Earlier this month, President Biden took advantage of the congressional recess to issue an executive order (EO) entitled “Executive Order on Addressing United States Investments in Certain National Security Technologies and Products in Countries of Concern.” (Pithy, huh?) He may have slipped it past Congress, but not AAF’s Tori Smith, who dissects the EO here.

To get matters rolling, President Biden first declared a national emergency under the International Emergency Economic Powers Act (IEEPA) in which he identifies the countries of concern as China, Hong Kong, and Macau and argues that U.S. investments are exacerbating threats to national security because these countries “are exploiting or have the ability to exploit” certain investments. As Smith summarizes, “the EO claims that intangible benefits such as ‘enhanced standing and prominence, managerial assistance, investment and talent networks, market access, and enhanced access to additional funding’ are prone to exploitation.”

The next step is for the Treasury to undertake a rulemaking to require U.S. persons to notify Treasury of certain transactions that “may contribute to the threat” and by prohibiting other transactions that “pose a particularly acute national security threat.” The EO defines the covered sectors as “semiconductors and microelectronics, quantum information technologies, and artificial intelligence sectors that are critical for the military, intelligence, surveillance, or cyber-enabled capabilities.”

Treasury has now released an Advance Notice of Proposed Rulemaking that contains “the framework that Treasury anticipates proposing for implementation of the program.” Treasury is also soliciting public comment from stakeholders.

As Smith notes, Congress has been considering alternative approaches to limit outbound investment, but: “This move by the Biden Administration is unprecedented for the United States and marks a substantial shift in the federal government’s involvement in capital flows. In some ways, the actions pursued by the administration are narrower than other proposals because they cover only three sectors. The Outbound Investment Transparency Act, for example, included six sectors for review. At the same time, acting first via IEEPA is a questionable use of executive authority, especially as Congress is considering several different proposals for screening outbound investment in the National Defense Authorization Act, among other pieces of legislation. The administration’s actions also go beyond the latest consensus in Congress for a notification-only system.”

The president’s EO is hardly the last word on screening outbound investment. If history is any guide, Congress will weigh in and provide the executive authorities it deems appropriate, and without the need for an IEEPA emergency declaration. This is what happened with screening inbound investment. It began with executive action that Congress has modified over time, yielding the current review by the Committee on Foreign Investment in the U.S.

Stay tuned for the next step from Congress.