In May 2018, under increasing pressure to address Chinese technology theft, the Trump administration announced that it would take the unprecedented step of using executive powers to implement investment restrictions prohibiting the Chinese acquisition of advanced information and manufacturing technologies.1See President Donald J. Trump Is Confronting China’s Unfair Trade Policies, White House (May 29, 2018), https://perma.cc/M9TQ-6N52 [hereinafter China Trade Policies]. A month later, the administration backtracked following intense internal debate, opting to use the existing statutory process for regulating Chinese investments.2See David J. Lynch & Damian Paletta, Trump Softens Threat of New Curbs on Chinese Investment in U.S. Firms, Wash. Post (June 27, 2018, 8:22 AM), https://perma.cc/9BPR-UGDB. President Trump endorsed legislation granting enhanced powers to the Committee on Foreign Investment in the United States (“CFIUS”), shelving plans to utilize executive emergency powers.3Id.; see Press Release, Off. of Press Sec’y, White House, Statement from the President Regarding Investment Restrictions (June 27, 2018), https://perma.cc/E7BF-BW84.
This Comment argues in favor of the road not taken: the use of Article II emergency powers to regulate foreign investments that pose national security concerns. Although recent legislation strengthening CFIUS review is clearly aimed at addressing Chinese technology theft, residual ambiguities in CFIUS regulations burden harmless investors and simultaneously fail to comprehensively mitigate the threats posed by the People’s Republic of China and other hostile actors. The President should supplement CFIUS by utilizing his Article II powers under the International Emergency Economic Powers Act (“IEEPA”) to explicitly prohibit certain categories of foreign investment from China, adjusting these restrictions to changing geopolitical and technological circumstances. Based on existing statutory and legal precedent, such action would fall clearly within the scope of executive authority. Though potentially controversial, these actions may well prove to be the best route for preventing technology theft while establishing regulatory certainty.
CFIUS is an interagency committee, authorized by statute to review foreign acquisitions of US assets that may result in harm to national security. Following review, CFIUS submits a report to the President, who may subsequently prohibit such transactions or require divestment of specific assets as a precondition for the acquisition.4See CFIUS Overview, U.S. Dep’t of Treasury, https://perma.cc/JA2Z-6CU5.
The existing CFIUS framework contains several drawbacks. First, both the statutory language authorizing CFIUS as well as its implementing regulations are broad.5See 50 U.S.C. § 4565(a)(4)(B)(i) (stating that covered transactions under CFIUS include “[a]ny merger, acquisition, or takeover that is proposed or pending after August 23, 1988, by or with any foreign person that could result in foreign control of any United States business, including such a merger, acquisition, or takeover carried out through a joint venture”); 31 C.F.R. § 800.210 (2020) (expanding CFIUS review to include transactions “by or with any foreign person that could result in foreign control of any U.S. business”). This breadth leaves potential investors guessing as to whether their acquisitions pose a sufficient national security threat to undergo review.6See Qingxiu Bu, Ralls Implications for the National Security Review, 7 Geo. Mason J. Int’l Com. L. 115, 118 (2016). Due in part to this ambiguity, informal negotiations between transaction parties and CFIUS staff protract the timeline for CFIUS review.7See James K. Jackson, Cong. Rsch. Serv., RL33388, The Committee on Foreign Investment in the United States (CFIUS) 14–15 (Feb. 26, 2020). CFIUS fails to explicitly single out the growing threat posed by state-backed and state-influenced investors from China.8See Rachel H. Boyd, FIRRMA: “Buy American” Products, or Bye American Progress?, 19 Wake Forest J. Bus. & Intell. Prop. L. 103, 116 (2019). In declining to do so, the facially neutral CFIUS regulations place an unnecessary burden on investors from friendly nations and risk overburdening the committee’s resources and diluting its focus.9See id. Although the increased clarity provided by the Foreign Investment Risk Review Modernization Act of 2018 (“FIRRMA”) has partially alleviated some of these concerns, CFIUS remains a “black box” of uncertainty.10See infra Part II.A.
Second, because CFIUS is statutorily grounded, major changes to its review procedures require a time-consuming legislative process.11See Jackson, supra note 7, at 11, 15. FIRRMA, the most recent CFIUS statute, was introduced in the House and Senate on November 8, 2017. It was signed into law by President Trump on August 13, 2018. The final Department of the Treasury regulations implementing FIRRMA became effective February 13, 2020. Additionally, changes to CFIUS regulations are subject to the time-consuming notice and comment requirements contained in the Administrative Procedure Act (“APA”).125 U.S.C. § 553. The significant delays required in implementing changes to the CFIUS process likely result in regulatory lag in addressing emerging technologies and budding geopolitical threats. This is particularly concerning as Chinese state-owned enterprises have leveraged US know-how in cutting-edge fields such as artificial intelligence and blockchain.13See Jayden R. Barrington, CFIUS Reform: Fear and FIRRMA, An Inefficient and Insufficient Expansion of Foreign Direct Investment Oversight, 21 Transactions: Tenn. J. Bus. L. 77, 123–26 (2019).
Third, it is ambiguous whether judicial review over CFIUS determinations is permitted.14See generally Christopher M. Fitzpatrick, Where Ralls Went Wrong: CFIUS, the Courts, and the Balance of Liberty and Security, 101 Cornell L. Rev. 1087 (2016) (analyzing whether the Ralls decision adequately addressed the balance between liberty and security). According to statutory language supported by ample legislative history, the actions of the President following a CFIUS review “shall not be subject to judicial review.”1550 U.S.C. § 4565(e)(1). Nevertheless, the Court of Appeals for the D.C. Circuit permitted judicial review of a due process challenge to the CFIUS process in Ralls Corp. v. Committee on Foreign Investment in the United States,16758 F.3d 296 (D.C. Cir. 2014). the only CFIUS legal challenge to date.17See Bu, supra note 6, at 116. Reversing the district court, the D.C. Circuit held that President Obama’s executive order requiring Ralls to divest four wind farms was unconstitutional due to an absence of due process during CFIUS review.18Ralls, 758 F.3d at 325.
These drawbacks illustrate the costs associated with the absence of bright-line rules governing foreign investment screening. Presidential actions blocking foreign acquisitions, mergers, and joint ventures need not derive their authority from the CFIUS statute but fall squarely within the scope of the executive’s existing emergency powers under the National Emergencies Act (“NEA”) and IEEPA.19See Lynch & Paletta, supra note 2. The President should declare a national emergency concerning foreign acquisitions, enabling him to unilaterally block certain categories of foreign (particularly Chinese) acquisitions. These executive actions would help define the scope of reviewable transactions and foreclose the possibility of judicial review, providing much needed legal certainty.20See infra Part I.C.3.
Part I of this Comment provides a background of CFIUS and the expansion of its statutory authorities, most recently under FIRRMA. It also examines the President’s Article II emergency powers under IEEPA. Part II discusses the primary drawbacks to the current CFIUS process. Part III proposes a framework for foreign investment review grounded in the executive’s expansive Article II national security powers to improve clarity in the foreign investment screening process.
A. The Current CFIUS Process
CFIUS consists of a nine-member interagency committee.21U.S. Dep’t of Treasury, supra note 4. The Department of the Treasury chairs the committee, and other voting members include the Office of Science and Technology Policy, the Office of the US Trade Representative, and the Departments of Justice, Homeland Security, Commerce, Defense, State, and Energy.22Id. CFIUS derives its legal authority from section 721 of the Defense Production Act of 1950.2350 U.S.C. § 4565. The scope of CFIUS’s legacy jurisdiction is broad: any acquisition by foreign investors or other transaction resulting in foreign “control” that could harm national security is potentially reviewable.24Id. § 4565(a)(3). Recent legislation expanded the scope of CFIUS review to include certain noncontrolling investments as well as joint ventures between US and foreign companies and foreign acquisitions of real estate.25Id. § 4565(a)(4)(B)(i)–(ii); see Jackson, supra note 7, 11–12; see also infra Part I.C.3.
CFIUS review includes several formal and informal steps. First, “foreign person” investors must file “mandatory declarations” for CFIUS review if the transaction involves a foreign person in which a foreign government has a “substantial interest” or technologies covered by statutory export controls.2631 C.F.R. § 800.401 (2020); see also infra Part I.C.3. Following a thirty-day review process,2731 C.F.R. § 800.405. CFIUS may either grant safe harbor to declared transactions that pose little national security risk or require the investor to file a “notice.”28Id. §§ 800.407, 800.501. Other foreign investors may opt to file “voluntarily notices” for CFIUS review.29See id. § 800.502. Once a “notice” is filed, CFIUS initiates a national security review of the proposed transactions, which it must complete within forty-five days.30Id. § 800.503(b). The term “national security” is not explicitly defined in the CFIUS statute.31See 50 U.S.C. § 4565(a)(1). Rather, CFIUS member agencies evaluate a transaction’s national security implications by considering a congressionally mandated set of factors.32See Jackson, supra note 7, at 22. Among others, the factors include potential effects on defense related production, military sales overseas, critical infrastructure, and critical technologies.33See 50 U.S.C. § 4565(f). The CFIUS review process ends if all nine member agencies conclude that the transaction poses no national security risks.34See Jackson, supra note 7, at 22.
If the committee concludes that a transaction does pose a risk, it initiates a national security investigation, during which it typically negotiates mitigatory measures (e.g., partial divestment).35See id. at 14. CFIUS must complete this investigation within forty-five days, although it may grant itself a fifteen-day extension under “extraordinary circumstances.”3631 C.F.R. § 800.508 (2020); see also David R. Hanke, Marwa M. Hassoun & Aman Kakar, CFIUS 2.0: Treasury Unveils Final Regulations to Govern Expanded Foreign Investment Screening, Arent Fox (Jan. 16, 2020), https://perma.cc/P666-K95B. CFIUS decision-making is typically done by consensus and, in theory, transactions do not proceed until all nine agencies confirm that they have no residual national security concerns.37See Jackson, supra note 7, at 27. CFIUS may condition its approval of a transaction on various mitigation measures, ranging from partial divestment to establishing procedures for the handling of sensitive information.38See id. at 38. If the transaction parties fail to adequately mitigate risks, CFIUS will recommend that the President block the transaction.39See id. at 14. The President then has fifteen days to make a final determination.40See id.
In reality, the CFIUS process is more of an art than a science. Outside of the formal process, transaction parties will often engage in protracted informal discussions with CFIUS staff before beginning the review process to ascertain whether a transaction will be blocked.41See id. at 14–15. Such informal review enables transaction parties to try to mitigate national security concerns early on, thus avoiding the negative publicity and adverse market responses that may accompany a formal CFIUS national security investigation.42Id. Transactions are seldom actually blocked by the President because transaction parties will usually abandon a transaction when faced with CFIUS opposition.43See Peter Thomas, Abram Ellis & David Shogren, A Primer on CFIUS: Navigating the Evolving U.S. National Security Foreign Investment Review Process, Antitrust Source 1, 4–5 (2018). In the forty-four years of CFIUS’s existence, only seven transactions have been blocked by presidential order, although notably four of these were issued by President Trump and two by President Obama.44See Regarding the Acquisition of Musical.ly by ByteDance Ltd., 85 Fed. Reg. 51,297 (Aug. 14, 2020) (blocking retroactively the acquisition of the Musical.ly mobile application by a Chinese company); Regarding the Acquisition of StayNTouch, Inc. by Beijing Shiji Information Technology Co., Ltd., 85 Fed. Reg. 13,719 (Mar. 6, 2020) (blocking the acquisition of a hotel data management firm by a Chinese company in March 2020); see also Jackson, supra note 7, at 23.
