Provisions Pertaining to Certain Investments in the United States by Foreign Persons, 57124-57129 [2020-18454]

Agencies

• DEPARTMENT OF THE TREASURY
• Office of Investment Security

[Federal Register Volume 85, Number 179 (Tuesday, September 15, 2020)]
[Rules and Regulations]
[Pages 57124-57129]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2020-18454]


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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: Final rule.

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SUMMARY: This final rule modifies 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, the rule modifies 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 amendments to the definition 
of the term ``substantial interest'' and a related provision, and makes 
one technical revision.

DATES: 
    Effective date: The final rule is effective on October 15, 2020.
    Applicability date: See Sec.  800.104.

FOR FURTHER INFORMATION CONTACT: For questions about this rule, 
contact: Meena R. Sharma, Deputy Director of Investment Security Policy 
and International Relations; or David Shogren, 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

    On May 21, 2020, the Department of the Treasury (Treasury 
Department) published a notice of proposed rulemaking amending certain 
provisions in 31 CFR part 800 (Part 800). 85 FR 30893. (The Office of 
the Federal Register made the proposed rule available for public 
inspection on May 20, 2020.) Public comments on the proposed rule were 
due by June 22, 2020, and are discussed below.
    The proposed rule made revisions to the requirement to submit 
declarations to the Committee on Foreign Investment in the United 
States (CFIUS or the Committee) for certain critical technology 
transactions. This declaration requirement in Part 800 implements 
section 1706 of the Foreign Investment Risk Review Modernization Act of 
2018 (FIRRMA), which amends section 721 of the Defense Production Act 
of 1950 (DPA) to authorize 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.
    The proposed rule made modifications to the scope of the mandatory 
declaration provision in Part 800--primarily reorienting it from one 
based on a nexus to certain industries to one based on whether certain 
U.S. government authorizations would be required to export, reexport, 
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. To accomplish this, the 
proposed rule amended Sec.  800.104 (applicability rule) and Sec.  
800.401 (mandatory declarations); introduced two new definitions: 
``U.S. regulatory authorization'' and ``voting interest for purposes of 
critical technology mandatory declarations;'' and removed the North 
American Industry Classification System (NAICS) codes at appendix B to 
Part 800. The proposed rule also made amendments to the definition of 
``substantial interest'' at Sec.  800.244 of Part 800.
    Further explanation of FIRRMA and the proposed rule can be found at 
85 FR 30893; changes to the proposed rule are explained in further 
detail below.

[[Page 57125]]

II. Overview of Comments on the Proposed Rule

    During the public comment period, the Treasury Department received 
written submissions on the proposed rule. All comments received by the 
end of the comment period are available on the public rulemaking docket 
at https://www.regulations.gov.
    The Treasury Department considered each comment submitted on the 
proposed rule and made certain revisions in this rule in response to 
comments. The Treasury Department recognizes the vital importance of 
foreign investment to the U.S. economy, including for businesses that 
are involved in critical technologies. The Treasury Department drafted 
the proposed rule, and made revisions in issuing this rule, taking into 
consideration various factors including national security 
considerations, the effect on foreign investment, and the effect on 
small business concerns.
    Overall, the commenters were generally supportive of the proposed 
rule. Some of the commenters suggested revisions or clarification, and 
the section-by-section analysis below includes responses to these 
comments. Further edits were made to the rule for consistency and 
clarity, and one technical revision was made.

III. Summary of Comments and Changes From the Proposed Rule

A. Subpart A--General Provisions

Section 800.104--Applicability Rule
    While no comments were made specifically on the applicability rule, 
for the avoidance of doubt, the operation of the applicability rule 
will be the same as detailed in the proposed rule. That is, the interim 
rule at 83 FR 51322 (Oct. 11, 2018) implementing a pilot program 
requiring declarations for certain critical technology transactions 
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 critical 
technology mandatory declaration provision based on NAICS codes and 
published as part of the final rule for Part 800 at 85 FR 3112 (Jan. 
17, 2020) will apply to transactions for which specified actions 
occurred on or after February 13, 2020, and prior to October 15, 2020, 
as specified at Sec.  800.104(d) of this rule. Finally, the 
modifications to the critical technology mandatory declaration 
provision discussed in this rule apply starting on October 15, 2020, 
except for certain transactions for which specified actions occurred 
prior to that date.

