Provisions Pertaining to Certain Investments in the United States by Foreign Persons, 30893-30899 [2020-10034]

Agencies

• DEPARTMENT OF THE TREASURY
• Office of Investment Security

[Federal Register Volume 85, Number 99 (Thursday, May 21, 2020)]
[Proposed Rules]
[Pages 30893-30899]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2020-10034]


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DEPARTMENT OF THE TREASURY

Office of Investment Security

31 CFR Part 800

RIN 1505-AC68


Provisions Pertaining to Certain Investments in the United States 
by Foreign Persons

AGENCY: Office of Investment Security, Department of the Treasury.

ACTION: Proposed rule.

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SUMMARY: This proposed rule would modify certain provisions in the 
regulations of the Committee on Foreign Investment in the United States 
that implement section 721 of the Defense Production Act of 1950, as 
amended by the Foreign Investment Risk Review Modernization Act of 
2018. Specifically, this proposed rule would modify the mandatory 
declaration provision for certain foreign investment transactions 
involving a U.S. business that produces, designs, tests, manufactures, 
fabricates, or develops one or more critical technologies. It also 
makes clarifying amendments to the definition for the term 
``substantial interest.''

DATES: Written comments must be received by June 22, 2020.

ADDRESSES: Written comments on this proposed rule may be submitted 
through one of two methods:
     Electronic Submission: Comments may be submitted 
electronically through the Federal government eRulemaking portal at 
https://www.regulations.gov. Electronic submission of comments allows 
the commenter maximum time to prepare and submit a comment, ensures 
timely receipt, and enables the Department of the Treasury (Treasury 
Department) to make the comments available to the public. Please note 
that comments submitted through https://www.regulations.gov will be 
public, and can be viewed by members of the public.
     Mail: Send to U.S. Department of the Treasury, Attention: 
Meena R. Sharma, Deputy Director of Investment Security Policy and 
International Relations, 1500 Pennsylvania Avenue NW, Washington, DC 
20220.
    Please submit comments only and include your name and company name 
(if any), and cite ``Provisions Pertaining to Certain Investments in 
the United States by Foreign Persons'' in all correspondence. In 
general, the Treasury Department will post all comments to https://www.regulations.gov without change, including any business or personal 
information provided, such as names, addresses, email addresses, or 
telephone numbers. All comments received, including attachments and 
other supporting material, will be part of the public record and 
subject to public disclosure. You should only submit information that 
you wish to make publicly available.

FOR FURTHER INFORMATION CONTACT: For questions about this rule, 
contact: Laura Black, Director of Investment Security Policy and 
International Relations; Meena R. Sharma, Deputy Director of Investment 
Security Policy and International Relations; or Alexander Sevald, 
Senior Policy Advisor, at U.S. Department of the Treasury, 1500 
Pennsylvania Avenue NW, Washington, DC 20220; telephone: (202) 622-
3425; email: [email protected].

SUPPLEMENTARY INFORMATION: 

I. Background

A. The Statute

    On August 13, 2018, the Foreign Investment Risk Review 
Modernization Act of 2018 (FIRRMA), Subtitle A of Title XVII of Public 
Law 115-232, 132 Stat. 2173, was enacted. FIRRMA amends section 721 
(section 721) of the Defense Production Act of 1950, as amended (DPA), 
which delineates the authorities and jurisdiction of the

[[Page 30894]]

Committee on Foreign Investment in the United States (CFIUS or the 
Committee). Executive Order 13456, 73 FR 4677 (Jan. 23, 2008), directs 
the Secretary of the Treasury to issue regulations implementing section 
721. This proposed rule is being issued pursuant to that authority.
    FIRRMA maintains the Committee's jurisdiction over any transaction 
which could result in foreign control of any U.S. business, and 
broadens the authorities of the President and CFIUS under section 721 
to review and take action to address national security concerns arising 
from certain non-controlling investments and real estate transactions 
involving foreign persons. FIRRMA also modernizes CFIUS's processes to 
better enable timely and effective reviews of transactions falling 
under its jurisdiction, including by introducing the concept of a 
declaration--an abbreviated notification on which the Committee must 
take action under a 30-day assessment period--as an alternative to a 
voluntary notice, which had been the traditional means of filing a 
transaction with CFIUS.
    FIRRMA also continues the largely voluntary nature of the CFIUS 
process with respect to most transactions. However, notifying CFIUS of 
a transaction is mandatory in some circumstances. Specifically, FIRRMA 
authorizes CFIUS to mandate through regulations the submission of a 
declaration for covered transactions involving certain U.S. businesses 
that produce, design, test, manufacture, fabricate, or develop one or 
more critical technologies. Implementation of that authority is the 
primary subject of this proposed rule. FIRRMA also requires 
declarations for certain covered transactions where a foreign 
government has a ``substantial interest'' in a foreign person that will 
acquire a substantial interest in certain types of U.S. businesses. 
This proposed rule makes clarifying amendments with respect to the 
definition of substantial interest. In both cases of mandatory 
declarations, parties have the option of filing a notice rather than 
submitting a declaration if they so choose.