B. CFIUS History
Although President Ford originally created CFIUS by executive order in 1975, Congress has gradually expanded its oversight over the CFIUS review process through a series of statutes.45See Jackson, supra note 7, at 6. Each of these statutes gradually increased CFIUS’s powers of review and expanded its jurisdiction.46See id. at 5–12. For much of CFIUS’s history, Congress sought to increase oversight over foreign investments in the United States and a reluctant executive acceded to popular pressure.47See id. at 4–5; Barrington, supra note 13, at 89–91. This history stands in stark contrast to the executive branch’s hawkish stance on foreign investments under President Trump.48See, e.g., China Trade Policies, supra note 1.
1. CFIUS Under Article II: Early History and Executive Order 11,858
President Ford signed Executive Order 11,858 on May 7, 1975, establishing CFIUS.49Exec. Order No. 11,858, 40 Fed. Reg. 20,263 (May 7, 1975). CFIUS was given the “primary continuing responsibility within the Executive Branch for monitoring the impact of foreign investment in the United States, both direct and portfolio, and for coordinating the implementation of United States policy on such investment.”50Id. In establishing CFIUS, President Ford sought to forestall legislative restrictions on foreign investments, particularly from OPEC member states newly flush with oil wealth.51See Jackson, supra note 7, at 4. Thus in its initial form, CFIUS’s authority was grounded in Article II executive powers rather than in statute.52Exec. Order No. 11,858, 40 Fed. Reg. at 20,263. When constitutional questions were raised regarding whether executive agencies had the authority to collect foreign investment data under the executive order, Congress quickly passed the International Investment Survey Act of 1976,53Pub. L. No. 94-472, 90 Stat. 2059 (1976) (codified at §§ 22 U.S.C. 3101–3108). granting the President such authority.54Jackson, supra note 7, at 6. CFIUS initially exercised its limited authority to collect and report information on foreign transactions sparingly, prompting congressional criticism as foreign investments rose steadily over the next decade, particularly from Japan.55See id. at 6–7.
2. CFIUS Grounded in Statute: Exon–Florio and the Byrd Amendment
In 1988, Congress passed the Exon–Florio amendment to the Defense Production Act, codifying CFIUS.56See id. at 7. This amendment grounded CFIUS’s authority firmly in statute, granting the President expanded powers to suspend or prohibit transactions that threatened national security.57See id. The amendment also stipulated that the President could only block a transaction after determining that (1) credible evidence existed that the foreign acquisition would harm national security, and (2) other legal mechanisms—except CFIUS and IEEPA—were inadequate to protect national security.58Id. These two conditions remain in effect today.5950 U.S.C. § 4565(d)(4). The Exon–Florio amendment represented a deliberate effort by Congress to legislate away its powers over foreign investment policy to the President.60See Jackson, supra note 7, at 8. Congress again illustrated its desire to legislate away its powers in 1992 when it further strengthened CFIUS by passing the Byrd amendment to Exon–Florio.61See id. at 9. The amendment required CFIUS to investigate transactions where: “(1) the acquirer is controlled by or acting on behalf of a foreign government; and (2) the acquisition results in control . . . that could affect the national security of the United States.”62Jackson, supra note 7, at 9; see National Defense Authorization Act for Fiscal Year 1993, Pub. L. No. 102-484, § 837(a), (b), 106 Stat. 2315, 2463–64 (1992).
3. Further Strengthening CFIUS: Dubai Ports World and FINSA
The normally humdrum CFIUS process made political headlines in 2006, just a few years after the September 11, 2001 attacks, when CFIUS approved a deal granting leases to operate several major port facilities to Dubai Ports World, a UAE state-owned enterprise.63See David E. Sanger, Under Pressure, Dubai Company Drops Port Deal, N.Y. Times (Mar. 10, 2006), https://perma.cc/LPK7-CV5Q. Bipartisan congressional opposition to the deal quickly emerged due to fears that Dubai Ports World’s ownership would enable terrorist groups to infiltrate the port facilities.64Id. Yet President George W. Bush’s administration vigorously defended the deal, discounting the possibility of national security harm and warning of a chilling effect on international investment.65Press Release, Off. of Press Sec’y, White House, Fact Sheet: The CFIUS Process and the DP World Transaction (Feb. 22, 2006), https://perma.cc/5BCG-GFQZ. The administration alleged that fearmongering and racial biased drove congressional efforts to block the deal.66See Sanger, supra note 63. Faced with imminent veto-proof legislation blocking the transaction, Dubai Ports World ultimately opted to drop out of the deal.67Id.
The Bush administration introduced mitigation agreements in the aftermath of this debacle, which conditioned transaction approvals on certain actions to reduce national security risk (e.g., information-sharing restrictions).68Jackson, supra note 7, at 9–10. Today, CFIUS can rereview a transaction if it finds there has been a material breach of the mitigation agreement.6950 U.S.C. § 4565(b)(1)(D)(iii)(I). The Dubai Ports World controversy also resulted in a statutory interpretation dispute regarding whether the Byrd amendment required CFIUS to conduct a full forty-five day investigation when the acquirer is controlled by a foreign government or whether the committee had discretion to opt for a shorter review.70Jackson, supra note 7, at 9.
The next major elevation of CFIUS’s powers occurred in 2007 when President Bush signed the Foreign Investment and National Security Act (“FINSA”)71Pub. L. No. 110-49, 121 Stat. 246 (2007). into law. FINSA further strengthened CFIUS through a number of provisions, including adding the Director of National Intelligence to the review process, requiring each committee member to certify to Congress (at the Assistant Secretary level or above) that a transaction has no unresolved national security risks, and requiring the Secretary of the Treasury to designate a lead agency for each review.72See Jackson, supra note 7, at 10–11. Through FINSA, Congress continued its long-term practice of strengthening CFIUS’s statutory authority while increasing congressional oversight of the review process.73Id. at 5.
4. Introducing Judicial Review: Ralls Corp. v. CFIUS
In 2012, President Obama issued an order under CFIUS blocking the Ralls Corporation, a US company owned by Chinese investors, from acquiring a wind farm located near a US Navy training site.74Ralls Corp. v. CFIUS, 758 F.3d 296, 301–02 (D.C. Cir. 2014). The presidential order did not give notice to Ralls of the evidence on which CFIUS relied in reaching its determination.75Id. at 306. Consequently, Ralls sued CFIUS, alleging a Fifth Amendment due process violation because it was denied the opportunity to review and rebut evidence that the transaction posed a national security risk.76Id. at 302.
Although the CFIUS statute specifies that final orders of the President are not subject to judicial review,7750 U.S.C. § 4565(e)(1). the D.C. Circuit found that this language did not bar Ralls’s Fifth Amendment due process claim, distinguishing constitutional challenges from other types of claims.78See Ralls, 758 F.3d at 308–11 (“The Supreme Court has long held that a statutory bar to judicial review precludes review of constitutional claims only if there is ‘clear and convincing’ evidence that the Congress so intended.”). The court allowed Ralls’s challenge to proceed, holding “that neither the text of the statutory bar nor the legislative history of the statute provides clear and convincing evidence that the Congress intended to preclude judicial review of Ralls’s procedural due process challenge.”79Id. at 311. The court also rejected the government’s argument that the presidential order was a nonjusticiable political question (where the Executive is entitled to discretion, particularly in issues of national security), because Ralls’s claim was limited to access to evidence and did not implicate the President’s policy making discretion.80See id. at 314.
Then, reversing the district court, the D.C. Circuit found on the merits that the presidential order blocking the transaction “deprived Ralls of its constitutionally protected property interests without due process of law.”81Id. at 319. While noting that due process “does not require disclosure of classified information,” the court held that “due process requires, at the least, that an affected party . . . be given access to the unclassified evidence on which the official actor relied and be afforded an opportunity to rebut that evidence.”82Id. at 319. The court remanded the case, leaving unresolved the question of whether executive privilege shielded any unclassified CFIUS evidence from disclosure.83Id. at 320–21.
The D.C. Circuit’s unprecedented review of CFIUS action has been criticized as a rare intrusion by the courts into the executive’s traditional authority over issues of national security.84See Will Gent, Tilting at Windmills: National Security, Foreign Investment, and Executive Authority in Light of Ralls Corp. v. CFIUS, 94 Or. L. Rev. 455, 481–83 (2016). See generally Fitzpatrick, supra note 14. Moreover, the Ralls precedent is unlikely to aid future litigants because agencies could simply raise the classification of CFIUS documents to avoid disclosure, possibly leading to less transparency.85See Barrington, supra note 13, at 130; Fitzpatrick, supra note 14, at 1106. Also problematic, the Obama administration declined to challenge the Ralls holding on executive privilege grounds, leaving the scope of such privilege undetermined.86See Fitzpatrick, supra note 14, at 1109. Ultimately, Ralls reached a settlement with the US government under which it divested the wind farms.87Stephen Dockery, Chinese Company Will Sell Wind Farm Assets in CFIUS Settlement, Wall St. J. (Nov. 4, 2015, 5:00 PM), https://perma.cc/RTG2-ZRHU.
5. CFIUS in the Headlines: Uranium One and Broadcom
In recent years, two high profile CFIUS determinations have garnered widespread media attention, placing the committee in the political spotlight. The first of these controversies involved the Russian state corporation Rosatom’s acquisition of the mining company Uranium One in a 2010 deal approved by CFIUS, which granted Rosatom rights to twenty percent of US uranium production.88Karoun Demirjian, Whistleblower Had ‘No Evidence’ Clinton Helped Russia Assume American Uranium Stake, Democrats Say, Wash. Post (Mar. 8, 2018, 8:36 PM), https://perma.cc/WXB6-7ZCU. Republican lawmakers alleged that then-Secretary of State Hillary Clinton approved the deal (the Department of State is one of nine CFIUS committee members, all of whom were required to certify that the deal did not pose national security concerns) in exchange for $500,000 in speaking fees from a Kremlin-connected bank.89See John Solomon & Alison Spann, FBI Watched, Then Acted as Russian Spy Moved Closer to Hillary Clinton, The Hill (Oct. 22, 2017, 6:00 PM), https://perma.cc/ERG4-UPMJ. The purported scandal garnered widespread attention (particularly in conservative-leaning media),90See, e.g., Andrew C. McCarthy, The Obama Administration’s Uranium One Scandal, Nat’l Rev. (Oct. 21, 2017, 8:00 AM), https://perma.cc/9UGV-WTCU; Louis Nelson, What You Need to Know About Clinton and the Uranium One Deal, Politico (Nov. 14, 2017, 3:48 PM), https://perma.cc/CZ3A-43T3. but gradually petered out after a special counsel appointed by then-Attorney General Jeff Sessions failed to uncover tangible evidence of wrongdoing.91Devlin Barrett & Matt Zapotosky, Justice Dept. Winds Down Clinton-Related Inquiry Once Championed by Trump. It Found Nothing of Consequence, Wash. Post (Jan. 9, 2020, 6:56 PM), https://perma.cc/7WG6-4F2B.
