restriction is more akin to the Committee on Foreign Investment in the United States (CFIUS), as modified by the Foreign Investment Risk Review Modernization Act of 2018 (FIRRMA) and provides for a notification requirement for U.S. investments in other Chinese "covered national security technologies and products."
  • The notification process will seek detailed information about the transaction, including the identities and backgrounds of the parties to the transaction, the nature of the technology for which the investment will be applied, and copies of relevant transaction documents and other agreements, all to be provided electronically.

Once final regulations are promulgated, there will be an additional 12 months for the Treasury Department to evaluate the effectiveness of the regulations, and subsequent revisions may be proposed should the rules not be meeting their desired outcomes or catch too many unanticipated investments — just as occurred with the FIRRMA regulations that were modified after a short experience with the original regulations. Given the runway ahead, there is time for organizations and investors to prepare for what this means for the future.

This premium content is locked for Entertainment Law & Finance subscribers only

  • Stay current on the latest information, rulings, regulations, and trends
  • Includes practical, must-have information on copyrights, royalties, AI, and more
  • Tap into expert guidance from top entertainment lawyers and experts

For enterprise-wide or corporate acess, please contact Customer Service at [email protected] or 877-256-2473

Read These Next
'Huguenot LLC v. Megalith Capital Group Fund I, L.P.': A Tutorial On Contract Liability for Real Estate Purchasers Image

In June 2024, the First Department decided Huguenot LLC v. Megalith Capital Group Fund I, L.P., which resolved a question of liability for a group of condominium apartment buyers and in so doing, touched on a wide range of issues about how contracts can obligate purchasers of real property.

Strategy vs. Tactics: Two Sides of a Difficult Coin Image

With each successive large-scale cyber attack, it is slowly becoming clear that ransomware attacks are targeting the critical infrastructure of the most powerful country on the planet. Understanding the strategy, and tactics of our opponents, as well as the strategy and the tactics we implement as a response are vital to victory.

CoStar Wins Injunction for Breach-of-Contract Damages In CRE Database Access Lawsuit Image

Latham & Watkins helped the largest U.S. commercial real estate research company prevail in a breach-of-contract dispute in District of Columbia federal court.

Fresh Filings Image

Notable recent court filings in entertainment law.

The Power of Your Inner Circle: Turning Friends and Social Contacts Into Business Allies Image

Practical strategies to explore doing business with friends and social contacts in a way that respects relationships and maximizes opportunities.