Chaila Fraundorfer
 Vol. 41 Associate Editor

The Committee on Foreign Investment in the United States (CFIUS) reviews corporate transactions involving foreign nationals to determine whether they pose a national security threat.[1] One area CFIUS focuses on protecting is critical technologies.[2] If a transaction is deemed dangerous, that is to share critical technologies with foreign nationals, CFIUS will impose sanctions or in some cases, block a transaction from going through entirely.[3] Since its inception in 1988, CFIUS’s scope has increased exponentially.[4] The most recent expansion was the Foreign Risk Review Modernization Act (FIRRMA), which became effective on November 11, 2018.[5] FIRRMA extended CFIUS’s jurisdiction, created mandatory filing for selected transactions, and allocated twenty million dollars per year to CFIUS.[6] Given the Supreme Court’s deference to agency decisions and the countries’ national security concern, the message seems clear: CFIUS is here to stay. The question then becomes, is CFIUS even allowed to stay? After evaluating CFIUS regulations and international agreements it seems clear that CFIUS runs the risk of violating the United States’ international technology transfer commitment. The United States has been an active member of the World Trade Organization (WTO) since 1995.[7] Under the umbrella of the WTO is the General Agreement on Tariffs and Trade (GATT). GATT is an expansive agreement that covers goods, services, and intellectual property designed to lower customs tariffs and promote trade for member countries.[8] Within GATT, is the Agreement on Trade-Related Aspects of Intellectual Property Rights (TRIPS), which deals specifically with intellectual property and technology transfers. [9] Recognizing the need for technology transfers and seeking protection of intellectual property rights the United States, along with Canada and Japan, advocated intensely for the ratification of the TRIPS Agreement.[10] TRIPS views technological innovation as a way of promoting social and economic welfare.[11] The Agreement “aims to achieve the transfer and dissemination of technology” by requiring developed country members to “provide incentives for their companies to promote the transfer of technology to least-developed countries.”[12] While the United States was a major supporter of TRIPS, the new CFIUS regulations seem antithetical to TRIPS’ technology transfer program. This is exemplified by how broadly CFIUS’s defines “critical technologies.” So far, CFIUS has identified twenty-seven industries that require a mandatory filing and review process because they include “critical technologies”.[13] The industries span from “Aircraft Manufacturing” to “Other Basic Inorganic Chemical Manufacturing” and seem to cover everything in between.[14] With this overinclusive definition, it is hard to see what, if any, technologies United States companies could share with less developed countries without triggering CFIUS intervention. Even if companies share basic technology, TRIPS was specifically designed to promote the transfer of technological innovations which insinuates that the technologies TRIPS intended to protect were the kinds of creative technologies that are not universally accessible. Various other countries, including Germany, Canada, and Japan, have similar foreign direct investment reviews. After comparing CFIUS to the Canadian foreign direct investment review, the United States’ oversight of technology seems aggressively restrictive. In Canada, the Investment Canada Act (ICA), uses a “net benefit test” to limit the “ability of foreign entities to invest in financial services, telecommunications, air transportation, and uranium mining.”[15] Under the “net benefit test,” a transaction will be denied if it does not increase domestic production, enhance employment or promote technology transfer.[16] Unlike the United States, Canada views the transfer of technology and the transfer of knowledge from foreign investors as a central benefit of foreign direct investment.[17] Instead of trying to restrict foreign direct investment, Canada’s “net benefits test” balances national security with the economic value of foreign investment. The United States is currently the largest recipient of foreign direct investment.[18] While national security is a significant concern for any country, the United States should use caution not to abuse this policy rationale as a blanket statement for covering the transfer of every technology. Not only will less developed countries suffer without technology transfers, but a stronger CFIUS authority could also hurt the United States. If the United States is perceived as uncooperative in following international agreements, foreign nationals may turn elsewhere with their investments which would jeopardize the United States economy. Therefore, to promote both foreign and domestic social and economic welfare the United States should adopt a similar “net benefits test” like Canada. This would restrict the definition of “critical technology” to only the technologies in the utmost need of protection for national security reasons and would foster the exchange of technologies with less developed countries in compliance with TRIPS.

[1] Congressional Research Service. The Committee on Foreign Investment in the United States (CFIUS) (RL33388), Aug. 6, 2019. Available from Proquest Congressional; Accessed October 15, 2019 at 1. [2] Id. at 23. [3] Id. at 1. [4] Id. [5] Id. [6] Id. [7] World Trade Organization, United States of America and the WTO, World Trade Organization, (Oct. 15, 2019) [8] World Trade Organization, Understanding the WTO: The Agreements, World Trade Organization, (Oct. 15, 2019) [9] World Trade Organization, Trade-Related Aspects of Intellectual Property Rights, World Trade Organization, (Oct. 15, 2019) [10] Catherine Field, Negotiating for the United States, The Making of the TRIPS Agreement: Personal Insights from the Uruguay Round Negotiations, (2015) 29. [11] Id. [12] World Trade Organization, Technology Transfer, World Trade Organization, (Oct. 15, 2019) [13] Congressional Research Service. The Committee on Foreign Investment in the United States (CFIUS) (RL33388), Aug. 6, 2019. Available from Proquest Congressional; Accessed October 15, 2019 at 16. [14] Congressional Research Service. The Committee on Foreign Investment in the United States (CFIUS) (RL33388), Aug. 6, 2019. Available from Proquest Congressional; Accessed October 15, 2019 at 16. [15] Laura Dawson, Potash and BlackBerries: Should Canada Treat All Foreign Direct Investment the Same?, Commentary,  MLI, (Oct. 31. 2019) [16] Id. [17] Id. [18] Harry G. Broadman, Naivete About CFIUS’ National Security Policy Towards Foreign Investment in the U.S., Forbes (Oct. 31, 2019), The views expressed in this post represent the views of the post’s author only.