Another high profile CFIUS case occurred in March 2018, when President Trump blocked the then-Singapore-based Broadcom’s acquisition of US telecommunications technology firm Qualcomm in accordance with CFIUS’s recommendation.92Regarding the Proposed Takeover of Qualcomm Incorporated by Broadcom Limited, 83 Fed. Reg. 11,631 (Mar. 12, 2018); see Steven Overly, Trump Blocks Broadcom-Qualcomm Deal over China Concerns, Politico (Mar. 12, 2018, 8:59 PM), https://perma.cc/L4HC-AVF9. CFIUS raised concerns that Qualcomm’s acquisition would reduce US investments in 5G technology, hindering the ability of the United States to compete with China in this growing field.93Overly, supra note 92. Additionally, the fact that Broadcom attempted a hostile takeover may have increased CFIUS scrutiny over the deal.94See Cecilia Kang & Alan Rappeport, Trump Blocks Broadcom’s Bid for Qualcomm, N.Y. Times (Mar. 12, 2018), https://perma.cc/KHY8-KGP7. Notably, Broadcom planned to redomicile to the United States when the deal was blocked, a process that was completed in April 2018.95Mike Freeman, Broadcom Completes Headquarters Move from Singapore to the U.S., San Diego Union-Trib. (Apr. 5, 2018, 3:05 PM), https://perma.cc/A45C-S2XG. The block garnered significant media attention due to the size of the proposed deal ($117 billion) and because it hinted at a more interventionist CFIUS under President Trump, which suggested an increased willingness to restrict takeovers.96See Kang & Rappeport, supra note 94.
C. The Road Not Taken: China, FIRRMA, and IEEPA
Concerns over Chinese intellectual property theft and technology transfer primarily drove Congress’s most recent CFIUS law, FIRRMA.97Alan Rappeport, U.S. Outlines Plans to Scrutinize Chinese and Other Foreign Investment, N.Y. Times (Sept. 17, 2019), https://perma.cc/6P2P-V43K. The Trump administration had alternatively considered using Article II powers under IEEPA to address these threats, but it ultimately opted for a statutory solution.98Press Release, supra note 3; Lynch & Paletta, supra note 2. Most notably, FIRRMA expands CFIUS’s powers of review over critical technologies and effectively permits CFIUS to discriminate among foreign investors by country of origin.99Jackson, supra note 7, at 11–12. Further modifications to the CFIUS process will, for the foreseeable future, likely be driven by threats posed by China.100See Rappeport, supra note 97.
Nevertheless, President Trump issued several executive orders in 2020 that imposed unprecedented restrictions on dealings with Chinese companies under IEEPA and appeared to leave open the possibility of Article II investment prohibitions for subsequent administrations.101See Exec. Order No. 13,959, 85 Fed. Reg. 73,185 (Nov. 12, 2020) (prohibiting American investments in “Communist Chinese military companies”); Exec. Order No. 13,953, 85 Fed. Reg. 62,539 (Sept. 30, 2020) (declaring a national emergency regarding US dependence on China for critical minerals). Most significantly, the Trump administration utilized IEEPA in August 2020 to prohibit all transactions with TikTok’s parent company ByteDance Limited (“ByteDance”) (a multinational domiciled in the Cayman Islands but headquartered in China),102Exec. Order No. 13,942, 85 Fed. Reg. 48,637, 48,637–38 (Aug. 6, 2020). while simultaneously utilizing the normal CFIUS process to force ByteDance to divest the Musical.ly application.103See Regarding the Acquisition of Musical.ly by ByteDance Ltd., 85 Fed. Reg. 51,297, 51,297 (Aug. 14, 2020).
1. An Emerging Threat
In recent years, Chinese technology theft and forced technology transfers have resulted in bipartisan alarm.104See, e.g., Martin Matishak, Bipartisan Bill Seeks to Toughen Trump Approach on China, Politico (Jan. 4, 2019, 12:23 PM), https://perma.cc/8KKF-BWH5. Beijing’s “Made in China 2025” plan, which lays out ambitions to dominate ten high-technology sectors—including robotics, advanced manufacturing, and aerospace—has drawn particular apprehension.105Kristen Hopewell, What Is ‘Made in China 2025’—and Why Is It a Threat to Trump’s Trade Goals?, Wash. Post (May 3, 2018, 8:30 AM), https://perma.cc/UQ98-2R9T. Foreign acquisitions and forced joint ventures with foreign firms are among the strategies Beijing is pursuing to achieve the plan’s goals for 2025 and beyond.106Karen M. Sutter, Cong. Rsch. Serv., IF10964, “Made in China 2025” Industrial Policies: Issues for Congress 1–2 (2020) (other strategies include government subsidies, overseas talent recruitment, and tax incentives to encourage the transfer of foreign know-how). Over the past decade, the stock of Chinese foreign direct investment in the United States has grown rapidly from $3.3 billion in 2010 to $37.7 billion in 2019.107See Bureau of Econ. Analysis, U.S. Dep’t of Com., Foreign Direct Investment in the U.S.: Balance of Payments and Direct Investment Position Data (2020), https://perma.cc/MJ9Z-96N8 (comparing “[p]osition on a historical-cost basis”).
Especially concerning, Chinese organizations and citizens are required to “support, assist and cooperate with . . . state intelligence work” under China’s 2017 National Intelligence Law.108Arjun Kharpal, Huawei Says It Would Never Hand Data to China’s Government. Experts Say It Wouldn’t Have a Choice, CNBC (Mar. 5, 2019, 12:33 AM), https://perma.cc/M4PQ-47QP. This means that Chinese corporations would be legally obligated to hand over any US customer’s data requested by the Chinese government.109Id. In light of these circumstances, CFIUS has placed increased scrutiny on transactions involving Chinese investors.110Thomas et al., supra note 43, at 1, 7–8. In 2017, President Trump blocked the acquisition of the Lattice Semiconductor Corporation by a Chinese state-owned enterprise pursuant to a CFIUS recommendation.111See Regarding the Proposed Acquisition of Lattice Semiconductor Corporation by China Venture Capital Fund Corporation Limited, 82 Fed. Reg. 43,665, 43,665–66 (Sept. 13, 2017). The move was prompted by concerns that the acquisition would give China access to sensitive microchip technology with military applications.112See Liana B. Baker, Trump Bars Chinese-Backed Firm from Buying U.S. Chipmaker Lattice, Reuters (Sept. 13, 2017, 4:22 PM), https://perma.cc/7ABB-S7KQ.
On March 22, 2018, the Office of the US Trade Representative released a much anticipated report outlining the effects of Chinese trade practices on the US economy.113See Off. of U.S. Trade Representative, Exec. Off. of President, Findings of the Investigation Into China’s Acts, Policies, and Practices Related to Technology Transfer, Intellectual Property, and Innovation Under Section 301 of the Trade Act of 1974 (2018). Unsurprisingly, the report found that China continued to pursue a strategic policy of technology transfer despite high-level commitments to the contrary.114Id. at 19–35. The report also noted public estimates “that Chinese theft of American IP currently costs between $225 billion and $600 annually.”115Id. app. C at 9. That same day, President Trump issued a memorandum to the Secretary of the Treasury directing him to propose “executive branch action . . . using any available statutory authority, to address concerns about investment in the United States directed or facilitated by China in industries or technologies deemed important to the United States.”116Actions by the United States Related to the Section 301 Investigation of China’s Laws, Policies, Practices, or Actions Related to Technology Transfer, Intellectual Property, and Innovation, 83 Fed. Reg. 13,099, 13,100 (Mar. 22, 2018). Meanwhile in Congress, growing concern over Chinese high-technology investments led to the introduction of FIRRMA in November 2017 with broad bipartisan support.117See Jackson, supra note 7, at 11; Diane Bartz, U.S. Lawmakers Introduce Bipartisan Bills on Foreign Investment Amid China Worries, Reuters (Nov. 8, 2017, 10:36 AM), https://perma.cc/477A-CYH4..
2. The Road Not Taken
Initially, the Trump administration signaled a willingness to use executive powers outside of the CFIUS process to address Chinese technology transfers. On May 29, 2018, the White House released a statement announcing: “The United States will implement specific investment restrictions and enhanced export controls for Chinese persons and entities related to the acquisition of industrially significant technology. The list of restrictions and controls will be announced by June 30, 2018.”118China Trade Policies, supra note 1. Nevertheless, within a month, the administration had backtracked, opting instead to use the existing statutory process for regulating Chinese investments.119Lynch & Paletta, supra note 2. President Trump consequently endorsed legislation granting enhanced powers to CFIUS, shelving plans to utilize executive emergency powers for the time being.120Press Release, supra note 3. FIRRMA soon passed both houses of Congress with overwhelming bipartisan support,121Press Release, U.S. Dep’t of Treasury, Treasury Secretary Mnuchin Statement on Signing of FIRRMA To Strengthen CFIUS (Aug. 13, 2018), https://perma.cc/45MD-V8Q6. and President Trump signed it into law on August 13, 2018 as part of the fiscal year 2019 National Defense Authorization Act.122John S. McCain National Defense Authorization Act for Fiscal Year 2019, Pub. L. No. 115-232, § 1701, 132 Stat. 1636, 2174 (2018); see Jackson, supra note 7, at 12.
3. FIRRMA Provisions
FIRRMA constitutes the latest step in Congress’s longstanding trend of granting the President increased statutory authority to review foreign transactions. The Department of the Treasury issued its final regulations implementing FIRRMA on January 13, 2020, which became effective thirty days later.123Jackson, supra note 7, at 15. FIRRMA expanded the scope of CFIUS review to include a multitude of transactions previously not covered. Most significantly, whereas CFIUS previously only had the authority to review “control transactions” (transactions leading to foreign control of a US business),12431 C.F.R. § 800.210 (2020) (“The term covered control transaction means any transaction that is proposed or pending after August 23, 1988, by or with any foreign person that could result in foreign control of any U.S. business, including such a transaction carried out through a joint venture.” (emphasis omitted)). FIRRMA placed certain “covered investments” (noncontrolling investments in sensitive Technology, Infrastructure, and Data (“TID”) businesses)125Id. at § 800.211 (“The term covered investment means an investment, direct or indirect, by a foreign person other than an excepted investor, in an unaffiliated TID U.S. business that is proposed or pending on or after February 13, 2020, and that: (a) [i]s not a covered control transaction; and (b) [a]ffords the foreign person . . . (3) [a]ny involvement, other than through voting of shares, in substantive decision-making of the TID U.S. business regarding: (i) [t]he use, development, acquisition, safekeeping, or release of sensitive personal data of U.S. citizens maintained or collected by the TID U.S. business; (ii) [t]he use, development, acquisition, or release of critical technologies; or (iii) [t]he management, operation, manufacture, or supply of covered investment critical infrastructure.”). under CFIUS jurisdiction.126Jackson, supra note 7, at 15–16.
