U.S. outlines plans to scrutinize investment from China, others

Review committee’s scope expanded . . .

The U.S. Treasury has proposed new rules that would allow the U.S. to exert greater control over foreign investment, adding regulatory teeth to the U.S. Foreign Investment Risk Review Modernization Act (FIRRMA) in a move widely seen as targeting China’s investment into the U.S. The rules, announced last week, would expand the powers of the U.S. Committee on Foreign Investment in the United States to stop foreign investment in “critical” technologies, infrastructure, and data-collection companies.

Beyond government and the military . . .

The proposal reflects further ‘securitization’ of investment along both traditional and novel lines, addressing transactions close to the military and government as well as concerns over intellectual property and use of technologies. As a result, the new FIRRMA proposal could cover “other investments” in certain U.S. businesses that result in foreign access to technical and decision-making information, creating boundaries not only on hardware and software investments, but also on investments seeking to acquire knowledge over processes and services. In effect, even if China and the U.S. nominally conclude a bilateral trade agreement, China’s investors are unlikely to secure almost any entry into high-tech areas.

For Canada, a learning opportunity?

While China’s investment activity in Canada is extensive and stable, according to data from the APF Canada Investment Monitor, specific deals have generated front page headlines over concerns about potential threats to national security. The adjustments to FIRRMA, if adopted, could place increased pressure on Canada – both domestically and from Washington – to follow suit. Considering China’s successful investments into Canadian high-tech satellite communications via Norsat, rejected investments into key infrastructure construction firms such as Aecon, or the potential Investment Canada Act review of Huawei’s proposed wide-scale investment into Canadian communications, Canadian regulators and the investment community face similar challenges in striking the right balance. They will be looking south to see what lies ahead with FIRRMA.