The passage and implementation of the Foreign Investment Risk Review Modernization Act (FIRRMA) was the most significant change in U.S. regulation of foreign investment since the 1975 creation of the Committee on Foreign Investment in the U.S. (CFIUS) but changes to U.S. Foreign Direct Investment (FDI) laws and regulations continue.

If enacted, the proposed Foreign Adversary Risk Management Act(FARM Act) will expand the CFIUS definition of critical infrastructure to include agricultural production facilities and real estate. Similarly, recent changes by the U.S. Department of Commerce, Bureau of Industry and Security (BIS)now control certain genetic assemblers and synthesizer software, rendering thememerging technologies subject to CFIUS.

The FARM Act may become the latest expansion of CFIUS. TheFARM Act is a bipartisan bill cosponsored by Sen. TommyTuberville(R-Ala.), Sen. Ronny Jackson (R-Tex.) and Sen. Filemon Vela (D-Tex.). If passed, the FARM Act would designate the U.S. agricultural supply chain as critical infrastructure, extending CFIUS review to any merger, acquisition, transfer, joint venture, or other transaction that could result in foreign control of a U.S. business engaged in agriculture production and/or uses agricultural products. The bill also proposes to add the Secretary of Agriculture to CFIUS and requires CFIUS to report on foreign investments in U.S. agriculture to Congress.

However, the FARM Act would not be the first FDI protection of the U.S. agricultural supply chain. Rather, FIRRMA included provisions that established CFIUS jurisdiction upon the invocation of the Defense Production Act (DPA). More specifically, the FIRMMA list of critical infrastructure included the following language:

manufacture any industrial resource other than commercially available of-the-shelf items . or operate any industrial resource that is a facility, in each case,that has beenfunded, in whole or in part, by [] (a) Defense Production Act of 1950 Title III program..

Additionally, the FIRRMA definition of covered transactions includes the following language:

(d)Any other transaction, transfer, agreement, or arrangement, the structure of which is designed or intended to evade or circumvent the application of section 721.

Title III of the DPA allows the President to provide economic incentives to secure domestic industrial capabilities essential to meet national defense and homeland security requirements. The DPA was invoked by former President Trumps COVID-19-related Executive Orders regarding medical supplies and food production. As a result, even non-controlling foreign investments in U.S. medical or food producers that received DPA funding are subject to CFIUS review and continue to be for a period of 60 months following the receipt of any DPA funding.

On October 5, 2021, BIS amendedthe Export Administration Regulations (EAR) to require licenses for the export of certain genomics software and tools that can be used for designing or manufacturing biological weapons. In doing so, BIS amended the Commerce Control List to add two new U.S. Export Control Classification Numbers (ECCNs) that target software utilized for certain nucleic acid assemblers and synthesizers capable of designing and building functional genetic elements from digital sequence data,as well as tools used to develop the software and assemblers.

More specifically, an export license for certain countries will be required for software determined to be within ECCN 2D352 based on chemical and biological weapons (CB) and anti-terrorism (AT) risks. Similarly, ECCN 2E001 will require an export license for certain countries for technology used for the development of software controlled by 2D352. In short, technology classified under ECCN 2E001 is controlled for the same CB and AT risks as ECCN 2D352 -- requiring an export license for designated countries.

Based on the foregoing, genomics software and development tools determined to be within ECCN 2D352 and 2E001 will also be considered critical technology under CFIUS. As a result, U.S. businesses that design, develop, or produce certain genomics software and development tools will be subject to CFIUS if they accept FDI.

The recent export re-classification of genomics software and development tools and the proposed FARM Act reinforce the need to be mindful of U.S. FDI requirements for transactions involving changes in foreign ownership, control or influence, and the need for early diligence as part of any transaction involving international investment.

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Further Expansion of U.S. Regulation of Foreign Direct Investment - JD Supra