FIRRMA’s implementing regulations specify three broad categories of noncontrolling “covered investments” in businesses subject to CFIUS oversight.12731 C.F.R. § 800.211; see U.S. Dep’t of Treasury, Fact Sheet: Final CFIUS Regulations Implementing FIRRMA 2 (2020), https://perma.cc/H57R-WNZ4 (summarizing the three categories of Technology, Infrastructure, and Data businesses). The first of these categories covers investments in critical technologies, defined broadly to include technologies subject to various statutory export controls.128See 31 C.F.R. § 800.215; Jackson, supra note 7, at 18–19. The second category covers investments in critical infrastructure, with twenty-eight eligible types of infrastructure laid out in an appendix to the regulations.12931 C.F.R. pt. 800 app. A; see Jackson, supra note 7, at 16 n.37 (listing the twenty-eight critical infrastructure sectors, which range from DOD satellite systems to submarine cables to financial exchanges). The last, and broadest, of these categories covers US businesses that collect or maintain “sensitive personal data.”130Jackson, supra note 7, at 19. These are broadly defined to include businesses that have collected one of ten categories of data and either (1) target their services to sensitive personnel (e.g., military or federal agency employees) or (2) collect or intend to collect data on more than one million persons.131See 31 C.F.R. § 800.241; Jackson, supra note 7, at 19. The eleven data categories are: (1) financial data; (2) consumer report data; (3) health and life insurance data; (4) physical and mental health data; (5) nonpublic electronic communications, including email, messaging, or chat communications; (6) geolocation data; (7) biometric data; (8) data used to create state and federal ID cards; (9) security clearance status data; (10) data used to apply for a security clearance; and (11) genetic testing data. 31 C.F.R. § 800.241(a)(ii)(A)–(J).
This liberal definition of “sensitive personal data” has attracted concern for creating legal uncertainty for would-be foreign investors.132See, e.g., J. Russell Blakey, The Foreign Investment Risk Review Modernization Act: The Double-Edged Sword of U.S. Foreign Investment Regulations, 53 Loy. L.A. L. Rev. 981, 1011 (2020); David R. Hanke, CFIUS 2.0: ‘Sensitive Personal Data’ in the National Security Context, Arent Fox (Sept. 3, 2019), https://perma.cc/2JBF-ARP6 (noting that “[o]f the three areas of new CFIUS jurisdiction for minority-position investments, arguably the most novel and potentially far-reaching is transactions involving sensitive personal data”). Notably, FIRRMA directs CFIUS to discriminate in favor of certain foreign investors (based on country of origin) when evaluating covered investments.133See Jackson, supra note 7, at 15–16. In February 2020, the Department of the Treasury designated core US allies Canada, Australia, and the United Kingdom as “excepted foreign states.”134CFIUS Excepted Foreign States, U.S. Dep’t of Treasury, https://perma.cc/TPA6-E2Q3. Citizens of these excepted foreign countries, as well as entities from these countries that meet specific criteria, are exempt from CFIUS review over noncontrolling investments as well as CFIUS oversight of certain real estate transactions.135See Hanke et al., supra note 36.
In addition to granting CFIUS oversight over noncontrolling investments, FIRRMA further expands the committee’s scope of jurisdiction in several ways. FIRRMA makes expressly clear that CFIUS has oversight over certain joint ventures, albeit a watered-down version of the joint venture provisions from previous iterations of FIRRMA that were ultimately rejected due to pressure from business lobbyists.136See Jackson, supra note 7, at 11 n.31, 31. In 2020, a CFIUS review resulted in the termination of a joint venture between Ekso Bionics, a US company manufacturing powered exoskeletons with military applications, and two Chinese partners.137Paul Marquardt, Chase D. Kaniecki & Nathanael Felix Kurcab, CFIUS Blocks Joint Venture Outside the United States, Releases 2018-2019 Data, and Goes Electronic, Cleary Gottlieb (June 3, 2020), https://perma.cc/558A-ZEGA. FIRRMA also expands CFIUS oversight to cover the purchase and lease of real estate where the property in question is part of an air or sea port or is located in close proximity to military facilities or other sensitive government facilities.138See 31 C.F.R. §§ 802.210–802.212 (2020); U.S. Dep’t of Treasury, supra note 127, at 3–5.
FIRRMA’s implementing regulations make CFIUS declarations mandatory for certain transactions, whereas normally investors may—but need not—make CFIUS declarations to obtain safe harbor.139See 31 C.F.R. § 800.401; Jackson, supra note 7, at 12. Generally, CFIUS declarations are mandatory if “‘U.S. regulatory authorization’ would be required” to export the US business’s technologies to the foreign investor.140David R. Hanke, Marwa M. Hassoun, Sylvia G. Costelloe & Aman Kakar, CFIUS 2.0: Mandatory Filings Now Pegged to Export Control Rules, Arent Fox (Oct. 15, 2020), https://perma.cc/V6B5-48ZA; see 31 C.F.R. § 800.401. Additionally, declarations are mandatory if they involve a foreign investor in which a foreign government has a “substantial interest.”14131 C.F.R. § 800.401(b). Finally, FIRRMA authorizes CFIUS to collect modest filing fees, with an eye towards providing the committee with resources to handle an anticipated increase in caseload.142Jackson, supra note 7, at 12.
While FIRRMA undoubtedly strengthened the CFIUS process, it contains some notable limitations. Although Congress explicitly authorized CFIUS to apply particular scrutiny to transactions involving “countr[ies] of special concern” in the FIRRMA statute,143Foreign Investment Risk Review Modernization Act of 2018, Pub. L. No. 115-232, § 1702(c), 132 Stat. 2174, 2176 (codified as amended at 50 U.S.C. § 4565) (“It is the sense of Congress that, when considering national security risks, the Committee on Foreign Investment in the United States may consider . . . whether a covered transaction involves a country of special concern that has a demonstrated or declared strategic goal of acquiring a type of critical technology or critical infrastructure that would affect United States leadership in areas related to national security . . . .”). such a blacklist is absent from the Department of the Treasury’s final regulations implementing FIRRMA.144David R. Hanke, CFIUS 2.0: Foreign Investors Are Watching for CFIUS ‘Good’ or ‘Bad’ List, Arent Fox (May 28, 2019), https://perma.cc/CU78-HVZL (discussing the debate in Congress over whether to utilize a “white list” approach excepting friendly allies or “blacklist” approach targeting adversaries to implement FIRRMA). The Department of the Treasury was strongly opposed to the “blacklist” approach. Id. Thus the CFIUS regulations are facially neutral towards investments from China vis-à-vis most other countries.145See Hanke et al., supra note 36 (noting that the Department of the Treasury ultimately opted for a “white list” approach, which granted preference for the UK, Australia, and Canada, but did not explicitly target adversaries such as China). FIRRMA also fails to address the issue of “greenfield” investments—foreign seed capital used to form new start-up companies as opposed to purchasing existing companies.146See Barrington, supra note 13, at 123–26. These greenfield investments now account for a majority of foreign investment transactions,147Jackson, supra note 7, at 35. and CFIUS’s lack of oversight is particularly concerning because Chinese state-owned enterprises have turned to greenfield investments as a method of leveraging US innovation to acquire cutting-edge technologies.148See Barrington, supra note 13, at 123–26.
4. CFIUS Under FIRRMA: TikTok and Beyond
CFIUS’s caseload has increased significantly in recent years from a total of 143 filings in 2015 to a total of 325 in 2019.149U.S. Dep’t of Treasury, Committee on Foreign Investment in the United States: Annual Report to Congress CY 2019, at 3–4, 33–34 (2020), https://perma.cc/36HT-HPQ9 (noting that CFIUS filings have increased from 143 joint voluntary notices in 2015 to 231 joint voluntary notices and ninety-four mandatory declarations in 2019). FIRRMA’s enactment has led directly to an increase in CFIUS caseload due to the mandatory declarations required by the statute.150See id. at 33–34 (comparing the twenty mandatory declarations that occurred in calendar year 2018 to the ninety-four in calendar year 2019). This increase in filings is partly a reflection of CFIUS’s increasingly hawkish stance on Chinese investments.151See, e.g., David McLaughlin, Saleha Mohsin & Jacob Rund, All About Cfius, Trump’s Watchdog on China Dealmaking, Wash. Post (Sept. 15, 2020, 8:00 PM), https://perma.cc/YN8Z-ZW58. In March 2019, CFIUS pressured the Chinese company Beijing Kunlun Tech into divesting its sixty percent share of the gay dating application Grindr.152Sarah Bauerle Danzman & Geoffrey Gertz, Why Is the U.S. Forcing a Chinese Company to Sell the Gay Dating App Grindr?, Wash. Post (Apr. 3, 2019, 7:00 AM), https://perma.cc/4HDC-924H. CFIUS feared that Grindr’s acquisition would allow the Chinese government to access sensitive data collected by the application—including HIV status and sexual orientation—to blackmail US citizens.153Yuan Yang & James Fontanella-Khan, Grindr Is Being Sold by Chinese Owner after U.S. Raises National Security Concerns, L.A. Times (Mar. 6, 2020, 11:43 AM), https://perma.cc/P9KY-PMHY.
Over the past year, CFIUS reviews have resulted in two presidential orders blocking transactions involving Chinese investors.154See Regarding the Acquisition of Musical.ly by ByteDance Ltd., 85 Fed. Reg. 51,297 (Aug. 14, 2020) (blocking the acquisition of the TikTok mobile application by a Chinese company in August 2020); Regarding the Acquisition of StayNTouch, Inc. by Beijing Shiji Information Technology Co., Ltd., 85 Fed. Reg. 13,719 (Mar. 6, 2020) (blocking the acquisition of a hotel data management firm by a Chinese company in March 2020). In March 2020, President Trump blocked the acquisition of StayNTouch Inc., a cloud-based hotel management software developer, by Beijing Shiji Information Technology Company.155Regarding the Acquisition of StayNTouch, Inc. by Beijing Shiji Information Technology Co., Ltd., 85 Fed. Reg. at 13,719. The move was prompted by CFIUS’s concerns that the acquisition would allow the Chinese company to access sensitive hotel guest data.156See Ana Swanson, Trump Administration Blocks Chinese Acquisition of Hotel Software Company, N.Y. Times (Mar. 6, 2020), https://perma.cc/AYE3-Q7GC.