B. Subpart B--Definitions

Section 800.213--Covered Transaction
    The rule makes a technical revision to example 2 in paragraph (e).
Section 800.244--Substantial Interest
    Section 800.244 in Part 800 sets forth how to determine the 
percentage interest held indirectly by one entity in another for 
purposes of whether a foreign person obtains a ``substantial interest'' 
in a U.S. business where a foreign government in turn holds a 
``substantial interest'' in the foreign person. This definition forms 
the basis for the declaration requirement 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. The proposed rule clarified that Sec.  
800.244(b) applies only where the general partner, managing member, or 
equivalent primarily directs, controls, or coordinates the activities 
of the entity. The proposed rule also removed three instances of the 
word ``voting'' from Sec.  800.244(c) in order to clarify that the 
calculation rule applies to the calculation of ``voting interests'' as 
described in paragraph (a) and ``interests'' as described in paragraph 
(b) of that section.
    One commenter suggested that the current definition at Sec.  
800.244(b) be retained and not be revised to include the language, 
``primarily directed, controlled, or coordinated by or on behalf of a 
general partner, managing member, or equivalent,'' from the proposed 
rule. The commenter explained that there are situations where it is not 
clear whether a fund would be deemed to be ``primarily directed'' by 
the general partner. The commenter also expressed concern about the 
inclusion of the same phrase in Sec.  800.256(b). Another commenter 
requested clarification of the application of Sec.  800.244(b) where a 
third party controls and coordinates the activities of an entity on 
behalf of the general partner.
    No changes were made in response to these comments. The substantial 
interest analysis as revised in the proposed rule at Sec.  800.244(b) 
is appropriately focused on the interest held in the general partner, 
managing member, or equivalent when such general partner, managing 
member, or equivalent primarily directs, controls, or coordinates the 
activities of the entity rather than in all cases where an entity 
simply has a general partner, managing member, or equivalent. The 
Treasury Department expects that when analyzing the specific 
relationship between a general partner and an entity, it will generally 
be clear to the parties whether the general partner primarily directs, 
controls, or coordinates the activities of the entity. In a situation 
where a third party controls and coordinates the activities of an 
entity on behalf of the general partner, the general partner does not 
cease to primarily direct, control, or coordinate the activities of the 
entity simply by contracting a third party to perform such services.
Section 800.254--U.S. Regulatory Authorization
    Consistent with the proposed rule, the new defined term at Sec.  
800.254 specifies 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 rule, trigger a mandatory declaration.
Section 800.256--Voting Interest for Purposes of Critical Technology 
Mandatory Declarations
    The proposed rule introduced a new defined term at Sec.  800.256 
that specified which persons in the ownership chain of the persons 
described in Sec.  800.401(c)(1)(i)-(iv) should be analyzed for export 
licenses and authorization purposes in determining whether a particular 
transaction could trigger a mandatory declaration.
    One commenter suggested raising the applicable voting interest 
threshold from 25 percent to 50 percent. No change was made in response 
to this comment. A threshold of 50 percent could exclude interest 
holders that could wield significant influence over the U.S. business, 
including with respect to its critical technologies. The Treasury 
Department concluded that a threshold of 25 percent is appropriate and 
sets a clear criterion with respect to the persons that need to be 
analyzed under this provision.
    The rule makes clarifying edits, including omitting the extraneous 
language ``foreign'' before ``person'' in several instances, to 
maintain the intended meaning of the text.

C. Subpart D--Declarations

    The proposed rule revised the mandatory declaration provision for 
transactions involving U.S. businesses with critical technologies so 
that it applies only to the extent that a U.S. regulatory authorization 
would be

