US strengthening outbound investment screening

On 9 August 2023, US President Biden issued an Executive Order (EO) that establishes an outbound investment screening program. The US Treasury published a helpful fact sheet.

Following the “small yard, high fence” logic, the program is aimed at curbing US investments in People's Republic of China (Hong Kong and Macau included) for a limited subset of technologies – being semiconductors and microelectronics, quantum information technologies, and certain AI systems. The US believes Chinese companies could benefit from intangible benefits offered by US investments, “such as enhanced standing and prominence, managerial assistance, investment and talent networks, market access, and enhanced access to additional financing.”

Certain transactions will need to be notified (others are prohibited outright) if they are between US persons/entities and entities in any way related to China or the CCP and involve the mentioned technologies, which could “significantly advance the military, intelligence, surveillance or cyber-enabled capabilities of [China].” The US Treasury, tasked with further defining these entities, transactions and technologies, has published preliminary considerations in an Advanced Notice of Proposed Rulemaking (ANPRM). These are open for public comments, ending 28 September.

 Impact on European Companies

The EO does not target European companies as such, but the Treasury is considering including “indirect investments” in the scope of the outbound investment screening program. This means that European subsidiaries of US companies or other European companies with US shareholders with a 50% or greater ownership interest, could be covered by the program. The Treasury is still considering how it will try to close perceived loopholes. It will likely refrain from including the provision of secondary services, such as clearing, payments or insurance services.

On a macro level, the program could have a chilling effect on US investments in or financing of European companies or research institutes that are developing such technologies and are (considering) doing business with China. However, as mentioned, the scope of indirect investments needs further defining and may exclude portfolio investments etc.

 Will EU follow suit?

The European Commission announced in its Economic Security Strategy that it will come with an initiative by the end of the year on the basis of a security risk assessment of outbound investments. In that process, the European Commission is currently drafting a list of sensitive technologies in concord with the Member States.

We very much welcome any input you may have in this discussion, as we intend to remain actively engaged with the European Commission throughout this process.