Later in August 2020, in perhaps the highest profile CFIUS case to date, President Trump issued a CFIUS order retroactively blocking the Chinese technology company ByteDance’s acquisition of the TikTok video streaming application and directing ByteDance to divest the application within ninety days.157Regarding the Acquisition of Musical.ly by ByteDance Ltd., 85 Fed. Reg. at 51,297. CFIUS review of the TikTok acquisition was initially prompted by congressional concerns that China would gain access to sensitive personal data through the app and censor the content available to US users.158Greg Roumeliotis, Yingzhi Yang, Echo Wang & Alexandra Alper, Exclusive: U.S. Opens National Security Investigation into TikTok – Sources, Reuters (Nov. 1, 2019, 11:21 AM), https://perma.cc/N4SU-9MJP. Concurrent with the CFIUS action, the Trump administration attempted to ban TikTok altogether, utilizing emergency economic powers.159Exec. Order No. 13,942, 85 Fed. Reg. 48,637 (Aug. 6, 2020); see supra Part I.D.3 (discussing the TikTok and WeChat bans under IEEPA). These moves attracted widespread media attention given the broad prevalence of the TikTok app160Alex Sherman, TikTok Reveals Detailed User Numbers for the First Time, CNBC (Aug. 24, 2020, 3:53 PM), https://perma.cc/PV37-EQXG (discussing that TikTok reported over 100 million monthly active users in the United States in August 2020). and triggered a scramble by ByteDance to find a US company to acquire TikTok before the CFIUS-imposed deadline.161Rachel Lerman, TikTok Gets Short Extension Before It Must Be Sold, Wash. Post (Nov. 13, 2020, 3:12 PM), https://perma.cc/U897-RWW7. Notably, President Trump was intimately involved in corporate negotiations to divest TikTok and initially suggested that approval of such a deal would be conditional on a payment to the Department of the Treasury, before backing away from this demand amidst legal concerns.162Rachel Lerman, Trump Says He Has Given His ‘Blessing’ to TikTok Deal but that Final Terms Are Still Being Negotiated, Wash. Post (Sept. 19, 2020, 8:30 PM), https://perma.cc/K3A6-EBFA. These trends, and the ongoing TikTok saga, suggest that CFIUS’s caseload will continue to increase in line with growing alarm over Chinese economic espionage.
D. Article II Economic Regulatory Powers
1. The National Emergencies Act
The President has historically enjoyed broad discretion in the exercise of Article II powers over policy issues that touch on foreign policy.163See, e.g., Trump v. Hawaii, 138 S. Ct. 2392, 2419–20 (2018) (“‘Any rule of constitutional law that would inhibit the flexibility’ of the President ‘to respond to changing world conditions should be adopted only with the greatest caution,’ and [the Court’s] inquiry into matters of . . . national security is highly constrained.” (quoting Mathews v. Diaz, 426 U.S. 67, 81–82 (1976))); United States v. Curtiss-Wright Exp. Corp., 299 U.S. 304, 319 (1936) (“The President is the constitutional representative of the United States with regard to foreign nations.”). Executive emergency powers are not expressly granted in the Constitution but are rather implied by the President’s role as Commander in Chief.164See U.S. Const. art. II (“The President shall be Commander in Chief of the Army and Navy of the United States, and of the Militia of the several States, when called into the actual Service of the United States . . . .”); L. Elaine Halchin, Cong. Rsch. Serv., 98-505, National Emergency Powers 1–2 (2020) (“There is a tradition of constitutional interpretation that has resulted in so-called implied powers, which may be invoked in order to respond to an emergency situation . . . . Presidents have occasionally taken an emergency action that they assumed to be constitutionally permissible.”). In an effort to formalize and limit the executive’s emergency powers, Congress passed the NEA in 1976.165See National Emergencies Act, Pub. L. No. 94-412, 90 Stat. 1255 (1976) (codified at 50 U.S.C. §§ 1601 et seq.); Halchin, supra note 164, at 3. The NEA originally provided for a legislative veto over declarations of national emergency—Congress could terminate an emergency by passing a concurrent resolution requiring a simple majority in each house.166Halchin, supra note 164, at 11. However, the Supreme Court invalidated the legislative veto in 1983 as inconsistent with constitutional separation of powers.167INS v. Chadha, 462 U.S. 919, 957–59 (1983).
Consequently, the NEA was amended in 1985 to permit Congress to terminate an emergency with a joint resolution.168Halchin, supra note 164, at 11. However, a joint resolution (unlike a concurrent resolution) is subject to presidential veto. Such a veto occurred recently when bipartisan majorities in both chambers passed a joint resolution terminating President Trump’s national emergency concerning the southern border.169Id. at 19–20. President Trump vetoed the joint resolution, and Congress subsequently failed to muster the bicameral two-thirds majority necessary to override the veto.170Id. Despite Congress’s limited ability to repeal a declaration of national emergency, a national emergency has occasionally been struck down through judicial review.171See, e.g., Youngstown Sheet & Tube Co. v. Sawyer (Steel Seizure), 343 U.S. 579, 587 (1952) (“[W]e cannot with faithfulness to our constitutional system hold that the Commander in Chief of the Armed Forces has the ultimate power as such to take possession of private property in order to keep labor disputes from stopping production. This is a job for the Nation’s lawmakers, not for its military authorities.”); Sierra Club v. Trump, 977 F.3d 853, 882 (9th Cir. 2020) (“[J]udicial review of statutes conferring specific emergency powers to the President is critical because . . . the President’s emergency authority is conferred only by statute.”). Nevertheless, the Supreme Court has generally proven deferential to the executive’s Article II powers in cases with a clear foreign nexus.172See, e.g., Trump v. Hawaii, 138 S. Ct. 2392 (2018) (upholding Trump administration travel ban); Dames & Moore v. Regan, 453 U.S. 654 (1981) (upholding executive orders terminating private claims against the Iranian government).
2. IEEPA Powers: History and Scope
In 1977, Congress passed the IEEPA,173Pub. L. No. 95-223, 91 Stat. 1626 (1977) (codified as amended at 50 U.S.C. § 1701). which grants the President unfettered authority to regulate a broad range of economic activities following a declaration of national emergency pursuant to the NEA.174Christopher A. Casey, Ian F. Fergusson, Dianne E. Rennack & Jennifer K. Elsea, Cong. Rsch. Serv., R45618, The International Emergency Economic Powers Act: Origins, Evolution, and Use 2 (2020). IEEPA restricted existing executive powers under the Trading with the Enemy Act (“TWEA”), enacted during World War I, which permitted the President to exercise controls over both foreign and domestic economic transactions during declared national emergencies.175Id. at 2–4, 9. Notably, President Franklin D. Roosevelt used these powers to impose a bank holiday during the Great Depression.176Id. at 4–5. During the post-war era, TWEA emergencies were used extensively to place sanctions on communist governments, control the gold supply, place restrictions on outgoing foreign direct investment, and impose a ten percent supplemental tariff.177Id. at 6. In the aftermath of Watergate and the Vietnam War, Congress sought to reign in the executive branch’s emergency powers, prompting statutory revision.178Id. at 6–8.
IEEPA enables the President to exercise controls over international economic transactions following a declaration of national emergency.179Halchin, supra note 164, at 10. Consequently, the President may use these powers to block transactions involving any foreign country or national.180Casey et al., supra note 174, at 10. IEEPA contains several procedural requirements beyond those in the NEA, requiring that the executive consult with Congress “in every possible instance” before using its powers, transmit a detailed report to Congress justifying the use of powers, and provide updates to Congress every six months.181Id. at 10–11. Nevertheless, these requirements provide Congress with little substantive power for checking the exercise of emergency powers. As with the CFIUS statute, IEEPA has been amended numerous times by Congress, primarily to increase the statutory penalty for violation of IEEPA orders.182Id. at 11–12. Unlike the CFIUS amendments, the IEEPA amendments did not substantially increase the scope of executive power granted by statute.183See id. at 11–15.
Courts have consistently granted the executive broad deference in exercising powers under IEEPA, and even constitutional challenges to IEEPA have generally been unsuccessful.184See id. at 33–43 (noting that nondelegation, takings clause, due process, and First Amendment freedom of association challenges to IEEPA have been universally unsuccessful). In the seminal case on IEEPA’s scope, Dames & Moore v. Regan,185453 U.S. 654 (1981). the petitioners challenged a settlement agreement between the Reagan administration and the Iranian government that resulted in an executive order terminating all existing private legal proceedings against Iran. The Court noted that although IEEPA did not expressly grant the President the power to settle claims, the absence of legislative history opposing such powers indicated that Congress had “implicitly approved the practice of claim settlement by executive agreement.”186Id. at 680. The Court reasoned that TWEA had granted the President broad economic powers, and that these powers were not constrained by the passage of IEEPA.187Id. at 672–73 (“[W]e think both the legislative history and cases interpreting the TWEA fully sustain the broad authority of the Executive when acting under this congressional grant of power. Although Congress intended to limit the President’s emergency power in peacetime, we do not think the changes brought about by the enactment of the IEEPA in any way affected the authority of the President to take the specific actions taken here.”).
IEEPA’s grant of executive power is broad enough to encompass the delegations contained within other statutes. For example, when the Export Administration Act expired in 1983 and before Congress could renew it, President Reagan declared a national emergency to maintain the existing system of export controls under IEEPA.188Exec. Order No. 12,444, 48 Fed. Reg. 48,215, 48,215 (Oct. 14, 1983); see Casey et al., supra note 174, at 41. Later presidents continued to issue similar executive orders, up until the passage of the Export Control Reform Act of 2018, which once again returned export controls to sound statutory footing.189Casey et al., supra note 174, at 41–43. Legal challenges to this prior arrangement have generally been unsuccessful, with courts typically holding that Congress had implicitly authorized the continuation of export controls under IEEPA orders.190Id. at 42.
3. Contemporary Use of IEEPA
The Trump administration demonstrated an unprecedented willingness to use IEEPA to address broader economic issues related to trade and technology transfer. In May 2019, President Trump issued an executive order under IEEPA—Securing the Information and Communications Technology and Services Supply Chain—which provided broad authority to the Secretary of Commerce to prohibit “any acquisition, importation, transfer, installation, dealing in, or use of” telecommunications technologies or services by any “foreign adversary.”191Exec. Order No. 13,873, 84 Fed. Reg. 22,689, 22,689–90 (May 15, 2019). The order was primarily viewed as an effort to prohibit importation of 5G equipment from the Chinese telecommunications group Huawei.192See Maggie Miller, Bipartisan Senators Want Federal Plan for Sharing More Info on Supply Chain Threats, The Hill (Oct. 10, 2019, 4:47 PM), https://perma.cc/49QV-KRA6. Although limited to a certain set of information technologies, the order grants the Department of Commerce broad leeway in reviewing transactions that would not have been covered under CFIUS.193The executive order is broad enough to prohibit not only incoming foreign investments, but installation and importation of foreign telecommunications equipment by US companies. See Kay C. Georgi & David R. Hanke, US Administration Tests the Water on New Unheard-of Government Review of International Technology Transactions, Arent Fox (Dec. 2, 2019), https://perma.cc/RQH4-T5A7.
President Trump signaled a willingness to enact even more expansive trade controls under IEEPA, tweeting in August 2019: “Our great American companies are hereby ordered to immediately start looking for an alternative to China, including bringing your companies HOME and making your products in the USA.”194Donald J. Trump (@realDoanldTrump), Twitter (Aug. 23, 2019, 10:59 AM), https://perma.cc/NZ9F-B7P5. When challenged on the legal basis for such an order, the President astutely tweeted: “For all of the Fake News Reporters that don’t have a clue as to what the law is relative to Presidential powers, China, etc., try looking at the Emergency Economic Powers Act of 1977. Case closed!”195Donald J. Trump (@realDonaldTrump), Twitter (Aug. 23, 2019, 11:58 PM), https://perma.cc/NZ9F-B7P5. While IEEPA has never been used to impose tariffs, its delegation of powers is sufficiently broad to enable the President to impose restrictions on trade.196Casey et al., supra note 174, at 45.
