President Biden’s Executive Order Limits US Investment in Concern Countries, Focusing on China’s Advancing Technology Industry
Washington, D.C. (August 18, 2023) – On August 9, 2023, President Biden issued Executive Order 14105 (E.O.), placing restrictions on United States investment in selected countries of concern. The primary focus of this order revolves around China’s rapidly advancing technology industry, which includes semiconductors and microelectronics, quantum information technologies, and artificial intelligence. The administration is concerned about the potential impact on national security.
To counteract a country of concern’s efforts to acquire cutting-edge technologies and bridge the divide between civilian and military sectors, the United States aims to curb investment. This executive order emphasizes the importance of protecting technological advances and preventing the acquisition of military dominance.
This newly implemented E.O. follows the trade restrictions imposed by the Department of Commerce’s Bureau of Industry and Security (BIS) last October. The BIS introduced broad restrictions on the export of chip-making materials to China, ensuring the protection of national security and foreign policy interests. Interested parties can find further details on these restrictions in a previous alert issued by Lewis Brisbois.
While the E.O. collectively targets the military, intelligence, surveillance, and cyber capabilities of countries of concern, the only nation currently classified as such is the People’s Republic of China, including the Special Administrative Regions of Hong Kong and Macau. Therefore, the Secretary of the Treasury, in consultation with the Secretary of Commerce and other relevant executive departments, will issue regulations restricting United States investment in various industries, specifically semiconductors and microelectronics, quantum information technologies, and artificial intelligence.
The forthcoming regulations will outline two categories of transactions: notifiable transactions and prohibited transactions. Notifiable transactions include those that potentially pose a threat to United States national security, while prohibited transactions involve activities that significantly enhance the military, intelligence, surveillance, or cyber capabilities of countries of concern. United States persons will be required to notify the Department of the Treasury regarding notifiable transactions, and engaging in prohibited transactions will be strictly prohibited.
The Department of Treasury has sought public comments to ensure comprehensive implementation of these regulations and has expressed a potential exemption for certain transactions, including publicly traded instruments and intracompany transfers from U.S. parents to subsidiaries. Parties with interests in the targeted Chinese industries should closely monitor the forthcoming regulations from the Department of the Treasury in the coming months.
While this E.O. escalates trade pressure on China, members of Congress have expressed interest in further limiting United States investment in the country. Senator Marco Rubio plans to introduce legislation in September to enhance oversight of outbound investment to China. Additionally, the European Commission President, Ursula von der Leyen, has stated that the European Union is exploring the development of a targeted instrument on outbound investments to address China’s critical technology policies.
In summary, President Biden’s Executive Order 14105 restricts U.S. investment in specific countries of concern, with a primary focus on China’s advancing technology industry. By curbing investment in sectors such as semiconductors, microelectronics, quantum information technologies, and artificial intelligence, the U.S. aims to protect national security interests. The forthcoming regulations from the Department of the Treasury will identify categories of transactions that will either require notification or be strictly prohibited. Interested parties should closely monitor the developments surrounding these regulations and ongoing discussions regarding investment restrictions.
