The United States’ Foreign Direct Investment Screening Regime in a Post-COVID World
BY: Margaux Arntson, RBFL Student Editor
The COVID-19 pandemic (“pandemic”, “COVID-19”) and countries’ responsive containment measures brought shockwaves to the world, especially to worldwide supply and demand. The pandemic disrupted global production networks, leaving many countries’ economies in turmoil. This environment presented opportunistic buyers with the chance to acquire or invest in foreign sectors and companies that had been weakened by the pandemic. In an effort to protect critical and strategically important companies and sectors from foreign control, many countries both temporarily and permanently revised their foreign direct investment (“FDI”) screening regimes. These measures generally surround certain strategic sectors like telecom, technology, infrastructure, and raw materials. Shortages of personal protective equipment (“PPE”) for healthcare workers and restrictions on exports of medical equipment have prompted state actors to guard their pharmaceutical and medical manufacturing sectors more closely. Many countries’ updated FDI screening laws subject any potential foreign acquisition to automatic review by the country’s FDI regulatory body.
Yet, United States has not enacted any new FDI legislation in response to COVID-19. The most recent FDI-related legislation passed was the Foreign Investment Risk Review and Modernization Act of 2018 (“FIRRMA”), which President Trump signed into law over a year before the first COVID-19 case was reported. While FIRRMA strengthens and modernizes the Committee on Foreign Investment in the United States (“CFIUS”) and allows CFIUS to reach a broader range of foreign investment transactions, the pandemic and its economic effects have highlighted important yet vulnerable U.S. sectors that remain unprotected by CFIUS. Despite greatly expanding CFIUS’s jurisdiction, FIRRMA and CFIUS’s final regulations fail to protect, in any meaningful way, U.S. companies that develop and manufacture PPE, medications and medical goods for highly contagious diseases, or in-vitro diagnostics for highly contagious diseases. Yet, the pandemic has exacerbated shortages of medical drugs and devices to critical levels in the United States. Virtually all U.S. hospitals and health care systems (99%) have reported challenges in procuring supplies needed not only for the treatment of COVID, but many other diseases as well. These ongoing shortages will only grow if foreign parties are able to acquire U.S. medical manufacturing companies as a way to supplement their own domestic shortages of medical supplies.
CFIUS could theoretically prevent foreign acquisitions of U.S. medical development and manufacturing companies by characterizing the company as a TID U.S. business. This would most plausibly be done under CFIUS’s jurisdiction over U.S. businesses that design and manufacture “critical technologies”. That being said, CFIUS’s narrow focus on national security would make fitting these businesses within a stated list extremely challenging. For example, while the United States Munitions Lists references biological agents, it does so in reference to chemical agents deployed in warfare such as mustard gas and nerve agents. It is hard to imagine how CFIUS would reasonably include products like PPE or medications and medical goods for highly contagious diseases within FIRRMA as it currently stands. Plus, the President maintains control over the final contends of the list CFIUS can amend. He could legally remove any addition relating to the pandemic and is not obligated to present a rationale for doing so.
Overall, COVID has weakened critical U.S. sectors that remain unprotected by the United States’ FDI screening regime. It is of critical importance that Congress, CFIUS, and the President work together update the country’s FDI screening process in ways that address these weaknesses.
Sources:
Joanna Kenner, FDI in a post-covid-19 worlds: A threat to the European project?, Inst. Montaigne, (May 11, 2020), https://www.institutmontaigne.org/en/blog/fdi-post-covid-19-world-threat-european-project.
Mary Ellen Stanley, From China with Love: Espionage in the Age of Foreign Investment, 40 Brooklyn J. Intl. l. 1033, 1035-36 (2015).
Jones Day, Foreign Investment Control Heats Up: A Global Survey of Existing Regimes and Potential Significant Changes on the Horizon, Jones Day (January 2018), https://www.jonesday.com/files/upload/Foreign%20Investment%20Control%20Heats%20Up.pdf.
Farhad Jalinous et. al, CFIUS Finalizes New FIRRMA Regulations, White & Case (Jan. 22, 2020), https://www.whitecase.com/publications/alert/cfius-finalizes-new-firrma-regulations.
Jayden r. Barrington, CFIUS Reform: Fear and FIRRMA, An Inefficient and Insufficient Expansion of Foreign Direct Investment Oversight, 21 Transactions: Tenn. J. Bus. L. 77, 104 (2019).
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