President Trump’s proposed use of IEEPA here, while controversial, would almost certainly have been upheld as constitutional.197See infra note 268 and accompanying text. Although courts have yet to define the full scope of executive power under IEEPA, existing precedent would suggest that courts are likely to grant significant deference to the President on issues of national security and international trade.198See infra notes 201–06 and accompanying text. Many of the national emergencies declared over the past forty years invoking IEEPA are quite broad.199Casey et al., supra note 174, at 48–51 (discussing examples including: Executive Order 13,047 in 1997, titled “Prohibiting New Investment in Burma”; Executive Order 13,581 in 2011, titled “Blocking Property of Transnational Criminal Organizations”; Executive Order 13,818 in 2017, titled “Blocking the Property of Persons Involved in Serious Human Rights Abuse or Corruption”; and Executive Order 13,920 in 2020, titled “Securing the United States Bulk-Power System”). Nevertheless, to date, no executive order invoking IEEPA has been struck down through judicial review.200Id. at 33–43.
The Court has reasoned that “[m]atters intimately related to foreign policy and national security are rarely proper subjects for judicial intervention.”201Haig v. Agee, 453 U.S. 280, 292 (1981). When evaluating whether presidential emergency powers are valid, the Court has traditionally turned to the test articulated in Justice Jackson’s concurring opinion in Youngstown Sheet & Tube Co. v. Sawyer (Steel Seizure),202343 U.S. 579 (1952). in which the Court invalidated President Truman’s order to seize and operate steel mills under federal direction during a labor dispute.203See id. at 635–38 (1952) (Jackson, J., concurring); see also Dames & Moore v. Regan, 453 U.S. 654, 674 (1981) (“Because the President’s action in nullifying the attachments and ordering the transfer of the assets was taken pursuant to specific congressional authorization, it is ‘supported by the strongest of presumptions and the widest latitude of judicial interpretation . . . .’” (quoting Steel Seizure, 343 U.S. at 637 (Jackson, J., concurring))). Under Justice Jackson’s framework, “[w]hen the President acts pursuant to an express or implied authorization of Congress, his authority is at its maximum, for it includes all that he possesses in his own right plus all that Congress can delegate.”204Steel Seizure, 343 U.S. at 635 (Jackson, J., concurring). Conversely, “[w]hen the President takes measures incompatible with the expressed or implied will of Congress, his power is at its lowest ebb.”205Id. at 637. Because Congress expressly delegated IEEPA’s broad powers to the executive, courts have granted significant deference to IEEPA national emergencies.206See Dames & Moore, 453 U.S. at 674; see also Casey et al., supra note 174, at 33–34, 44 (“Despite these criticisms [of IEEPA’s breadth], Congress has not acted to terminate or otherwise express displeasure with an emergency declaration invoking IEEPA. This absence of any explicit statement of disapproval, coupled with explicit statements of approval in some instances, may indicate congressional approval of presidential use of IEEPA thus far.”). IEEPA’s open-ended delegation would almost certainly be broad enough to encompass the power to review foreign investments.
4. China, TikTok, and WeChat: An Emerging IEEPA and CFIUS Nexus
Through his final year in office, President Trump used IEEPA to directly address the threats posed by Chinese companies, suggesting that IEEPA could be used concurrently with the traditional CFIUS process to regulate investments in the future. Citing the United States’ dependence on China for rare earth minerals, the Trump administration declared a national emergency under IEEPA: Addressing the Threat to the Domestic Supply Chain from Reliance on Critical Minerals from Foreign Adversaries.207Exec. Order No. 13,953, 85 Fed. Reg. 62,539, 62,539 (Sept. 30, 2020). Under IEEPA, the order directs a plethora of government agencies to implement programs, including loan guarantees and subsidies, to expand domestic supply chains of critical minerals.208Id. at 62,542. Later in November 2020, the Trump administration declared another national emergency under IEEPA: Addressing the Threat from Securities Investments that Finance Communist Chinese Military Companies.209Exec. Order No. 13,959, 85 Fed. Reg. 73,185 (Nov. 12, 2020). This order uses IEEPA to prohibit US persons from investing in a list of “Communist Chinese military companies” specified by the Secretary of Defense under a mandate from Congress.210Id. at 73,185–87; see also Press Release, U.S. Dep’t of Def., DOD Releases List of Additional Companies, in Accordance with Section 1237 of FY99 NDAA (Aug. 28, 2020), https://perma.cc/GCY4-DG84 (providing the DOD’s initial combined list of Communist Chinese military companies, which included dozens of major Chinese companies, most notably Huawei).
However, perhaps most significantly, in August 2020, President Trump issued a pair of executive orders prohibiting TikTok and WeChat, two mobile applications owned by Chinese companies.211Exec. Order No. 13,942, 85 Fed. Reg. 48,637 (Aug. 6, 2020) (prohibiting TikTok); Exec. Order No. 13,943, 85 Fed. Reg. 48,641 (Aug. 6, 2020) (prohibiting WeChat). These IEEPA orders stated that the applications posed a security threat by allowing the Chinese government to access users’ personal and proprietary data and by enabling Chinese Communist Party censorship and disinformation.212Exec. Order No. 13,942, 85 Fed. Reg. at 48,637–38 (prohibiting TikTok); Exec. Order No. 13,943, 85 Fed. Reg. at 48,641 (prohibiting WeChat). TikTok and WeChat users immediately challenged the orders in federal court, and were successful in temporarily halting the bans while courts determine the legality of the dual orders.213See Rachel Lerman, TikTok Creators Successfully Block U.S. App Ban with Lawsuit, Wash. Post (Oct. 30, 2020, 5:19 PM), https://perma.cc/DFP2-Q83W; David Shepardson, U.S. Appeals Court Rejects Immediate WeChat Ban, Reuters (Oct. 26, 2020, 9:51 PM), https://perma.cc/6P6J-F5CY.
Nevertheless, while TikTok and WeChat succeeded in delaying a ban, the Trump executive orders appear to be substantively well within the scope of IEEPA.214See Steven Davidoff Solomon, Why TikTok Will Lose, N.Y. Times (Aug. 24, 2020), https://perma.cc/L2DF-BUBQ. Litigation by the WeChat and TikTok parent companies appears to be a delaying tactic aimed at buying time for the companies to negotiate divestments of the applications to interested US companies, thereby avoiding a “fire sale” situation.215See Robert Chesney, Will TikTok Win Its Lawsuit Against Trump?, Lawfare Blog (Aug. 25, 2020, 9:17 PM), https://perma.cc/P4VM-N4HD. Notably, the TikTok ban was issued roughly one week prior to the CFIUS order directing ByteDance to divest the application.216Compare Exec. Order No. 13,942, 85 Fed. Reg. at 48,637, with Regarding the Acquisition of Musical.ly by ByteDance Ltd., 85 Fed. Reg. 51,297 (Aug. 14, 2020). This suggests that the Trump administration issued its IEEPA order as a “stick” to hasten the divestment of TikTok rather than actually seeking to enforce an outright ban of the application.217See Chesney, supra note 215. This interplay between CFIUS and IEEPA suggests that the two authorities could be used as complements—“different tools in the toolbox,” with IEEPA being the blunter instrument—rather than direct substitutes in the realm of foreign investment regulation.218Compare Exec. Order No. 13,942, 85 Fed. Reg. at 48,637–38 (indirectly encouraging divestment of TikTok through the threat of a ban under the IEEPA), with Regarding the Acquisition of Musical.ly by ByteDance Ltd., 85 Fed. Reg. at 51,297 (directly encouraging divestment through the CFIUS).
II. CFIUS Drawbacks
The CFIUS process has served as the primary means of screening foreign investment for national security risks for over four decades. The committee has been subject to periodic criticism, which has led Congress to continually strengthen CFIUS review through new legislation. Nevertheless, several drawbacks to the current process are broadly recognized by investors, practitioners, and scholars alike.
A. Undefined Scope and Investor Uncertainty
CFIUS is commonly described by critics as a “black box” given the secrecy surrounding the review process and its ambiguous criteria for assessing national security risks.219See, e.g., E. Maddy Berg, A Tale of Two Statutes: Using IEEPA’s Accountability Safeguards to Inspire CFIUS Reform, 118 Colum. L. Rev. 1763, 1764–65 (2018); McLaughlin et al., supra note 151 (“The panel’s investigations are effectively a black box. It never comments on individual reviews and relies on classified information to decide whether to oppose or clear a deal.”). Because parties to a transaction usually abandon the deal if they perceive excessive scrutiny by CFIUS, the committee is rarely required to articulate why a transaction has been blocked.220Thomas et al., supra note 43, at 4–5. Although FIRRMA contains new provisions clarifying when reviews are required and when filings are mandatory, significant ambiguity remains in the process.221Jackson, supra note 7, at 11–12.
One opportunity to narrow and clarify the scope of CFIUS review came when Congress authorized CFIUS to apply particular scrutiny to transactions involving “countr[ies] of special concern” in the FIRRMA statute.222Foreign Investment Risk Review Modernization Act of 2018, Pub. L. No. 115-232, § 1702(c), 132 Stat. 2174, 2176 (codified as amended at 50 U.S.C. § 4565). CFIUS consequently had the opportunity to introduce a “blacklist” of certain countries, putting investors from these countries on notice that their transactions would be subject to additional scrutiny.223See Hanke, supra note 144 (discussing the debate in Congress over whether to utilize a “white list” approach excepting friendly allies or “blacklist” approach targeting adversaries to implement FIRRMA, as well as the Department of the Treasury’s strong opposition to the “blacklist” approach). Instead, CFIUS’s implementing regulations opted for a softer “white list” approach, exempting certain investors from Canada, the UK, and Australia from CFIUS review over noncontrolling investments and certain real estate transactions.224See Hanke et al., supra note 36.
Consequently, under FIRRMA, investors from US allies such as Israel and Japan are in theory subject to the same scrutiny as those from China and Russia. Although any reasonable observer could conclude that CFIUS’s increased scrutiny over the past five years is in direct response to the security challenges created by Chinese investment, the CFIUS regulations remain facially neutral.225See 31 C.F.R §§ 800.218, 800.1001 (2020). This is concerning because the broad scope of CFIUS’s authority, coupled with its authority to torpedo prospective deals, could have a chilling effect on foreign investments from friendly countries that pose no security threats.226See Barrington, supra note 13, at 109; Boyd, supra note 8, at 123. By failing to explicitly impose heightened scrutiny against Chinese investors, CFIUS sweeps nonthreatening investors into a void of uncertainty.
In addition to creating investor uncertainty, CFIUS’s broad scope also threatens to overburden the limited adjudicative resources of its member agencies. With growth in the number of CFIUS reviews in recent years, committee members have faced an increased workload leading to resource constraints.227U.S. Gov’t Accountability Off., GAO-18-249, Committee on Foreign Investment in the United States: Treasury Should Coordinate Assessments of Resources Needed to Address Increased Workload 13 (2018). These constraints are exacerbated by the proliferation of complex technologies subject to review, including artificial intelligence and robotics.228Id. at 15. Similarly, the structure of international transactions has grown more complex, at times obfuscating the ultimate owner.229Id. at 16. While some agencies have increased CFIUS staffing to address these challenges, staffing levels have not increased in line with the number of reviews.230Id. at 18–19.