B. Existing Declaration Requirement for Certain Transactions Involving 
U.S. Businesses With Critical Technologies

    As background, on October 11, 2018, the Treasury Department 
published an interim rule that implemented--on a temporary basis as a 
pilot program--a declaration requirement for certain foreign investment 
transactions involving U.S. businesses with certain activities 
involving one or more critical technologies (Pilot Program Interim 
Rule). 83 FR 51322. Specifically, the Pilot Program Interim Rule made 
effective and implemented on November 10, 2018, a part of the 
Committee's jurisdiction over certain non-controlling investments, and 
established mandatory declarations for certain non-controlling 
investments in, and certain transactions that could result in control 
by a foreign person of, U.S. businesses that produce, design, test, 
manufacture, fabricate, or develop one or more critical technologies in 
connection with any of 27 industries identified by reference to the 
North American Industry Classification System (NAICS). The Pilot 
Program Interim Rule provided for a public comment period, and a number 
of comments were received. Additional comments on the scope of this 
mandatory declaration pilot program were received in connection with 
the notice of proposed rulemaking published on September 24, 2019, 
proposing amendments to 31 CFR part 800 to implement provisions of 
FIRRMA more broadly. 84 FR 50174. On January 17, 2020, the Treasury 
Department published a final rule at 85 FR 3112 (Part 800 Rule) 
amending 31 CFR part 800 to implement provisions of FIRRMA, and the 
final rule took effect on February 13, 2020. With respect to the 
mandatory declarations for critical technology transactions, the Part 
800 Rule largely incorporates the scope of the Pilot Program Interim 
Rule, which is based on whether a transaction involves certain U.S. 
businesses with specified activities involving critical technologies 
and a nexus to industries identified by NAICS codes. In response to 
public comments, and as described in more detail in the preamble to the 
Part 800 Rule, certain modifications were made in the Part 800 Rule. In 
particular, the Part 800 Rule exempts from the critical technology 
transaction declaration requirement (but not CFIUS jurisdiction) 
certain transactions involving excepted investors (as defined in the 
Part 800 Rule); entities subject to an agreement to mitigate foreign 
ownership, control, or influence pursuant to the National Industrial 
Security Program regulations; certain encryption technologies; and 
certain investment funds managed exclusively by, and ultimately 
controlled by, U.S. nationals. The Pilot Program Interim Rule continues 
to apply only to transactions falling within the scope of that rule and 
for which specified actions were taken on or after its effective date 
and prior to the effective date of the Part 800 Rule (i.e., from 
November 10, 2018, through February 12, 2020, as described in 31 CFR 
801.103). The scope of mandatory declarations for critical technology 
transactions in the Part 800 Rule will continue to apply until this 
rulemaking is finalized.

C. Proposed Rule Requiring Declarations for Certain Transactions 
Involving U.S. Businesses With Critical Technologies

    In further consideration of public comments submitted on the prior 
rulemakings discussed above, and as informed by the Committee's 
experience assessing mandatory declarations for certain transactions 
involving critical technologies for over a year, as well as other 
national security considerations, this proposed rule modifies the scope 
of the mandatory declaration provision for certain transactions 
involving critical technologies. Consistent with CFIUS processes 
generally, the proposed rule reflects extensive consultation with CFIUS 
member agencies and the conclusion that a provision continuing the 
implementation of mandatory declarations for transactions involving 
critical technologies furthers the protection of national security.
    The proposed rule revises the declaration requirement for certain 
critical technology transactions so that it is based on whether certain 
U.S. government authorizations would be required to export, re-export, 
transfer (in country), or retransfer the critical technology or 
technologies produced, designed, tested, manufactured, fabricated, or 
developed by the U.S. business to certain transaction parties and 
foreign persons in the ownership chain. The proposed rule removes the 
NAICS code criteria and the list of NAICS codes at appendix B to the 
Part 800 Rule. In focusing on export control requirements for the 
critical technologies, the proposed rule leverages the national 
security foundations of the established export control regimes, which 
require licensing or authorization in certain cases based on an 
analysis of the particular item and end user, and the particular 
foreign country for export, re-export, transfer (in country), or 
retransfer. To accomplish this, the proposed rule amends Sec.  800.104 
(applicability rule) and Sec.  800.401 (mandatory declarations) and 
introduces two new definitions: ``U.S. regulatory authorization'' and 
``voting interest for purposes of critical technology mandatory 
declarations.''
    The proposed rule does not modify the definition of ``critical 
technologies,'' which is defined by FIRRMA, and implemented at Sec.  
800.215 of the Part 800 Rule. This proposed rule instead prescribes the 
types of transactions

