The Biden administration has issued an executive order on US outbound investment in technology with national security applications. The order aims to address the national security risks posed by investment in select technology and products produced by countries of concern. The order, along with a corresponding Advanced Notice of Proposed Rulemaking from the US Department of the Treasury, provides insights into the government’s current thinking on outbound investment and the potential scope of the regulations.
The executive order identifies three covered technologies that may be subject to prohibitions or notification requirements: semiconductors and microelectronics, quantum information technologies, and artificial intelligence (AI). The countries of concern currently mentioned in the order include the People’s Republic of China, the Special Administrative Region of Hong Kong, and the Special Administrative Region of Macau. However, other countries may be added in the future.
The executive order and the proposed rulemaking seek public input on several issues, including the specific subsets of sensitive technologies that would be subject to the regulations. It is worth noting that the proposed regime is binary, meaning that transactions will either be prohibited or not, and there are no plans for case-by-case reviews.
One of the challenges for companies and investors is obtaining guidance from the Treasury regarding the applicability of the regulations to their outbound investments. Clear and focused regulations will be crucial to avoiding confusion and ensuring compliance. While there are existing controls for some technologies like semiconductors, there is a lack of targeted export classifications for quantum computing and AI, which may lead to uncertainties and mistakes in determining whether a technology falls within the covered categories.
The executive order leaves room for the addition of new covered technologies in the future, so industries not currently identified should not assume they are exempt. There may also be exceptions to the prohibitions and notification requirements, which will be important for investors. However, certain types of investments that involve substantive decision-making by the covered foreign person may not qualify for the exceptions.
The regulatory process is expected to take months, and affected investors and entities are encouraged to take advantage of the Advanced Notice of Proposed Rulemaking to submit comments and provide feedback to the Treasury. This will help inform the government’s further consideration of the scope of the regulations.
In conclusion, the Biden administration’s executive order on US outbound investment in technology with national security applications reflects the government’s increased focus on addressing national security risks associated with investment in countries of concern. The order identifies specific covered technologies and countries, but the scope and impact of the regulations will become clearer as the Treasury develops its proposed rules. It is crucial for companies and investors to stay informed and actively participate in the rulemaking process to ensure compliance and minimize potential risks.
