WASHINGTON – Global tech trade association ITI outlined guiding principles for policymakers to consider before advancing additional reviews of investments, transactions, and transfers. In a letter sent to U.S. lawmakers on Monday, ITI underscored that the new outbound investment process in the National Critical Capabilities Defense Review (NCCDR), included as part of the U.S. COMPETES Act, could undermine the goals of the overall competitiveness package and hinder U.S. businesses’ ability to grow and expand into global markets.
“We take seriously Congress’ and the Administration’s concerns that business transactions and investments align with U.S. objectives for resiliency and security in critical supply chains,” ITI wrote in the letter. “Our industry has strong concerns about the impacts that overlapping Federal authorities will have on American global competitiveness and technological leadership. The potential for ambiguity in federal authorities and conflicting determinations from federal agencies may ultimately undermine the goal of policymakers to enhance U.S. economic competitiveness and national security. The National Critical Capabilities Defense Review implicates a vast array of daily transactions that may already be subject to review under existing federal authorities. ITI emphasizes that it would be helpful for policymakers to identify gaps and facilitate a robust public debate with stakeholders to develop an effective and efficient mechanism to address such gaps in national security on transactions, investments, or transfers.”
In the letter, ITI outlines principles to help guide Congress and the Executive Branch as they consider new outbound investment processes in the NCCDR or similar proposals:
Focus on identifying and addressing clear gaps in current authorities;
Articulate the use and implementation of existing supply chain review authorities;
Tie actions to specific threats to U.S. national security;
Designate an appropriate Executive Branch lead; and
Pursue robust opportunities for discussion and consultation.
Read the full letter here or below:
May 2, 2022
Dear Interested Members of the House and Senate,
On behalf of the members of the Information Technology Industry Council (ITI), I write to express our strong concerns with the current approach taken in the National Critical Capabilities Defense Act (NCCDA); as well as to offer several principles that we believe should guide consideration of whether and how to further regulate outbound transactions, investments, and transfers.
ITI is the premier global advocate for technology, representing the world’s most innovative companies. We promote public policies and industry standards that advance competition and innovation worldwide. Most of ITI’s members service the global market via complex supply chains in which technology is developed, made, and assembled in multiple countries, and service customers across all levels of government and the full range of global industry sectors, such as financial services, healthcare, and energy.
We take seriously Congress’ and the Administration’s concerns that business transactions and investments align with U.S. objectives for resiliency and security in critical supply chains. ITI’s members service the global market via complex supply chains and acutely understand the importance of securing global information communications and technology supply chains as not only a global business imperative for companies and customers alike, but as critical to our collective security.
Our industry has strong concerns about the impacts that overlapping Federal authorities will have on American global competitiveness and technological leadership. The potential for ambiguity in federal authorities and conflicting determinations from federal agencies may ultimately undermine the goal of policymakers to enhance U.S. economic competitiveness and national security. As currently drafted, the NCCDA implicates a vast array of daily transactions that may already be subject to review under existing export control and supply chain review authorities. We maintain that it is premature to include the NCCDA in any Conference Committee Report for the Bipartisan Innovation Act.
If Congress, or the Executive Branch, believes a gap exists in the existing national security authorities to review transactions, investments, or transfers it would be helpful for policymakers to identify those gaps to facilitate a robust public debate with stakeholders to develop an effective and efficient mechanism to address such gaps.
As Congress and the Executive Branch continue to consider the NCCDA or similar proposals, we offer below several suggestions for principles that should guide policymakers.
Focus on Identifying and Addressing Clear Gaps in Current Authorities
The approach to “Covered Transactions” in the NCCDA is expansive. However, the Executive Branch currently has several mechanisms in place to conduct national security reviews of transactions and transfers involving information and communications technologies (ICTS). For example, the NCCDA would almost certainly result in oversight duplicative of the regime governing “emerging” and “foundational” technologies under the purview of the Bureau of Industry and Security (BIS) and under the Export Control Reform Act of 2018 (ECRA), which were in part codified with the motive of addressing technology transfers through outbound and inbound investments.