[[Page 30895]]

subject to mandatory declarations based on whether certain types of 
regulatory licenses or authorizations would be required for export and 
related activities involving the specific critical technology of the 
U.S. business. More broadly, consistent with FIRRMA and the Export 
Control Reform Act of 2018 (ECRA), CFIUS will continue its role in the 
process to identify emerging and foundational technologies as set forth 
in section 1758(a) of ECRA.

D. Clarifying Amendment to Definition of ``Substantial Interest'' at 
Sec.  800.244(b) and (c)

    The proposed rule also makes clarifying amendments to paragraphs 
(b) and (c) of the definition of substantial interest at Sec.  800.244 
of the Part 800 Rule, which establishes how to determine the percentage 
interest held indirectly by one entity in another for purposes of that 
term. In particular, the proposed rule clarifies that paragraph (b) 
applies only where a general partner, managing member, or equivalent 
primarily directs, controls, or coordinates the activities of the 
entity. It also removes the word ``voting'' before ``interest'' 
wherever it appears in paragraph (c) so that the calculation rule 
clearly applies to the calculation of ``voting interests'' as described 
in paragraph (a) and ``interests'' as described in paragraph (b) of 
that section.

II. Discussion of Proposed Rule

A. Subpart A--General Provisions

Section 800.104--Applicability Rule
    The proposed rule retains paragraph (c) to this section regarding 
the applicability period for transactions subject to the Pilot Program 
Interim Rule. The proposed rule adds paragraph (d) to clarify the 
applicability period of the provisions in the Part 800 Rule in light of 
the changes proposed in this rule. In particular, paragraph (d) limits 
the mandatory declaration provision in the Part 800 Rule to certain 
transactions involving critical technologies and for which specified 
actions (e.g., execution of a binding written agreement) took place 
between the Part 800 Rule's effectiveness (February 13, 2020) and the 
effective date of the rule finalizing this proposed rule. Additionally, 
the proposed rule adds paragraph (e) setting forth the effective date 
for the proposed amendments and the new defined terms discussed in this 
rule, which date will be determined by the time the final rule is 
published.
    For the avoidance of doubt, the result of the applicability rule 
with the proposed modification will be as follows. The Pilot Program 
Interim Rule will continue to apply to transactions for which specified 
actions occurred on or after November 10, 2018, and prior to February 
13, 2020, as specified in the regulations at 31 CFR 801.103. The 
existing critical technology mandatory declaration provision based on 
NAICS codes and published in the Part 800 Rule will apply to 
transactions for which specified actions occurred from February 13, 
2020, until the effective date of the rule finalizing this proposed 
rule, as specified in the proposed rule at Sec.  800.104(d). The 
modifications to the critical technology mandatory declaration 
provision discussed in this proposed rule would apply--once finalized--
starting on the effective date of the final rule, except for certain 
transactions for which specified actions occurred prior to the 
effective date of the final rule.

