The White House has recently issued an executive order aimed at addressing the national security concerns associated with outbound investments in sensitive technologies. The executive order, known as Executive Order 14105, targets China, Hong Kong, and Macau and focuses on industries such as semiconductors and microelectronics, quantum information technologies, and artificial intelligence.
While the executive order does not impose immediate restrictions, it directs the Treasury Department to develop implementing regulations within the next year. These regulations will provide a clearer picture of the potential impact on outbound investment activity. It is important to note that the scope of this executive order is narrower compared to the regulations governing inbound U.S. investments, such as those enforced by the Committee on Foreign Investment in the United States.
The executive order adopts a small yard, high fence approach to address the national security threats posed by certain countries’ advancements in sensitive technologies. It requires the development of regulations that would either prohibit or impose notification requirements for certain transactions involving the countries of concern and specific subsets of the identified advanced technology areas.
Covered transactions under the executive order would not only include traditional mergers and acquisitions but also extend to greenfield investments, joint ventures, and certain debt financing arrangements. However, the Treasury Department does not anticipate conducting a case-by-case review of U.S. outbound investments. Instead, the responsibility will lie with the transaction parties to determine if a particular transaction is prohibited, subject to notification, or permissible without notification.
Treasury has published an Advance Notice of Proposed Rulemaking (ANPRM) to gather public comments on the implementation of the executive order’s requirements. This feedback will shape the final regulations. Interested parties have until September 28, 2023, to submit their comments. Treasury is specifically seeking information on various topics related to the outbound investment program.
In summary, the White House’s executive order on outbound investments in sensitive technologies aims to address national security concerns associated with certain countries. By focusing on China, Hong Kong, and Macau and key technology sectors, the order seeks to prevent the development and exploitation of critical technologies that could have military, intelligence, surveillance, or cyber-enabled applications. While the executive order does not immediately impose restrictions, the forthcoming regulations from the Treasury Department will provide further clarity on the impact on outbound investment activities. Public feedback is currently being sought through the ANPRM process.