The Secretary of Commerce also has extensive authorities to review ICTS transactions under Executive Order 13873 on Securing the Information and Communications Technologies and Services Supply Chain (ICTS EO). The ICTS EO grants the Secretary the authority to prohibit any acquisition, importation, transfer, installation, dealing in, or use of ICTS subject to U.S. jurisdiction that involves any property in which a foreign country or national has an interest and poses a risk to U.S. national security. The Interim Final Rule (ICTS IFR) implementing the EO captures a broad swath of ICTS transactions and clearly overlaps with the supply chain and outbound investment reviews envisioned by the NCCDA.The breadth of authorities envisioned in the NCCDA, coupled with the broad discretion granted to the Department of Commerce, will continue to cast uncertainty over nearly all ICTS transactions and could undermine the national security objectives these measures purport to address, while also severely hindering U.S. competitiveness and hurting U.S. businesses.
As such, in considering any approach to outbound investment review, it is imperative that policymakers carefully examine existing authorities, identify clear gaps in those authorities that correspond to core national security concerns, and craft any new authorities in a manner that is sufficiently narrow and targeted to avoid capturing transactions already subject to existing regimes. Creating overlapping regimes in the U.S. that do not exist in other nations undermines U.S. competitiveness and technological leadership by making our allies and adversaries potentially more attractive destinations for market investment.
Articulate the Use and Implementation of Existing Supply Chain Review Authorities
The administration has not articulated a vision for using these new authorities under the ICTS EO and IFR. Given the scope and breadth of this rule as it relates to reviews of ICTS transactions, it is vital that the uncertainty surrounding its use be resolved prior to establishing a new interagency group with overlapping jurisdiction. This is especially true given that the NCCDA envisions a broad regulatory approach that covers not just outbound investments, but other activities commonplace in the global supply chain. ITI has outlined concerns to the Department of Commerce over the breadth of scope of the ICTS Supply Chain IFR. We are concerned that similarly vague and expansive reviews of U.S. supply chain activities can further undermine U.S. competitiveness.
Tie Actions to Specific Threats to U.S. National Security
Any approach taken in legislation or by executive action should be tied to narrow and specific national security threats. If a transaction does not implicate a specific, identifiable threat or vulnerability to U.S. supply chains or national security equities, it should not be the subject of additional regulatory reviews. Clarity in regulatory liability and security exposure is a critical element of a competitive global supply chain and helping stakeholders understand risks and threats is essential to that calculation. As an initial matter, Congress should commission a report to evaluate the impacts of additional outbound investment and transaction screenings on U.S. national security. This report should include recommendations to Congress to address the scope of jurisdiction and structure of agency reviews.
Designate an Appropriate Executive Branch Lead
Even though the NCCDA’s purview would be limited to “countries of concern,” such reviews would be resource-intensive and, similar to the ICTS EO, implicate an unknown number of existing and future transactions. It is essential that whichever federal agency, or collection of agencies, undertakes these reviews is appropriately resourced and staffed to ensure it is capable of performing the volume of reviews under their jurisdiction on a timely and consistent basis. The U.S. Trade Representative would be the wrong agency to take on this complex and resource-intensive mission. Notably, the recommendation of the U.S. China Economic and Security Review Commission, which serves as the inspiration for the NCCDA, does not place USTR as the agency. Relatedly, the NCCDA would provide twelve Congressional committees with the ability to request investment screenings, opening the door to disjointed reviews of a broad spectrum of investments and transactions; any Congressional involvement in directing screenings should be more targeted.
Pursue Robust Opportunities for Discussion and Consultation
Given the implication that capital flows and early-stage investments may be a concern, it is essential that legislators conduct public hearings to ensure policymakers have a complete understanding of existing authorities and the impacts of a new regime on U.S. global supply chains, R&D investments, and overall economic competitiveness. It is also critically important that new regulatory mechanisms be coordinated with U.S. allies and partners to ensure any proposed reforms minimize the likelihood that unilateral U.S. actions will undermine the ability of U.S. companies to compete globally.
Thank you for your consideration of our industry’s views and we offer our assistance as you continue to evaluate any legislation or executive action on this important issue.
President and Chief Executive Officer
Information Technology Industry Council (ITI)