B. Subpart B--Definitions

    The proposed rule makes clarifying amendments to Sec.  800.244(b) 
and (c) and sets forth two new defined terms to be added to subpart B 
of part 800 as discussed below.
Section 800.244--Substantial Interest
    With respect to the definition of substantial interest, the 
proposed rule adds language to Sec.  800.244(b) to clarify that it 
applies only where the general partner, managing member, or equivalent 
primarily directs, controls, or coordinates the activities of the 
entity. It also removes three instances of the word ``voting'' from 
Sec.  800.244(c) in order to clarify that paragraph (c) applies not 
only to Sec.  800.244(a) but also to Sec.  800.244(b).
Section 800.254--U.S. Regulatory Authorization
    The proposed rule introduces the term and a definition of ``U.S. 
regulatory authorization'' to specify the types of regulatory licenses 
or authorizations that are required under the four main U.S. export 
control regimes, which if applicable in the context of a particular 
transaction described under the proposed rule, would trigger a 
mandatory declaration. With respect to the International Traffic in 
Arms Regulations (ITAR) administered by the Department of State, this 
includes licenses and other approvals (e.g., approved technical 
assistance agreements or manufacturing license agreements) required by 
the Directorate of Defense Trade Controls for defense articles or 
defense services on the United States Munitions List. With respect to 
the Export Administration Regulations (EAR) administered by the 
Department of Commerce, this includes licenses required for certain 
items on the Commerce Control List as identified in the Part 800 Rule 
at Sec.  800.215(b). With respect to the regulations administered by 
the Department of Energy at 10 CFR part 810, this includes specific or 
general authorizations required under such regulations, except the 
general authorization at 10 CFR 810.6(a) for the export of certain 
controlled nuclear technology to specified countries or entities. 
Finally, with respect to the regulations administered by the Nuclear 
Regulatory Commission at 10 CFR part 110, this includes any specific 
license required under such regulations.
Section 800.256--Voting Interest for Purposes of Critical Technology 
Mandatory Declarations
    The proposed rule introduces the term and provides a definition of 
``voting interest for purposes of critical technology mandatory 
declarations.'' This term is used in the proposed language at Sec.  
800.401(c)(1)(v) to specify which persons in the ownership chain of 
foreign persons described in paragraphs (c)(1)(i) to (iv) of that 
section should be analyzed for export licenses and authorization 
purposes in determining whether a particular transaction could trigger 
a mandatory declaration. In seeking to set clear criteria with respect 
to the foreign persons that need to be analyzed under this provision, 
the definition establishes a threshold of a 25 percent voting interest, 
direct or indirect. For entities whose activities are primarily 
directed, controlled, or coordinated by or on behalf of a general 
partner, managing member, or equivalent, the applicable threshold is a 
25 percent interest in an entity's general partner, managing member, or 
equivalent. For purposes of determining the percentage of interest held 
indirectly by one person in another, the rule establishes that any 
interest of a parent entity in a subsidiary entity will be deemed to be 
a 100 percent interest. This approach to determining the percentage of 
interest is consistent with the proposed amendments to the definition 
of substantial interest at Sec.  800.244(c), discussed above. Finally, 
the proposed rule specifies when the ownership interests of separate 
foreign persons will be aggregated for the purposes of Sec.  800.256.

C. Subpart D--Declarations

    The proposed rule modifies Sec.  800.401(c), (e)(6) and (j), and 
also removes appendix B to the Part 800 Rule, to re-scope the mandatory

[[Page 30896]]

declarations for transactions involving U.S. businesses with critical 
technologies. Thus, transaction parties would no longer need to 
consider whether the U.S. business produces, designs, tests, 
manufactures, fabricates, or develops a critical technology utilized in 
connection with the U.S. business' activity in, or designed by the U.S. 
business for use in, one or more industries identified by reference to 
NAICS codes. Instead, mandatory declarations apply only to the extent 
that the critical technologies that the U.S. business produces, 
designs, tests, manufactures, fabricates, or develops would require a 
U.S. regulatory authorization to export, re-export, transfer (in-
country), or retransfer to the foreign persons involved in the 
transaction or certain foreign persons in the ownership chain as 
specified in Sec.  800.401(c)(1)(i)-(v).
    The proposed language at Sec.  800.401(c)(2) further clarifies the 
analysis required under Sec.  800.401(c)(1). In particular, it makes 
clear that, except for certain EAR license exceptions specified at 
Sec.  800.401(e)(6), which are discussed below, 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. It also specifies how to analyze a foreign investor's 
nationality for purposes of this provision. Finally, in cases where the 
applicable U.S. regulatory authorization is tied to the ``end user'' 
status of the person receiving the critical technology, the proposed 
language at Sec.  800.401(c)(2)(iii) specifies that for purposes of 
this analysis, the foreign person(s) specified in Sec.  
800.401(c)(1)(i)-(v) should be considered the end user(s).
    The proposed rule retains the exceptions in the Part 800 Rule at 
Sec.  800.401(e)(1) to (5) and revises the exception at paragraph 
(e)(6). In particular, the proposed rule modifies the description of 
the EAR license exception for encryption commodities, software, and 
technology (ENC) to specify that only subpart (b) of EAR license 
exception ENC is relevant for purposes of the paragraph (e)(6) 
exception to mandatory declarations for critical technology 
transactions. The scope of that exception is narrowed in the proposed 
rule in order to provide clarity regarding the applicability of certain 
subparts of that exception in the context of mandatory declarations. It 
also adds two more license exceptions under the EAR to paragraph 
(e)(6): Technology and software-unrestricted (TSU) and certain elements 
of strategic trade authorization (STA). Note, however, that for any of 
the aforementioned license exceptions to relieve the declaration 
requirement with respect to a foreign person, such foreign person must 
in fact be eligible to utilize the license exception (including based 
on end user status, if relevant). These EAR license exceptions were 
selected for inclusion at paragraph (e)(6) based on national security 
considerations. CFIUS also notes that the restrictions on the use of 
all license exceptions found in 15 CFR 740.2 would apply and must also 
be considered.
    The proposed rule also updates the examples at Sec.  800.401(j) to 
reflect the aforementioned revisions to Sec.  800.401(c). No changes 
were made to Sec.  800.403 regarding procedures for declarations or to 
Sec.  800.404 regarding contents of declarations. Finally, for the 
avoidance of doubt, pursuant to FIRRMA, the mandatory declaration 
provision at Sec.  800.401(c) applies only to critical technology 
businesses under Sec.  800.248(a), not to businesses that are TID U.S. 
businesses solely under Sec.  800.248(b) or (c).

