European defense manufacturers are asking the Trump administration to clarify a new regulation that limits foreign investment in the United States for technologies deemed critical to national security, worried that a policy designed with China and Russia in mind could unintentionally penalize close U.S. allies.
The regulation, which went into effect Nov. 10 as part of a law known as the Foreign Investment Risk Review Modernization Act, or FIRRMA, gives the government more authority to review deals between U.S. and foreign companies for national security concerns. It is part of a broader Trump administration effort to wall off certain “critical” technologies from foreign governments that want to compete with the United States for global military dominance.
But the Treasury Department’s initial version of the rule refers to all “foreign persons,” leaving defense companies from allied countries wondering whether it will apply to them.
BAE Systems, a British defense contractor that sells land vehicles and ammunition to the U.S. military through its Arlington, Va.-based subsidiary, is worried the extra paperwork could make it hard to forge partnerships with U.S. defense manufacturers, possibly straining the close military partnership between the United States and Britain. A spokesman from the U.S. arm of Thales, a French aerospace company, asked the Treasury Department to avoid “unintended consequences” as it moves to more closely regulate foreign investment.
The U.S. Chamber of Commerce also weighed in, saying the department should ensure that the program does not become a deterrent to foreign investment.
It is “critical” that the investment program “avoid creating the perception that the United States no longer welcomes foreign investment,” wrote Chamber of Commerce Vice President Sean Heather.
The Treasury Department says the program is not “country specific” and has yet to offer public guidance on whether allied countries are exempt.
Even so, officials say it was developed with a focus on China. A senior administration official, speaking on the condition of anonymity to discuss the department’s internal deliberations, said recently that the program is intended to “deal with some of the significant threats to our national security from predatory investment policies, particularly in respect to China,” while also helping to expand the economy.
The Justice Department has sought to punish China for an extensive hacking campaign targeting U.S. companies’ trade secrets. And analysts say foreign governments are employing other forms of economic espionage, such as cutting favorable deals with U.S. companies to access their intellectual property.
“The broader concern is you have very aggressive actions by the Chinese and the Russians to get access to U.S. technologies by going into joint ventures with American start-ups that don’t understand the risks involved,” said Andrew Hunter, a former Defense Department official who is a senior fellow at the Center for Strategic and International Studies.
Evaluating such deals falls to a little-known government organization called the Committee on Foreign Investment in the United States, or CFIUS. The Treasury Department-led committee was founded in 1938 and has long been responsible for signing off on high-stakes mergers between U.S. and foreign companies.
But the committee has taken on a new significance in the Trump administration, which has employed the concept of “economic security” to justify wide-ranging intervention in the economy. The committee played a role in blocking a $117 billion hostile merger between the Singapore-based chipmaker Broadcom and Qualcomm, its U.S. counterpart. And it knocked down a 2017 acquisition of Lattice Semiconductor, another U.S. chipmaker, by a Chinese private-equity firm.
In the defense industry, where private-sector organizations develop advanced weapons technology and often work with classified data, joint ventures between U.S. and foreign companies are under a strict microscope.
BAE’s Arlington subsidiary is the U.S. military’s eighth-largest supplier, generating annual sales of $10 billion and employing about 30,000 people last year. It sells combat vehicles to the Army, repairs Navy ships at a shipyard it operates in Hawaii’s Pearl Harbor and has invested in futuristic weapons such as ship-mounted combat lasers. The company has been approved by the Committee on Foreign Investment to acquire U.S. companies on at least 25 occasions since 2000.
BAE Systems suggested in an Oct. 31 letter that “trusted allies” such as Britain, Japan, Germany, France, Canada, Switzerland and the Netherlands should be exempt from the program.
The rule “could place certain trusted industry partners like BAE at a serious disadvantage, thereby depriving the U.S. government of both the general benefits of competition and particular opportunities to leverage trusted foreign investments in critical technologies,” wrote BAE Systems general counsel Ian Graham.
Thales, the French company, praised the Treasury Department’s efforts to protect U.S. technologies while encouraging it to minimize the policy’s unintended side effects.
“Thales supports the intention of the FIRRMA pilot program to enhance [CFIUS] protections of U.S. technologies and is committed to working with the U.S. government to help strike the right regulatory balance,” Thales spokesman Adam Kostecki said in an email. “As this is a pilot program, we expect the U.S. government to actively evaluate the FIRRMA regulation to ensure that any final rule will not create unintended consequences or reduce competitiveness for allies who support the U.S. military.”
Jeanne Whalen contributed to this report.
Correction: An earlier version of this report incorrectly said Broadcom was based in San Diego. It is based in Singapore.