CFIUS will likely face further resource limitations as FIRRMA’s implementing regulations introduce mandatory filing requirements23131 C.F.R. § 800.401 (2020); Hanke et al., supra note 140. and expand the scope of review to cover noncontrolling investments and real estate.23231 C.F.R. § 800.211; U.S. Dep’t of Treasury, supra note 127, at 2–3. CFIUS’s caseload has already increased significantly due to the mandatory declarations required by FIRRMA.233U.S. Dep’t of Treasury, supra note 149, at 4, 33–34 (noting that CFIUS filings have increased from 143 joint voluntary notices in 2015 to 231 joint voluntary notices and ninety-four mandatory declarations in 2019). Notably, FIRRMA introduced filing fees for the first time to cover the cost of CFIUS reviews.234Jackson, supra note 7, at 25. Although the current filing fees are modest, they could nevertheless have their own chilling effect on foreign investments.23531 C.F.R. § 800.1101 (structuring the filing fees are based on the value of the transaction, capped at a maximum of $300,000).
B. Regulatory Lag and Statutory Gaps
Congress must approve updates to the CFIUS review, subjecting the committee to a lengthy legislative process followed by the protracted rulemaking (notice and comment) process.236See David R. Hanke, CFIUS 2.0: Investment Funds and Other Stakeholders Await Full, Revamped Regulations, Arent Fox (July 29, 2019), https://perma.cc/CB6P-3TQW. The FIRRMA legislation was first introduced in November 2017, yet its implementing final regulations were only published in February 2020.237Jackson, supra note 7, at 2, 11. By contrast, executive orders may be issued with minimal delay. Minimizing regulatory delays is critical in the realm of foreign investments due to constant advances in technology, which may require immediate action.
The US government was initially caught flatfooted by Huawei’s rapid development of 5G technology and largely failed to contain the global proliferation of Huawei hardware, with even close allies in Europe declining to ban Huawei products.238Emily Feng & Amy Cheng, China’s Tech Giant Huawei Spans Much of the Globe Despite U.S. Efforts To Ban It, NPR (Oct. 24, 2019, 2:30 PM), https://perma.cc/ES7C-4DQG. Notably, the Trump administration resorted to the use of an IEEPA-based executive order to ban the importation of Huawei telecommunications equipment.239Exec. Order No. 13,873, 84 Fed. Reg. 22,689 (May 15, 2019). Investment in Huawei, labeled a “Communist Chinese military company,” was later prohibited through a separate executive order.240Exec. Order No. 13,959, 85 Fed. Reg. 73,185 (Nov. 12, 2020); see Press Release, supra note 210 (noting that Huawei was on the original list of companies). The Trump administration’s efforts to encourage US allies to ban Huawei 5G technology belatedly gained traction in 2020 amidst growing global skepticism regarding China’s overseas investments.241See Robbie Gramer, Trump Turning More Countries in Europe Against Huawei, Foreign Pol’y (Oct. 27, 2020, 4:03 PM), https://perma.cc/GP7U-HPKJ (noting that Huawei 5G was banned outright in the UK and Sweden, with much of Europe imposing less draconian restrictions); Amy Kazmin & Stephanie Findlay, India Moves To Cut Huawei Gear from Telecoms Network, Fin. Times (Aug. 24, 2020), https://perma.cc/8QEH-QKWM (describing that India’s government is seeking to quietly phase out Huawei equipment). Amidst rising tensions with China, the urgency of countering Huawei 5G has only grown in salience. In October 2020, the Department of Defense announced that it would provide $600 million in direct funding to test 5G technology on military bases,242Press Release, U.S. Dep’t of Def., DOD Announces $600 Million for 5G Experimentation and Testing at Five Installations (Oct. 8, 2020), https://perma.cc/3NQK-ZTXZ (stating that funding is spread across several 5G competitors at five military bases). in a move reminiscent of Cold War era industrial policy making that could presage greater military oversight over 5G development.243See Alex Gangitano, Wireless Industry Calls on Trump To Oppose Efforts To Nationalize 5G Amid Pentagon Push, The Hill (Oct. 13, 2020, 10:21 AM), https://perma.cc/Y449-52QW.
Some security experts are concerned that China could achieve a similar breakthrough in quantum computing technology.244Fred Guterl, Are We Ready for a “Quantum Surprise” from China?, Newsweek (Oct. 25, 2019, 1:22 PM), https://perma.cc/JXS9-PAHJ. Quantum technology would enable the development of supercomputers capable of defeating virtually all existing forms of encryption technology, posing a obvious security threat to both the US government’s classified systems and proprietary commercial networks.245Dennis Overbye, Quantum Computing Is Coming, Bit by Qubit, N.Y. Times (Oct. 23, 2019), https://perma.cc/G7E2-E6W6. In recent years, the Chinese government has invested an immense $10 billion in quantum research, and China is widely recognized as a global leader in the field.246Shiyin Chen, Chinese Scientists Claim Breakthrough in Quantum Computing Race, Bloomberg (Dec. 3, 2020, 10:05 PM), https://perma.cc/863V-5HCH; Jeanne Whalen, The Quantum Revolution Is Coming, and Chinese Scientists Are at the Forefront, Wash. Post (Aug. 18, 2019, 7:10 PM), https://perma.cc/3UMF-ZWD6. Fears of falling behind China in the race for quantum technology led Congress to commit over $1.2 billion in funding for quantum research in fiscal years 2019 through 2023.247Sara Castellanos, In a White House Summit on Quantum Technology, Experts Map Next Steps, Wall St. J. (May 31, 2019, 5:48 PM), https://perma.cc/5LFP-WELX; see National Quantum Initiative Act, Pub. L. No. 115-368, 132 Stat. 5092 (2018) (codified in scattered sections of 15 U.S.C.). Under the same law, President Trump established a quantum advisory committee in August 2019 consisting of industry, academic, and government representatives to coordinate quantum research and development.248Exec. Order 13,885, 84 Fed. Reg. 46,873, 46,873 (Aug. 30, 2019). In October 2019, Google achieved a significant breakthrough in quantum computer development, outpacing its rivals, including China.249James Griffiths, The US Just Moved Ahead of China in Quantum Computing. But the Race Isn’t Over Yet, CNN (Oct. 24, 2019), https://perma.cc/2N3N-4AS3. Nevertheless, in December 2020, Chinese scientists claimed to have developed a quantum machine ten billion times faster than Google’s prototype.250Chen, supra note 246. Regardless of the veracity of these claims, this intensifying arms race is likely to make the acquisition of quantum know-how a key priority for Beijing, whether through outright economic espionage or investments in US research entities. FIRRMA’s failure to grant CFIUS jurisdiction over “greenfield” investments is particularly concerning here, as Chinese state-owned enterprises have invested in US start-ups to acquire knowledge in other cutting-edge fields such as artificial intelligence and blockchain.251Barrington, supra note 13, at 123–26. Decisive government action will almost certainly be necessary to protect these fledgling innovations in the race for a quantum computer.
To mitigate legislative delays in addressing new risks, CFIUS’s governing statutes and regulations are broadly written in an attempt to allow for some degree of flexibility regarding implementation.252See generally Jackson, supra note 7, at 35–38. However, this comes at the expense of clarity.253See supra Section II.A. Additionally, even where statutory language is broad enough to permit the Department of the Treasury to adopt new regulations, proposed rulemakings are still subject to the time-consuming notice and comment requirements contained in the APA.2545 U.S.C. § 553.
C. Judicial Review
The D.C. Circuit’s ruling in Ralls introduced legal uncertainty into the CFIUS review process by upholding a due process challenge to a CFIUS determination.255Ralls Corp. v. CFIUS, 758 F.3d 296, 325 (D.C. Cir. 2014). The court’s ruling has attracted criticism for intruding upon the legislative and executive branches’ traditional authority over foreign policy256See, e.g., Fitzpatrick, supra note 14, at 1102–03; Gent, supra note 84, at 482–83. by rejecting the Obama administration’s contention that its CFIUS order was a nonjusticiable political question.257See Ralls, 758 F.3d at 312–14. Congress almost certainly did not intend to permit judicial review of CFIUS determinations, based upon the plain statutory language specifying that CFIUS orders “shall not be subject to judicial review,” as well as its longstanding inclination towards increasing the committee’s power through statute.25850 U.S.C. § 4565(e)(1); see Berg, supra note 219, at 1769–73. Nevertheless, the D.C. Circuit held that “neither the text of the statutory bar nor the legislative history of the statute provides clear and convincing evidence that the Congress intended to preclude judicial review of Ralls’s procedural due process challenge.”259Ralls, 758 F.3d at 311.
The Ralls holding is problematic on several levels. The Chinese-owned Ralls Corporation’s acquisition of wind farms located near a military facility was precisely the type of transaction the new real estate provisions of FIRRMA are intended to prevent.260See Foreign Investment Risk Review Modernization Act of 2018, Pub. L. No. 115-232, §§ 1702(c), 1703(a)(4)(B)(ii), 132 Stat. 2174, 2176–78 (codified as amended at 50 U.S.C. § 4565). By upholding Ralls’s due process challenge, the D.C. Circuit has introduced uncertainty into the implementation of these provisions, leaving them potentially open to challenge by future litigants. By encouraging foreign companies to challenge CFIUS orders in court, the Ralls decision is likely to lead to costly and prolonged litigation, draining agency resources and delaying the implementation of orders that may be vital to national security. TikTok parent company ByteDance filed a due process challenge in response to the Trump administration’s CFIUS divestment order, with litigation still ongoing as of December 2020.261See Kim Lyons, Trump Administration Appeals Yet Another TikTok Ruling, The Verge (Dec. 28, 2020, 3:21 PM), https://perma.cc/95R8-A49A; Why We Are Suing the Administration, TikTok (Aug. 24, 2020), https://perma.cc/5RGY-ZKM4 (quoting the Complaint filed by ByteDance that “CFIUS never articulated any reason why TikTok’s security measures were inadequate to address any national security concerns, and effectively terminated formal communications with Plaintiffs well before the conclusion of the initial statutory review period”). Such litigation against a major technology company will almost certainly prove to be prolonged and costly for the government, while leaving the underlying issue of TikTok data privacy unresolved for the time being.
Additionally, the Ralls holding that due process required the disclosure of unclassified, but not classified,262See Ralls, 758 F.3d at 319. information is likely to encourage overclassification by CFIUS agencies, leading to even less transparency in the already opaque CFIUS process.263See Barrington, supra note 13, at 96; Fitzpatrick, supra note 14, at 1106. Finally, the issue of whether executive privilege shields CFIUS evidence from disclosure was left undetermined in the Ralls opinion, creating yet more ambiguity over the processes of CFIUS.264See Ralls, 758 F.3d at 320–21. The D.C. Circuit’s judicial foray into the realm of CFIUS reviews and the prospect of case-by-case procedural challenges to presidential orders has created yet more uncertainty in a field where bright lines are desperately needed for the sake of both efficiency and national security.