III. Rulemaking Requirements

Executive Order 12866

    These regulations are not subject to the general requirements of 
Executive Order 12866, which covers review of regulations by the Office 
of Information and Regulatory Affairs in the Office of Management and 
Budget (OMB), because they relate to a foreign affairs function of the 
United States, pursuant to section 3(d)(2) of that order. In addition, 
these regulations are not subject to review under section 6(b) of 
Executive Order 12866 pursuant to section 7(c) of the April 11, 2018, 
Memorandum of Agreement between the Treasury Department and OMB, which 
states that CFIUS regulations are not subject to OMB's standard 
centralized review process under Executive Order 12866.

Paperwork Reduction Act

    The collection of information contained in this notice of proposed 
rulemaking has previously been submitted to OMB for review in 
accordance with the Paperwork Reduction Act of 1995 (44 U.S.C. 3507(d), 
PRA), and approved under OMB Control Number 1505-0121. Under the PRA, 
an agency may not conduct or sponsor, and a person is not required to 
respond to, a collection of information unless it displays a valid OMB 
control number.

Regulatory Flexibility Act

    The Regulatory Flexibility Act (5 U.S.C. 601 et seq., RFA) 
generally requires an agency to prepare a regulatory flexibility 
analysis unless the agency certifies that the rule will not, once 
implemented, have a significant economic impact on a substantial number 
of small entities. The RFA applies whenever an agency is required to 
publish a general notice of proposed rulemaking under section 553(b) of 
the Administrative Procedure Act (5 U.S.C. 553, APA), or any other law. 
As set forth below, because regulations issued pursuant to the DPA, 
such as these regulations, are not subject to the APA or another law 
requiring the publication of a general notice of proposed rulemaking, 
the RFA does not apply.
    The proposed rule implements section 721 of the DPA. Section 709(a) 
of the DPA provides that the regulations issued under it are not 
subject to the rulemaking requirements of the APA. Section 709(b)(1) 
instead provides that any regulation issued under the DPA be published 
in the Federal Register and opportunity for public comment be provided 
for not less than 30 days. Section 709(b)(3) of the DPA also provides 
that all comments received during the public comment period be 
considered and the publication of the final regulation contain written 
responses to such comments. Consistent with the plain text of the DPA, 
legislative history confirms that Congress intended that regulations 
under the DPA be exempt from the notice and comment provisions of the 
APA and instead provided that the agency include a statement that 
interested parties were consulted in the formulation of the final 
regulation. See H.R. Conf. Rep. No. 102-1028, at 42 (1992) and H.R. 
Rep. No. 102-208 pt. 1, at 28 (1991). The limited public participation 
procedures described in the DPA do not require a general notice of 
proposed rulemaking as set forth in the RFA. Further, the mechanisms 
for publication and public participation are sufficiently different to 
distinguish the DPA procedures from a rule that requires a general 
notice of proposed rulemaking. In providing the President with expanded 
authority to suspend or prohibit the acquisition, merger, or takeover 
of, or certain other investments in, a U.S. business by a foreign 
person if such a transaction would threaten to impair the national 
security of the United States, Congress could not have contemplated 
that regulations implementing such authority would be subject to RFA 
analysis. For these