[[Page 57126]]

required to export, reexport, transfer (in-country), or retransfer the 
U.S. business's critical technologies to the foreign persons involved 
in the transaction or certain foreign persons in the ownership chain.
    Several commenters noted the language referencing a ``party to the 
transaction'' in the proposed rule at Sec.  800.401(c)(1) and 
questioned whether the intent was to include persons acquiring an 
indirect ownership interest in the U.S. business. In order to clarify 
the operation of this provision, the rule revises Sec.  800.401(c)(1) 
to refer to ``a person'' that meets the criteria of 800.401(c)(1)(i)-
(v), which includes direct and indirect ownership interests. The rule 
also omits the extraneous language ``foreign'' before ``person'' in 
several instances in paragraph (c) to maintain the intended meaning of 
the text. The Treasury Department notes that the term ``foreign 
person'' is defined at Sec.  800.224 and the main U.S. export control 
regimes also define foreign person within their respective regulations. 
For avoidance of doubt, for purposes of evaluating whether certain U.S. 
government authorizations would be required to export, reexport, 
transfer (in-country), or retransfer a critical technology to a 
relevant ``person'' in an ownership chain, parties should consider 
whether such (hypothetical) export activity would require a U.S. 
regulatory authorization under the relevant U.S. export control regime.
    One commenter discussed the reference to a ``group of foreign 
persons'' in Sec.  800.401(c)(1)(v) and whether it was limited to the 
description in Sec.  800.256(d). The Treasury Department notes that the 
proposed rule included a cross-reference to Sec.  800.401(c)(1)(v) 
within Sec.  800.256(d). Nevertheless, in the interest of clarity, the 
rule adds a cross-reference to Sec.  800.256(d) in Sec.  
800.401(c)(1)(v) as well.
    One commenter suggested that the mandatory declaration requirement 
be assessed as of the time the parties reach a binding agreement, 
rather than upon the closing of the transaction, given the potential 
for immediately effective changes to the export control regulations. 
The Treasury Department expects that in most circumstances, parties can 
reasonably anticipate if a transaction will meet the criteria of Sec.  
800.401(c) based on whether there is one or more critical technologies 
upon closing. Nevertheless, in response to the comment and 
acknowledging circumstances that may be reasonably outside the control 
of parties, the rule includes a new subparagraph (3) providing that for 
purposes of whether a declaration is mandatory under Sec.  800.401(c), 
what constitutes a ``critical technology'' shall be assessed as of the 
earliest date of any of the conditions set forth in Sec.  
800.104(b)(1)-(4). An example of the application of Sec.  800.401(c)(3) 
was added at Sec.  800.401(j)(6). The rule similarly modifies paragraph 
(b) of Sec.  800.401, creating a new subparagraph (b)(1) and adding new 
subparagraph (b)(2) providing that, for purposes of whether a 
substantial interest transaction involves a TID U.S. business under 
Sec.  800.248(a), the determination of what constitutes a critical 
technology shall be assessed as of the earliest date of any of the 
conditions set forth in Sec.  800.104(b)(1)-(4).
    One commenter suggested clarifying that the persons referred to in 
Sec.  800.401(c)(1)(i)-(v) must be the same persons that are eligible 
for the Export Administration Regulations (EAR) license exceptions 
described in Sec.  800.401(e)(6). Clarifying revisions have been made 
to the rule to address this comment.
    Several commenters requested clarification on what it means to be 
``eligible'' for the EAR license exceptions specified in Sec.  
800.401(e)(6). In particular, commenters questioned whether parties 
were required to satisfy the procedural requirements set forth in 15 
CFR 740.17(b) in order to be considered ``eligible'' for the EAR 
license exception for encryption commodities, software, and technology 
(ENC) and thus exempt from the mandatory declaration provision under 
Sec.  800.401(e)(6). The rule includes revisions and an explanatory 
note indicating that for purposes of the CFIUS exception to the 
mandatory declaration provision at paragraph (e)(6), ``eligibility'' 
for an EAR license exception refers to having satisfied any 
requirements imposed by the EAR that must be satisfied prior to export 
(even if no export is to occur). For example, under EAR license 
exception ENC at 15 CFR 740.17(b)(1), a person may self-classify 
certain encryption items, and that self-classification is sufficient 
for an item to be eligible for that license exception. As a result, if 
the U.S. business's only critical technologies are items self-
classified pursuant to 15 CFR 740.17(b)(1), a CFIUS declaration under 
paragraph (c) of Sec.  800.401 would not be required (assuming other 
requirements of the license exception are met with respect to the 
person to which the hypothetical export would be made). Note that under 
license exception ENC at 15 CFR 740.17(b)(2) and (b)(3), a party must 
submit a classification request to the Commerce Department's Bureau of 
Industry and Security in order to be eligible for the EAR license 
exception; therefore, the CFIUS exception to the mandatory filing 
requirement would not apply unless a classification request is 
submitted in accordance with the procedures set out in 15 CFR 
740.17(b)(2) and (b)(3), including that 30 days have elapsed since the 
submission of the classification request to BIS. By contrast, the 
reporting requirements at 15 CFR 740.17(e) are not a condition of 
eligibility--that is, parties availing themselves of the mandatory 
declaration exception in the CFIUS rule based on eligibility for EAR 
license exception ENC do not need to submit semiannual reporting to BIS 
for purposes of this aspect of the CFIUS regulations. (Though if there 
is a qualifying export under the EAR, parties would need to satisfy all 
applicable conditions of the license exception in order to comply with 
the EAR.) The same is true with respect to the recordkeeping 
requirements under the EAR license exception for technology and 
software-unrestricted (TSU) at 15 CFR 740.13(h) and the requirement to 
furnish certain commodity classifications to third parties under the 
EAR license exception for strategic trade authorization (STA) at 
740.20(d)--satisfying these aspects of the license exceptions are not a 
condition of eligibility for purposes of the CFIUS regulations. The 
Treasury Department has determined that this clarity with respect to 
eligibility for a license exception under the CFIUS regulations will 
help parties evaluate whether to submit a mandatory declaration to 
CFIUS or comply with the eligibility requirements under the relevant 
EAR license exception and hence be excepted from the CFIUS declaration 
requirement.
    Additionally, the Treasury Department notes that certain end users, 
such as entities listed in Supplement No. 4 to Part 744 of the EAR, are 
subject to license requirements, limitations on availability of license 
exceptions, and license application review policies that are in 
addition to those set forth elsewhere in the EAR.
    This rule also makes clarifying edits to the examples in paragraph 
(j).
    Finally, for the avoidance of doubt, in accordance with FIRRMA, the 
mandatory declaration provision at Sec.  800.401(c) applies only to 
U.S. 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).

