Last week, President Biden issued a executive Order Outlines long-awaited proposed restrictions on outbound US investment in entities based in China or otherwise subject to Chinese jurisdiction. The executive order will establish a new national security program that will be implemented by the US Treasury Department, and according to the Biden administration, the program will target “countries of concern” that seek to develop sensitive or advanced technologies and products critical to the military. , intelligence gathering, surveillance, or cyber-enabled capabilities. Treasury Department has already established Website for this outbound investment program, which provides copies of Press release and a fact sheet Detailed discussion on the proposed sanctions.
Importantly, the executive order does not promulgate any rules, nor does it include any draft rules. Instead, the Treasury Department has used the authority provided under an executive order to issue a Advance Notice of Proposed Rulemaking (ANPRM) that outlines the intended scope of the program and initiates a 45-day comment period in which the Treasury Department will solicit public feedback on the sanctions. Treasury is expected to release its proposed draft rules sometime next year.
The ANPRM envisages generally enforcing rules that would prohibit persons subject to US jurisdiction from making certain highly sensitive China-related investments and then require them to provide prior notice to the Treasury before making other less sensitive China-related investments. would need to be done. Key aspects of ANPRM include (but are not limited to):
- The proposed ban and reporting requirements would cover any “Country of Worry” As recognized by the President. So far, the only designated “country of concern” is China, which also includes the special administrative regions of Hong Kong and Macau.
- The ANPRM is proposed to target US investments in companies subject to Chinese jurisdiction that are engaged in activities related to the following advanced technologies and products:
(i) Semiconductor and Microelectronics. Proposed prohibited investment This would include investments in entities engaged in the development of electronic design automation software or semiconductor manufacturing equipment; Design, manufacture, or packaging of advanced integrated circuits that meet or exceed certain performance capabilities; and installation or sale of supercomputers. Proposed notification Requirements Investments in entities engaged in design, manufacturing and packaging of integrated circuits with performance capabilities below the investment prohibition threshold will be covered.
(ii) Quantum information technology. Proposed prohibited investment This would include investments in entities engaged in the production of quantum computers and certain related cooling components; development of certain quantum sensing platforms to be used exclusively for military end-use, government intelligence, or mass-surveillance; and the development of a quantum network or communication system specifically designed to be used for secure communication. Treasury said it is not currently considering a separate notification requirement for this category.
(iii) Artificial intelligence system. Proposed prohibited investment This would include investments in entities engaged in the development of software that includes AI systems and is designed for military, government intelligence, or “specially used” (the Treasury Department indicated “primarily used” The word is also under consideration) is designed for. End use of mass surveillance. Proposed notification requirements would cover investments in entities engaged in the development of software that includes AI systems and is “exclusively used” (or possibly “mainly used”) for certain uses relating to cyber security, robotic control, eavesdropping, non-cooperative going”) is designed for. Location tracking, or facial recognition.
- ANPRM anticipates that sanctions and/or notification requirements will apply to US investments in companies that are engaged in the above activities and that are Other than companies based, legally organized and/or headquartered in China or owned by Chinese citizens or the Chinese government Outside at least 50% owned by ChinaIndividually or in the aggregate, directly or indirectly, by Chinese citizens, Chinese parent companies, or the Chinese government.
- The ANPRM also contains proposals for prohibiting certain transactions or requiring notices. Greenfield investment in some industries in China. From a practical point of view, this may prohibit some companies from forming subsidiaries in China if they do business in any industry subject to the ANPRM’s prohibition or notice requirements.
- ANPRM technically applies only to american man, which it defines as any U.S. citizen, lawful permanent resident, entity organized under U.S. law (including foreign branches), and any person in the U.S. However, Treasury is considering applying requirements that Can effectively extend the restrictions of ANPRM to legally held subsidiaries outside. The US prohibits US persons from “directing” any action by a non-US person that would be in violation of the ANPRM’s sanctions if undertaken by a US person. The ANPRM also considers requiring U.S. persons to take appropriate action to ensure that foreign-held subsidiaries under their control comply with its restrictions.
- When the Treasury Department finally promulgates the executive order and the implementing rules under ANPRM, it does not appear that the Treasury Department will retroactively apply the prohibition and notification requirements of those rules on transactions conducted prior to the final effective date of the upcoming rules. Will demand However, once the Treasury Department promulgates these rules, the ANPRM clearly states that Treasury “is not considering granting retroactive waivers or exemptions (i.e., waivers or exemptions after a prohibited transaction has been completed). ” Therefore, once the new rules come into effect, companies will need to Avoid prohibited transaction And Proactively disclose reportable transactions So that the new rules are not violated.
- notes To be submitted in ANPRM 45 days After being published in the Federal Register of ANPRM. ANPRM was published on August 14, 2023, and therefore comments must be received 28 September 2023, to be considered. If you are interested in submitting a comment, please contact HB’s Export Controls and Economic Sanctions team or your HB contact for additional guidance.
It appears that ANPRM’s restrictions apply to a very narrow class of industries and therefore may affect only a small number of US investors (if any). However, even though their transactions will not require any prohibition or notice of the ANPRM, persons subject to US jurisdiction and wishing to invest in China should be aware that various other existing US laws and regulations still apply to China. may severely restrict their ability to invest in , For example, export controls imposed under the US International Traffic in Arms Regulations (ITAR) and US Export Administration Regulations (EAR) could potentially prohibit any export of “technical data” or “technology” of US origin to China. otherwise in respect of a permitted foreigner. Investment. If Chinese companies acquire US origin software or technology in connection with a US investment, products manufactured in China through the use of such software or technology are subject to EAR’s export controls in accordance with the EAR’s existing Foreign-Manufactured Direct Products rules Can In addition, sanctions imposed by the Office of Foreign Assets Control (OFAC) of the US Treasury Department will prevent US persons from purchasing any publicly traded securities issued by certain companies listed on the non-SDN Chinese Military Industrial Complex list .