[[Page 30897]]

reasons, the RFA does not apply to these regulations.
    Regardless of whether the RFA applies, available data does not 
suggest that the proposed rule, if implemented, will have a significant 
economic impact on a substantial number of small entities. For purposes 
of the RFA, a ``small entity'' is (1) a proprietary firm meeting the 
size standards of the Small Business Administration (SBA); (2) a 
nonprofit organization that is not dominant in its field; or (3) a 
small government jurisdiction with a population of less than 50,000. 5 
U.S.C. 601(3)-(6). This proposed rule would affect certain U.S. 
businesses that have particular activities involving critical 
technologies and that receive foreign investment (direct or indirect) 
of the type described in the proposed rule. These U.S. businesses could 
be found across a range of industries. Accordingly, because SBA size 
standards are designated by industry, and not all U.S. businesses that 
constitute small entities within a particular industry will be 
affected, it is difficult to apply the SBA size standards to determine 
how many small entities will be affected by this proposed rule. 
Additionally, some of these U.S. businesses are already subject to a 
declaration requirement when they receive foreign investment (direct or 
indirect) under the existing Part 800 Rule.
    The Treasury Department considered the data on new foreign direct 
investment in the United States that is collected annually by the 
Bureau of Economic Analysis (BEA) within the Department of Commerce 
through its Survey of New Foreign Direct Investment in the United 
States (Form BE-13). While these data are self-reported, and include 
only direct investments in U.S. businesses in which the foreign person 
acquires at least 10 percent of the voting shares (and consequently, do 
not capture investments below 10 percent, which may nevertheless be 
covered transactions), they nonetheless provide relevant information on 
a category of U.S. businesses that receive foreign investment, some of 
which may be covered by the proposed rule.
    According to the BEA, in 2018, the most current year for which data 
is available, foreign persons obtained at least a 10 percent voting 
share in 832 U.S. businesses. See U.S. Bureau of Economic Analysis, 
``Number of Investments Initiated in 2018, Distribution of Planned 
Total Expenditures, Size by Type of Investment,'' available at https://apps.bea.gov/international/xls/Table15-14-15-16-17-18.xls (last visited 
May 6, 2020). The BEA reports only the general size of the investment 
transaction, not the type of the U.S. business involved, nor whether 
the U.S. business is considered a ``small business'' by the SBA. The 
smallest foreign investment transactions that the BEA reports are those 
with a dollar value below $50,000,000. While not all U.S. businesses 
receiving a foreign investment of less than $50,000,000 are considered 
``small'' for the purposes of the RFA, many might be, and the number of 
U.S. businesses receiving foreign investments of less than $50,000,000 
is the best available information to estimate the number of 
transactions involving small U.S. businesses that might be subject to 
CFIUS's jurisdiction and affected by the proposed rule.
    Of the above mentioned 832 U.S. businesses receiving foreign 
investment in 2018, 576 were involved in transactions valued at less 
than $50,000,000. Although this figure is under inclusive because it 
does not capture all transactions that could be subject to a filing 
requirement pursuant to the proposed rule, it also is over inclusive 
because it is not limited to any particular type of U.S. business. The 
Treasury Department believes the figure of 576 is the best estimate 
based on the available data of the number of small U.S. businesses that 
may be impacted by this proposed rule, although the Treasury Department 
recognizes the limitations of this estimate.
    Even if a substantial number of small entities were affected, the 
economic impact of the proposed rule on small U.S. businesses will not 
be significant. First, a portion of the U.S. businesses affected by the 
proposed rule are already subject to the existing declaration 
requirement under the Part 800 Rule. Second, the proposed rule replaces 
the analysis and nexus to NAICS codes with an analysis of export 
control authorization requirements. U.S. businesses with critical 
technologies are already aware, or should be aware, of the application 
of export controls to their items and regularly analyze export 
authorization requirements particularly when considering a foreign 
investment. The process of completing the declaration form under the 
proposed rule is no different from the existing Part 800 Rule. 
Accordingly, the proposed revisions to the Part 800 rule are not 
expected to change the general burden hour estimate for analyzing a 
transaction and preparing a declaration.
    For the reasons stated above, the Secretary of the Treasury 
certifies that the proposed rule, if implemented, will not have a 
``significant economic impact on a substantial number of small 
entities.'' 5 U.S.C. 605(b). Nevertheless, the Treasury Department is 
interested in any comments on how the proposed rule would affect small 
entities.

List of Subjects in 31 CFR Part 800

    Foreign investments in the United States, Investigations, 
Investments, Investment companies, National defense, Reporting and 
Recordkeeping requirements.

    For the reasons set forth in the preamble, the Treasury Department 
proposes to amend part 800 of title 31 of the Code of Federal 
Regulations, to read as follows:

PART 800--REGULATIONS PERTAINING TO CERTAIN INVESTMENTS IN THE 
UNITED STATES BY FOREIGN PERSONS

0
1. The authority citation for part 800 continues to read:

    Authority:  50 U.S.C. 4565; E.O. 11858, as amended, 73 FR 4677.