[[Page 57127]]

IV. Rulemaking Requirements

Executive Order 12866

    This rule is not subject to the general requirements of Executive 
Order 12866, which covers review of regulations by the Office of 
Information and Regulatory Affairs (OIRA) in the Office of Management 
and Budget (OMB), because it relates to a foreign affairs function of 
the United States, pursuant to section 3(d)(2) of that order. In 
addition, this rule is 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 rule has previously 
been submitted to OMB for review in accordance with the Paperwork 
Reduction Act of 1995 (44 U.S.C. 3507(d)), and approved under OMB 
Control Number 1505-0121. 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 in the preamble to the proposed rule at Section III, 
because rules issued pursuant to the DPA, such as this rule, are not 
subject to the APA or another law requiring the publication of a 
general notice of proposed rulemaking, the RFA does not apply.
    Regardless of whether the RFA applies, available data does not 
suggest that the rule 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 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 
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 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 CFIUS regulations.
    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 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 
August 18, 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 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 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 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 rule on small U.S. businesses will not be 
significant. First, a portion of the U.S. businesses affected by the 
rule are already subject to the existing declaration requirement under 
the existing CFIUS regulations. Second, the 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 rule is no 
different from the existing CFIUS regulations. Accordingly, the 
revisions in this 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 rule will not have a significant economic impact on a 
substantial number of small entities.
    The Treasury Department invited public comment on how the proposed 
rule would affect small entities, but received none.

Congressional Review Act

    This rule has been submitted to OIRA, which has determined that the 
rule is not a ``major'' rule under the Congressional Review Act.

List of Subjects in 31 CFR Part 800

    Foreign investments in the U.S., Investigations, Investments, 
Investment companies, National defense, Reporting and recordkeeping 
requirements.

[[Page 57128]]

    For the reasons set forth in the preamble, the Treasury Department 
amends part 800 of title 31 of the Code of Federal Regulations 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 October 15, 2020, 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 September 15, 2020 apply from October 15, 2020.

Subpart B--Definitions


Sec.  800.213   [Amended]

0
3. Amend Sec.  800.213 in paragraph (e)(2) in the next to last sentence 
after the word ``provides'' by removing ``Corporation X'' and adding in 
its place ``Corporation A''.

