Foreign investment, which fuels technological innovation, productivity, and broad-based growth, is critical to the semiconductor industry’s long-term success. That stream of billions of dollars in investment, however, is at risk of narrowing as a result of the industry’s growing scrutiny by the Committee on Foreign Investment in the United States (CFIUS).
Over the last two years, CFIUS, a government body formed to review sales and transfer of ownership of U.S. companies to foreign entities, has denied sales of Aixtron and Lattice Semiconductor to Chinese investors because of national security concerns. More recently, CFIUS rejected the sale of Xcerra to a Chinese company, and the Committee has reportedly become involved in Broadcom’s bid to take over Qualcomm.
As highlighted recently, the Foreign Investment Risk Review Modernization Act (FIRRMA) was introduced by Sen. John Cornyn (R-TX) and Rep. Robert Pittenger (R-NC) in November to reform CFIUS, whose form and function have remained unchanged for over a decade. In the spirit of more effective governance that matches global trends, we welcome efforts to ensure that CFIUS better balances global commerce and national security.
FIRRMA contains important reforms to drive new efficiencies within CFIUS to help alleviate its rising workload, including devoting badly needed resources to the committee. Among those reforms is the codification of regulations to ensure that a Senate-confirmed appointee with direct responsibility for investment reviews is installed in each CFIUS agency.
Notably, however, FIRRMA fails to adequately address several existing problems with CFIUS and, in some cases, creates new ones.
First, this legislation dramatically expands CFIUS’s authority, including allowing it to review any non-passive investment by a foreign investor in a U.S. critical technology or critical infrastructure company, even if the investor does not have control over the company. By defining businesses as a critical technology or critical infrastructure company, FIRRMA would subject companies, and not transactions, to review. This means that transactions from a critical technology company that involve non-critical technologies would be subject to unnecessary, time-consuming, and costly CFIUS review.
Second, FIRRMA would require the committee to review joint ventures or any other common arrangements that involve sharing intellectual property with a non-U.S. partner. As a result, CFIUS, for the first time ever, would be charged with reviewing outbound international commercial activity. We believe that this is a serious flaw in the bill that would only duplicate the existing U.S. export control regime while adding another layer of regulatory burden.
Third, FIRRMA would create different tracks for CFIUS scrutiny based on the origin of the investors. Countries of special concern, like China or Russia, would be subject to enhanced review while other countries with an approved CFIUS-like body, or that have a defense treaty with the United States, would be fully exempt from CFIUS review. This inherent bias seems to challenge the central tenet of U.S. investment policy – non-discrimination.
Lastly, FIRRMA establishes provisions for expanded consultation and information sharing with allies. These provisions could lead, even if unintentionally, to needlessly divulging proprietary information and technology.
Over the past year, there’s been greater focus on the stronger enforcement on foreign commerce and the protection of U.S. industries. FIRRMA fits squarely in this area. However, instead of creating sweeping barriers with economy-wide implications, a better approach would be to have higher fences around select items. This would help maintain the current investment stream that is vital nourishment for the semiconductor industry and the broader economy while also protecting national security.
SEMI will continue working to open new markets while reducing the regulatory burden that can stifle cross-border trade and commerce. In addition, SEMI will continue to educate policymakers on the critical importance of unobstructed trade and investment in advancing semiconductors and the emerging technologies they enable. If you are interested in more information on foreign investment, CFIUS, or FIRRMA, or in how to be involved in SEMI’s public policy program, please contact Jay Chittooran, Manager, Public Policy, at firstname.lastname@example.org.