Subpart A--General Provisions

0
2. Amend Sec.  800.104 by revising paragraph (a) and adding paragraphs 
(d) and (e) to read as follows:


Sec.  800.104  Applicability Rule.

    (a) Except as provided in paragraphs (b) through (e) of this 
section and otherwise in this part, the regulations in this part apply 
from February 13, 2020.
* * * * *
    (d) Subject to paragraphs (b) and (c) of this section, for any 
transaction for which the following has occurred on or after February 
13, 2020, and before [EFFECTIVE DATE OF FINAL RULE], the corresponding 
provisions of the regulations in this part that were in effect during 
that time will apply:
    (1) The completion date;
    (2) The parties to the transaction have executed a binding written 
agreement, or other binding document, establishing the material terms 
of the transaction;
    (3) A party has made a public offer to shareholders to buy shares 
of a U.S. business; or
    (4) A shareholder has solicited proxies in connection with an 
election of the board of directors of a U.S. business or an owner or 
holder of a contingent equity interest has requested the conversion of 
the contingent equity interest.
    (e) Except as provided in paragraphs (b) through (d) of this 
section, the amendments to this part published in the Federal Register 
on [DATE OF PUBLICATION OF FINAL RULE] apply

[[Page 30898]]

from [EFFECTIVE DATE OF FINAL RULE].

Subpart B--Definitions

0
3. Amend Sec.  800.244 by revising paragraphs (b) and (c) to read as 
follows:


Sec.  800.244  Substantial interest.

* * * * *
    (b) In the case of an entity whose activities are primarily 
directed, controlled, or coordinated by or on behalf of a general 
partner, managing member, or equivalent, the national or subnational 
governments of a single foreign state will be considered to have a 
substantial interest in such entity only if they hold 49 percent or 
more of the interest in the general partner, managing member, or 
equivalent of the entity.
    (c) For purposes of determining the percentage of interest held 
indirectly by one entity in another entity under this section, any 
interest of a parent will be deemed to be a 100 percent interest in any 
entity of which it is a parent.
* * * * *
0
4. Redesignate Sec.  800.254 as Sec.  800.255 and add a new Sec.  
800.254 to read as follows:


Sec.  800.254  U.S. regulatory authorization.

    The term U.S. regulatory authorization means:
    (a) A license or other approval issued by the Department of State 
under the ITAR;
    (b) A license from the Department of Commerce under the EAR;
    (c) A specific or general authorization from the Department of 
Energy under the regulations governing assistance to foreign atomic 
energy activities at 10 CFR part 810 other than the general 
authorization described in 10 CFR 810.6(a); or
    (d) A specific license from the Nuclear Regulatory Commission under 
the regulations governing the export or import of nuclear equipment and 
material at 10 CFR part 110.
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5. Add Sec.  800.256 to read as follows:


Sec.  800.256  Voting interest for purposes of critical technology 
mandatory declarations.

    (a) The term voting interest for purposes of critical technology 
mandatory declarations means, in the context of an interest in a 
foreign person for the purposes of Sec.  800.401(c)(1)(v), a voting 
interest, direct or indirect, of 25 percent or more, subject to 
paragraphs (b) and (c) of this section.
    (b) In the case of a foreign person that is an entity whose 
activities are primarily directed, controlled, or coordinated by or on 
behalf of a general partner, managing member, or equivalent, a foreign 
person will be considered to have a voting interest for purposes of 
critical technology mandatory declarations in such entity only if it 
holds 25 percent or more of the interest in the general partner, 
managing member, or equivalent of the entity.
    (c) For purposes of determining the percentage of voting interest 
for purposes of critical technology mandatory declarations held 
indirectly by one person in another, any interest of a parent will be 
deemed to be a 100 percent interest in any entity of which it is a 
parent.
    (d) For purposes of Sec.  800.401(c)(1)(v), foreign persons who are 
related, have formal or informal arrangements to act in concert, or are 
agencies or instrumentalities of, or controlled by, the national or 
subnational governments of a single foreign state are considered part 
of a group of foreign persons and their individual holdings are 
aggregated.

Subpart D--Declarations

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7. Amend Sec.  800.401 by revising paragraphs (c), (e)(6), and (j) to 
read as follows:


Sec.  800.401  Mandatory declarations.

