U.S. Commerce Department Issues Interim Regulations Establishing Review Process for Information and Communications Technology and Services Supply Chains
On January 19, 2021, the U.S. Department of Commerce (Commerce) issued interim final regulations (interim rules) implementing Executive Order 13873, Executive Order on Securing the Information and Communications Technology Services Supply Chain (EO), which was intended to address alleged threats against information and communications technology and services (ICTS) in the United States. The new review mechanism focuses on transactions involving any acquisition, importation, transfer, installation, dealing in, or use of ICTS that has been designed, developed, manufactured, or supplied by parties owned by, controlled by, or subject to the jurisdiction or direction of “foreign adversaries.”
While the focus on the rules is not foreign investment per se, it will complement the Committee on Foreign Investment in the United States’ (CFIUS) investment security review mechanisms. Indeed, the interim rules borrow several concepts and definitions from CFIUS’s recently amended regulations.
Commerce invited interested parties to submit comments on the interim rules. Parties must submit comments by March 22, 2021. Commerce will publish final regulations after considering any comments submitted.
This post provides key takeaways and a brief summary of Commerce’s new review mechanism.
FCC Standardizes and Formalizes “Team Telecom” Review
Foreign investment in many entities regulated by the U.S. Federal Communications Commission (FCC) has long been subject to an interagency review process for the consideration of national security, foreign policy, and trade policy issues, referred to as “Team Telecom.” Pursuant to an April 2020 executive order and an October 2020 report and order of the FCC, this process has been formalized and streamlined under the new Committee for the Assessment of Foreign Participation in the United States Telecommunications Services Sector (Committee).
New Rules on CFIUS Mandatory Filings
On September 15, 2020, the U.S. Department of the Treasury published a final rule modifying the types of foreign investments that would trigger a mandatory filing before the Committee on Foreign Investment in the United States (CFIUS). The final rule largely tracks a proposed rule published by CFIUS on May 21, 2020. The final rule will come into effect on October 15, 2020, and will apply only to transactions that take place on or after that date. It is not retroactive.
BIS Issues Long-Awaited Notice on Controls on Foundational Technologies, Adds New Entities to Entity List
The U.S. Department of Commerce, Bureau of Industry and Security (BIS) published an advance notice of proposed rulemaking (ANPRM) soliciting comments to identify foundational technologies essential to U.S. national security by October 26, 2020 (the Foundational Technologies ANPRM). The ANPRM is only one step in a multiyear process through which the U.S. government transforms the regulations restricting the availability of U.S.-sourced technology in the global marketplace.
This long-awaited ANPRM launches an intra-agency review process required under Section 1758 of the Export Control Reform Act of 2018 (ECRA), which Congress passed in the National Defense Authorization Act for Fiscal Year 2019 (2019 NDAA). ECRA directed BIS to identify and establish controls on the export, reexport, or transfer (in country) of emerging and foundational technologies essential to the national security of the United States. On November 19, 2018, BIS issued an ANPRM on identification of emerging technologies (the Emerging Technologies ANPRM), indicating that a separate notice for foundational technologies was forthcoming.
Today’s Foundational Technologies ANPRM can be found here. Sidley’s prior updates on ECRA and the Emerging Technologies ANPRM can be found here.1 Here we summarize five key takeaways from today’s notice.
Treasury Releases New CFIUS Regulations
On January 13, 2020, the U.S. Department of the Treasury (Treasury) issued final and interim regulations implementing the Foreign Investment Risk Review Modernization Act of 2018 (FIRRMA), which expands the jurisdiction of the Committee on Foreign Investment in the United States (CFIUS) to review foreign investments and mitigate any potential national security concerns. While the final regulations largely track the proposed regulations issued on September 17, 2019, Treasury has made refinements and added several clarifying examples. See Sidley’s previous Update on the proposed regulations.
Following the structure of the proposed regulations, the final regulations were issued in two parts: one part covers investments in real estate, available here, while the other covers certain other investments in U.S. businesses, available here. Treasury simultaneously released a number of frequently asked questions on the proposed regulations, available here, and a fact sheet, available here.
The final CFIUS regulations will go into effect on February 13, 2020.
Trump Executive Order May Significantly Disrupt Technology Supply Chains
On May 15, 2019, President Donald Trump signed an executive order (EO) declaring a “national emergency” related to certain threats against information and communications technology and services (ICTS) in the United States and authorizing the Department of Commerce to block transactions that involve ICTS with a “foreign adversary.” The EO provides for the possibility of a licensing regime that could allow transactions that would otherwise be blocked. The EO is available here.
The EO itself does not mention any particular countries or companies that would be subject to its prohibitions. However, the EO is widely reported to be aimed at China. Indeed, tensions between the United States and China have intensified over the past week, after negotiations between the two governments to resolve their trade dispute stalled.