0
4. 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.
* * * * *


Sec.  800.254   [Redesignated as Sec.  800.255]

0
5. 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.

0
6. 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, 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 an entity whose activities are primarily 
directed, controlled, or coordinated by or on behalf of a general 
partner, managing member, or equivalent, a 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

0
7. Amend Sec.  800.401 by revising paragraphs (b), (c), and (e)(6) and 
adding paragraphs (j)(4) through (6) to read as follows:


Sec.  800.401   Mandatory declarations.

* * * * *
    (b)(1) Subject to paragraph (b)(2) of this section, a covered 
transaction that results in the acquisition of a substantial interest 
in a TID U.S. business by a foreign person in which the national or 
subnational governments of a single foreign state (other than an 
excepted foreign state) have a substantial interest.
    (2) For purposes of paragraph (b)(1) of this section, the 
assessment of what constitutes a critical technology, as relevant to 
Sec.  800.248(a), shall be as of the first date on which one of the 
conditions set forth in Sec.  800.104(b)(1) through (4) is met with 
respect to a covered transaction.
    (c)(1) Subject to paragraph (c)(3) of this section, 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, reexport, transfer (in-country), or retransfer 
of such critical technology to a person that:
    (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 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 as described in Sec.  800.256(d) is part 
of a group of

[[Page 57129]]

foreign persons that, in the aggregate, holds, a voting interest for 
purposes of critical technology mandatory declarations in a 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, 
reexport, transfer (in-country), or retransfer of a critical technology 
to a 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 person's principal place of business (for 
entities) as defined in Sec.  800.239, or such person's nationality or 
nationalities (for individuals) under the relevant U.S. regulatory 
authorization, as applicable; and
    (iii) As if such person is an ``end user'' under the relevant U.S. 
regulatory authorization, as applicable.
    (3) For purposes of paragraph (c)(1) of this section, the 
assessment of what constitutes a critical technology shall be as of the 
first date on which one of the conditions set forth in Sec.  
800.104(b)(1) through (4) is met with respect to a covered transaction. 
(See the example in paragraph (j)(6) of this section.)
* * * * *
    (e) * * *
    (6) A covered transaction described in paragraph (c)(1) of this 
section involving critical technology for which the export, reexport, 
transfer (in-country), or retransfer to any of the persons described in 
paragraphs (c)(1)(i) through (v) of this section would require one or 
more U.S. regulatory authorizations and each such critical technology 
and person, considered as if in the context of an export, reexport, or 
transfer, is eligible for at least one of the following license 
exceptions under the EAR, as applicable:
    (i) 15 CFR 740.13;
    (ii) 15 CFR 740.17(b); or
    (iii) 15 CFR 740.20(c)(1).

    Note 1 to Sec.  800.401(e)(6): To be ``eligible'' for a license 
exception refers to any requirements imposed by the EAR that must be 
satisfied prior to export even if no export is to occur.

* * * * *
    (j) * * *
    (4) Example 4. Corporation A, a foreign entity with its principal 
place of business in 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 foreign 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.
    (5) Example 5. Corporation B, a foreign entity with its principal 
place of business in 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 Z 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.
    (6) Example 6. Corporation A, a foreign person, and Corporation B, 
a U.S. business, execute a binding written agreement pursuant to which 
Corporation A will acquire a 10 percent equity interest in Corporation 
B and will be afforded the right to appoint two members of Corporation 
B's board of directors. As of the date of the agreement, none of the 
items that Corporation B manufactures constitutes a critical 
technology. After the agreement is executed, but prior to the 
completion of the transaction, a product manufactured by Corporation B 
is included as a defense article on the USML. Assuming no other 
relevant facts, under paragraph (c)(3) of this section, the transaction 
is not subject to a requirement to submit a declaration to the 
Committee. However for purposes of Sec.  800.211, the transaction may 
be a covered investment.

Appendix B to Part 800 [Removed]

0
8. Remove appendix B to part 800.

    Dated: August 18, 2020.
Thomas Feddo,
Assistant Secretary for Investment Security.
[FR Doc. 2020-18454 Filed 9-11-20; 4:15 pm]
BILLING CODE 4810-25-P