Treasury Struggles With House GOP on Foreign Investments

(Bloomberg) -- Republican lawmakers and the Treasury Department are struggling to reach agreement on legislation to bolster national security reviews of foreign investments, which could upend President Donald Trump’s less confrontational approach toward Chinese firms taking stakes in U.S. companies, according to two people familiar with the matter.

The White House last month decided against the harshest measures to restrict Chinese investment through invoking a national emergency law and instead rallied support for existing legislation to strengthen the Committee on Foreign Investment in the U.S., or CFIUS. U.S. lawmakers from the Senate and House of Representatives are negotiating a compromise for two separate bills that they aim to pass with an annual defense spending bill later this month.

Treasury Secretary Steven Mnuchin is leading the negotiations with Capitol Hill and has been making the case to lawmakers that the president is willing to use stricter investment curbs if the talks on a new CFIUS bill -- the Foreign Investment Risk Review Modernization Act, or FIRRMA -- fail to result in strong legislation.

A key GOP lawmaker, Representative Jeb Hensarling of Texas, is pushing for FIRRMA to be taken care of outside of the defense spending negotiations and that may result in watering down the final language, according to two people familiar with the negotiations. The people said Hensarling’s efforts are backed by House Speaker Paul Ryan of Wisconsin.

‘Progress’ Made

After a meeting with Mnuchin and Ryan on Tuesday, Hensarling said that they made “a lot of progress” and continue to narrow the issues.

“My hope remains that we can get this done on NDAA, but it is far more important to get it right than to get it done quick,” Hensarling, who leads the House Financial Services Committee, said in an interview. NDAA is the annual defense spending bill.

Hensarling said the legislation under discussion was “a massive expansion of CFIUS.”

National Security

“There are some legitimate national-security issues that have to be taken care of particularly with passive investments, emerging technologies but we also have to be very, very careful that these powers are not abused by future administrations and that they do not have a deleterious effect on direct and foreign investment which is still important for American economic growth,” he said.

Hensarling’s spokeswoman, Sarah Flaim, said that Hensarling is not trying to get the CFIUS bill removed from the defense bill and is trying to strengthen CFIUS reviews.

“The chairman and his staff have been actively working with the conference to negotiate this as part of NDAA and ensure that the final bill truly strengthens and protects national security," she said.

A senior Republican aide, who spoke on condition of anonymity to discuss the deliberations, rejected the idea that the goal was to dilute the language.

The latest Senate draft of the legislation takes a stronger approach to allowing CFIUS to review real estate transactions close to military sites, contains broad critical infrastructure protections and a mandatory declaration provision related to state-owned enterprises, according to a draft obtained by Bloomberg News that was dated July 17.

Senate Approach

The Senate version also establishes an information-sharing framework with allies and adopts a component from the House draft on fees to be charged by CFIUS, according to the draft. The “white list” of allied countries whose investments may not be subject to higher scrutiny, a feature of the Senate bill that’s not in the House version, will be debated by congressional staff late Tuesday, according to a person familiar with the negotiations.

If the CFIUS language is taken out of the must-pass defense bill, it could languish before Congress for months.

An impasse on the pending legislation could risk harsher unilateral measures being put back on the table. Trump last month indicated that he would consider that route if lawmakers fail to deliver a strong bill.

“Should Congress fail to pass strong FIRRMA legislation that better protects the crown jewels of American technology and intellectual property from transfers and acquisitions that threaten our national security -- and future economic prosperity -- I will direct my administration to deploy new tools, developed under existing authorities, that will do so globally,” Trump said in a statement on June 27.

Huge Caseload

The top Democrat on the House Armed Services Committee, Adam Smith of Washington, said there are legitimate concerns CFIUS doesn’t have capacity to handle a huge new caseload, so it’s not surprising Hensarling is fighting for changes.

Business lobbyists say that overly strict reviews would threaten billions of dollars worth of in-bound foreign investment. The Senate bill has a stronger requirement for mandatory investment reviews unless a country qualifies for a special exempt list. The House version favored by Hensarling reserves the strongest reviews for a short list of counties of special concern.

House Armed Services Committee Chairman Mac Thornberry said that he’s planning to stick to his timeline for finishing up and possibly voting on a final defense authorization bill by July 27. That means negotiations would have to wrap up by the end of this week. Thornberry, a Texas Republican, said in an interview that CFIUS negotiators know his timeline and that he’s letting them sort it out. He left the door open to possibly leaving the overhaul out of the bill if they don’t reach agreement.

The people familiar with the negotiations said that other Cabinet officials, including Defense Secretary Jim Mattis, Secretary of State Mike Pompeo and Vice President Mike Pence could get involved if Hensarling and Ryan maintain their position in the talks.

To contact the reporters on this story: Jenny Leonard in Washington at jleonard67@bloomberg.net;Roxana Tiron in Washington at rtiron@bloomberg.net;Erik Wasson in Washington at ewasson@bloomberg.net

To contact the editors responsible for this story: Brendan Murray at brmurray@bloomberg.net, Joe Sobczyk

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