Authors: Tom Shoesmith, Matthew Dickerson, QU Surui  King & Wood Mallesons











On May 21, 2020, the Department of the Treasury published a proposed rule (the “Proposed Rule”) which would modify certain provisions in the regulations of the Committee on Foreign Investment in the United States (“CFIUS”). The text of the Proposed Rule can be downloaded via the QR code attached at the end of the article. The Proposed Rule replaces the “27 industries” requirement with a new focus on export licenses.

Currently, CFIUS regulations require mandatory notification of a proposed transaction if it results in foreign control of, or certain foreign access or information rights in, certain U.S. businesses that:

(a) produce, design, test, manufacture, fabricate, or develop one or more critical technologies; and

(b) such critical technologies are either utilized by, or designed specifically for use in, one or more of 27 named industries, identified by their North American Industry Classification (“NAICS”) code.

Under the Proposed Rule, the CFIUS regulations would no longer consider nexus to an NAICS code industry in part (b) above. Instead, part (b) would be replaced with a determination of whether any “U.S. regulatory authorization” would be required for the export, re-export, transfer (in country) or retransfer of such critical technology to a foreign person (as if they were an “end user”) who is a party to the transaction, where that foreign person: (i) could directly control, or obtain certain access or information rights in, the U.S. business as a result of the transaction (such person, a “Foreign Investor”); or (ii) when combined with other foreign persons with whom it has group or certain other affiliations with, holds a 25% or more direct or indirect voting interest in a Foreign Investor.

The phrase “U.S. regulatory authorization” is a newly defined term, and includes any license or other approval issued by the Department of State under the International Traffic in Arms Regulations (“ITAR”), the Department of Commerce under the Export Administration Regulations (the “EAR”), any specific or general authorization from the Department of Energy under foreign atomic energy regulations, or any specific license from the Nuclear Regulatory Commission. The Proposed Rule makes clear that, except for some limited EAR license exceptions, a U.S. regulatory authorization is considered to be required even though a license exception or exemption may be available under the EAR or ITAR, respectively.

CFIUS has long signalled this change was coming, perhaps as part of a convergence of foreign investment and export regulations. The “27 industries” concept was a legacy of the “Pilot Program” established in late 2018, and the new approach leverages the established U.S. export control regimes and in particular, the EAR, which may be more familiar to the international business community. CFIUS acknowledges that the change is unlikely to have a significant impact on the number of mandatory declarations filed.

The Proposed Rule does not modify the definition of “critical technologies”. The Proposed Rule is not yet law. The Department of the Treasury invites public comment on the Proposed Rule, which is open until June 22, 2020.

The 60-second takeaway is that CFIUS is proposing to revise the mandatory declaration requirement regarding critical technology away from one based upon NAICS codes to one based upon export control licensing requirements.


Tom Shoesmith, 硅谷办公室 | +1 (650) 888-2611

Matthew Dickerson, 纽约办公室 | +1 (917) 460-6834