* * * * *
    (c)(1) A covered transaction involving a TID U.S. business that 
produces, designs, tests, manufactures, fabricates, or develops one or 
more critical technologies for which a 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 that is a 
party to the covered transaction and such foreign person:
    (i) Could directly control such TID U.S. business as a result of 
the covered transaction;
    (ii) Is directly acquiring an interest that is a covered investment 
in such TID U.S. business;
    (iii) Has a direct investment in such TID U.S. business, the rights 
of such foreign person with respect to such TID U.S. business are 
changing, and such change in rights could result in a covered control 
transaction or a covered investment;
    (iv) Is a party to any transaction, transfer, agreement, or 
arrangement described in Sec.  800.213(d) with respect to such TID U.S. 
business; or
    (v) Individually holds, or is part of a group of foreign persons 
that, in the aggregate, holds, a voting interest for purposes of 
critical technology mandatory declarations in a foreign person 
described in paragraphs (c)(1)(i) through (iv) of this section.
    (2) For purposes of paragraph (c)(1) of this section, whether a 
U.S. regulatory authorization would be required for the export, re-
export, transfer (in-country), or retransfer of a critical technology 
to a foreign person described in paragraphs (c)(1)(i) through (v) of 
this section shall be determined:
    (i) Without giving effect to any license exemption available under 
the ITAR or license exception available under the EAR except as 
described paragraph in (e)(6) of this section;
    (ii) Based on such foreign person's principal place of business 
(for entities) as defined in Sec.  800.239, or such foreign person's 
nationality or nationalities (for individuals) under the relevant U.S. 
regulatory authorization, as applicable; and
    (iii) As if such foreign person is an ``end user'' under the 
applicable U.S. regulatory authorization, as applicable.
* * * * *
    (e) * * *
    (6) A covered transaction that requires one or more U.S. regulatory 
authorizations and each of which is satisfied by the foreign person's 
eligibility for a license exception under the EAR at 15 CFR 740.13, 
740.17(b), or 740.20(c)(1), as applicable.
* * * * *
    (j) Examples:
    (1) Example 1. Corporation A, an entity located in Country F with 
75 percent of its voting interest owned by nationals of Country F, 
acquires 100 percent of the interests of Corporation Y, a U.S. business 
that manufactures a critical technology controlled under the EAR. A 
national of Country G owns 25 percent of the voting shares of 
Corporation A. Under the EAR, a license is required to export the 
critical technology to Country G but not Country F. Assuming no other 
relevant facts, the acquisition of Corporation Y is subject to a 
mandatory declaration.
    (2) Example 2. Corporation B, an entity with its principal place of 
business in Country G and wholly owned by nationals of Country G, makes 
a covered investment in Corporation Z, a U.S. business that designs a 
critical technology controlled under the EAR. Under the EAR, a license 
is required to export the critical technology to Country G. The license 
exception at 15 CFR 740.4 authorizes Corporation B to export the 
critical technology to Country G without a license. Assuming no other 
relevant facts, the covered investment is subject to a mandatory 
declaration.
    (3) Example 3. Same facts as the example in paragraph (j)(2) of 
this section, except that the license exception at 15 CFR 740.20(c)(1) 
authorizes Corporation B to export the critical technology to Country G 
without

[[Page 30899]]

a license. Assuming no other relevant facts, the covered investment is 
not subject to a mandatory declaration.
    (4) Example 4. Corporation D, a foreign entity with its principal 
place of business in Country M with 30 percent of its voting shares 
owned by nationals of Country M, acquires 100 percent of Corporation R, 
a U.S. business that designs multiple types of critical technology 
controlled under the EAR and the ITAR. Corporation R manufactures one 
critical technology that is described on the U.S. Munitions List and 
requires a license for export to Country M. The remainder of 
Corporation R's critical technology is controlled under the EAR and 
does not require a license for export to Country M. Assuming no other 
relevant facts, Corporation D's acquisition of Corporation R is subject 
to a mandatory declaration.
    (5) Example 5. Corporation A, an entity with its principal place of 
business in Country F with 35 percent of its voting shares owned by 
nationals of Country F, acquires 100 percent of Corporation Y, a U.S. 
business that manufactures an item controlled under the ITAR. An ITAR 
authorization is required to export the item to Corporation A in 
Country F, but under the ITAR, Corporation Y is authorized under an 
exemption to export the controlled article to Corporation A in Country 
F. Assuming no other relevant facts, Corporation A's acquisition of 
Corporation Y is subject to a mandatory declaration.

Appendix B to Part 800--[Removed]

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8. Remove appendix B to part 800.
* * * * *

    Dated: May 6, 2020.
Thomas Feddo,
Assistant Secretary for Investment Security.
[FR Doc. 2020-10034 Filed 5-20-20; 8:45 am]
BILLING CODE 4810-25-P