III. Proposed Article II Regulatory Framework
This Comment proposes aggressively utilizing the President’s Article II powers under IEEPA as a means of addressing the shortcomings of the existing CFIUS process. Under this framework, a series of executive orders, similar to the telecommunication supply chain executive order265See Exec. Order No. 13,873, 84 Fed. Reg. 22,689 (May 15, 2019). and the order prohibiting investment in Communist Chinese military companies,266See Exec. Order No. 13,959, 85 Fed. Reg. 73,185 (Nov. 12, 2020). would explicitly prohibit specified categories of investments. These orders would target China and other malign actors such as Russia to supplement, not replace, the existing CFIUS process. CFIUS would retain residual authority to review transactions not explicitly barred by the executive orders. While the Trump administration was defined by an increased willingness to utilize IEEPA to stem the economic influence of large Chinese enterprises, its prohibitions appeared to be ad hoc efforts targeting specific companies.267See id. at 73,185–86, 73,189. A broader, more systematic use of IEEPA powers would be necessary to introduce order and certainty to the process of regulating foreign investments.
The constitutionality of such an approach, from a substantive standpoint, is not in doubt. Legal experts are in general agreement that IEEPA powers are broad enough to permit even the blanket ban on outgoing investments in China contemplated by the President in August 2019.268See Keith Bradsher & Alan Rappeport, Trump Ordered U.S. Companies To Leave China. Is That Possible?, N.Y. Times (Aug. 24, 2019), https://perma.cc/F32L-LFHG (“The general conclusion [is] that the president may, in fact, have the authority to carry out many threats against companies doing business with China.”); Jennifer Hillman, Can Presidents Block Investment in China?, Council on Foreign Rels. (Sept. 5, 2019), https://perma.cc/3KS5-WR94 (noting that IEEPA authorities “would allow Trump to block future transfers of funds to Chinese companies or individuals”). IEEPA national emergencies have been granted significant deference by the courts, and the use of IEEPA to block foreign investments would fit favorably within the Youngstown framework for assessing the validity of executive orders.269See Dames & Moore v. Regan, 453 U.S. 654, 674–75 (1981); Youngstown Sheet & Tube Co. v. Sawyer (Steel Seizure), 343 U.S. 579, 635 (1952) (Jackson, J., concurring) (“When the President acts pursuant to an express or implied authorization of Congress, his authority is at its maximum, for it includes all that he possesses in his own right plus all that Congress can delegate.”); see also Casey et al., supra note 174, at 33–34, 44 (“Despite these criticisms [of IEEPA’s breadth], Congress has not acted to terminate or otherwise express displeasure with an emergency declaration invoking IEEPA. This absence of any explicit statement of disapproval, coupled with explicit statements of approval in some instances, may indicate congressional approval of presidential use of IEEPA thus far.”). Additionally, courts have acknowledged that the President’s own constitutional powers may give him the authority to regulate international commerce, even absent IEEPA.270See Dames & Moore, 453 U.S. at 682 (“In addition to congressional acquiescence in the President’s power to settle claims, prior cases of this Court have also recognized that the President does have some measure of power to enter into executive agreements without obtaining the advice and consent of the Senate.”). Legal experts broadly agree that the TikTok and WeChat lawsuits challenging the Trump administration’s IEEPA-based ban stand little chance of success on the merits.271See Chesney, supra note 215 (“I’m skeptical about the merits claims almost across the board . . . .”); Noah Feldman, TikTok Lawsuit Against Trump Order Is a Long Shot, Bloomberg (Aug. 25, 2020, 6:30 AM), https://perma.cc/X7TJ-NT57 (“The lawsuit filed by Byte[D]ance, the parent company of TikTok, is a bit of a long shot.”); Solomon, supra note 214 (“TikTok’s lawsuit is a delaying tactic, at best.”). To date, no executive order invoking IEEPA has been struck down through judicial review.272See Casey et al., supra note 174, at 33–43.
A. An Emerging Political Consensus
Just a year ago, the aggressive use of executive orders to impose restrictions on Chinese investment would have faced significant political opposition, particularly from Fortune 500 corporations and trade associations such as the US Chamber of Commerce that have historically benefitted from trade with China.273See Jill Disis, American Companies Are Taking Enormous Risks To Do Business in China, CNN (Oct. 12, 2019), https://perma.cc/GZT2-2H8Y. However, over the past year, United States–China tensions have increased markedly for various reasons, including (but not limited to) China’s suppression of pro-democracy protests in Hong Kong contrary to international law, lack of transparency regarding the spread of the novel coronavirus, false accusations that US troops brought the coronavirus to Wuhan, and mass detention of Uighur Muslim minorities in reeducation camps.274See Rick Gladstone, How the Cold War between China and U.S. Is Intensifying, N.Y. Times (July 24, 2020), https://perma.cc/PX6X-5829. As a result, a bipartisan consensus has emerged in favor of tougher US policies towards China. In the trade realm, these polices include prohibiting Chinese 5G equipment, limiting the export of sensitive US technologies to China, and limiting the access of Chinese state-owned enterprises to US capital markets.275See Michael Green & Louis Lauter, Congress Will Have Return to Bipartisan Policy with China, The Hill (Oct. 22, 2020, 2:00 PM), https://perma.cc/74M4-2CTG; Niels Lesniewski, House GOP’s China Task Force Offers Plenty of Bipartisan Proposals, Roll Call (Sept. 30, 2020, 12:08 PM), https://perma.cc/9K5X-G2SY.
The 2020 presidential campaign was marked by accusations by both President Trump and then-former-Vice President Biden that their opponent would be soft on China.276See Doyle McManus, Column: Bipartisan Agreement, for a Change: Trump and Biden Share Distrust of China, L.A. Times (Oct. 11, 2020, 4:00 AM), https://perma.cc/VG34-NJE2. One telling episode occurred in April 2020 when the Trump campaign issued an attack ad accusing then-former-Vice President Biden of “stand[ing] up for China” as the coronavirus outbreak intensified.277Aaron Blake, Trump’s New Ad Attacking Biden on China Is a Complete and Utter Mess, Wash. Post (Apr. 11, 2020, 7:48 AM), https://perma.cc/Y2LZ-XFBM. A week later, the Biden campaign countered with its own anti-China attack ad, accusing President Trump of having “rolled over for the Chinese,” to the surprise of many left-leaning activists.278Nahal Toosi, Biden Ad Exposes a Rift over China on the Left, Politico (Apr. 23, 2020, 4:30 AM), https://perma.cc/A4D5-567Z. These developments suggest that the Biden administration will almost certainly maintain the Trump administration’s tough stance on Chinese trade and investments.279See, e.g., Zachary Karabell, Trump’s China Tariffs Failed. Why Isn’t Biden Dropping Them?, Wash. Post (Dec. 4, 2020, 9:39 AM), https://perma.cc/2PYA-TBEM; Jim Zarroli, Trump Launched a Trade War Against China. Don’t Look to Biden To Reverse It, NPR (Nov. 18, 2020, 5:00 AM), https://perma.cc/8D52-25X7. While the use of executive orders to limit Chinese investments is perhaps somewhat less likely under the Biden administration relative to the former Trump administration, it remains a realistic possibility.
B. Reducing Investor Uncertainty
The most significant benefit of the proposed IEEPA approach would be clarity. Executive orders grounded in IEEPA would provide a bright-line rule by explicitly stating which types of investment from which countries are forbidden, placing potential investors on notice. This would be somewhat akin to the “blacklist” that was originally contemplated—but never implemented—in FIRRMA.280See 31 C.F.R. §§ 800.218, 800.219 (2020); Hanke, supra note 144 (describing the original bill introduced by the House that “would have required CFIUS to apply a negative list, or so-called ‘black list,’ of foreign countries”); Treasury Publishes Regulations to Implement FIRRMA & Expand CFIUS Review Authority, Hughes Hubbard & Reed (Oct. 2, 2019), https://perma.cc/VUD9-PPEY (characterizing the “excepted foreign states” and “excepted investors” exceptions provided under the CFR as “laying the groundwork for a type of ‘white list’ of foreign investors and states”). Residual investments not covered by these prohibitions would still be subject to CFIUS regulatory review. Tellingly, the CFIUS statutory language seems to acknowledge the possibility of such a dual-tiered system approach: the President is only permitted to block a foreign investment using CFIUS after finding that “provisions of law, other than this section and the [IEEPA] . . . provide adequate and appropriate authority for the President to protect the national security in the matter before the President.”28150 U.S.C. § 4565(d)(4)(B). This approach would serve to reduce the existing uncertainty as to whether a transaction will be selected for review and legal expenses for potential investors.
Critics of such an approach may note that the potential scope of CFIUS review would remain unchanged even if certain categories of investments were barred by executive order. This would lead many harmless investors to continue incurring the legal costs of voluntarily filing for CFIUS review out of an abundance of caution. However, provided the executive orders and FIRRMA’s mandatory filing requirements would be broad enough to cover most threatening investments, CFIUS could remove its voluntary filing process altogether. Investments not explicitly “blacklisted” would be presumed harmless, with CFIUS only initiating unilateral review in extraordinary cases.
This approach is similar to the regulatory scheme used to implement export controls with its ten categories of regulated dual-use technologies (e.g., lasers and sensors) being listed on a single, unified Commerce Control List.282See Ian F. Fergusson & Paul K. Kerr, Cong. Rsch. Serv., R41916, The U.S. Export Control System and the Export Control Reform Initiative 3 (2020). Technologies not on the lists may still be restricted based on end-use or end-user criteria.283See id. This regulatory scheme, a product of the Obama administration’s efforts to introduce “bright line[s]” to the export control process, replaced an earlier system in which dual-use technologies were controlled based on design intent.284See id. at 13. The Department of the Treasury’s decision to link mandatory CFIUS filings with whether the technology in question would be covered by export control regulations suggests that the CFIUS regulations are already consistent with such an approach.285See 31 C.F.R. § 800.401 (2020); Hanke et al., supra note 140.
Barring certain categories of investments outright through executive orders would limit the number of transactions CFIUS is forced to review, alleviating resource constraints. Investment-restricting executive orders would most likely be targeted towards Chinese investments in the most sensitive technological fields (e.g., telecommunications, personal data and social media, and artificial intelligence). These transactions would also be the most resource intensive to review. Taking these transactions off the table would ease the burden on CFIUS resources and enable it to complete its remaining reviews with greater speed. These factors would foster a more favorable investor climate for investments not barred under IEEPA orders.
C. Increasing Regulatory Agility
The greatest advantage of regulation by executive order is procedural agility. Approximately twenty-seven months elapsed between when FIRRMA was introduced in Congress and when the Department of the Treasury published its final regulations implementing the statute.286See Jackson, supra note 7, at 2, 11. By contrast, exactly two days elapsed between Twitter’s decision to fact-check a tweet by President Trump alleging mail ballot fraud287See Shirin Ghaffary, Twitter Has Finally Started Fact-Checking Trump, Vox (May 26, 2020, 7:27 PM), https://perma.cc/R8E2-5Z8H. and the promulgation of a President Trump’s Executive Order on Preventing Online Censorship.288See Exec. Order No. 13,925, 85 Fed. Reg. 34,079 (May 28, 2020). The order criticizes social media companies for “selective censorship that is harming our national discourse.” Id. at 34,079; see also Bobby Allyn, Stung by Twitter, Trump Signs Executive Order To Weaken Social Media Companies, NPR (May 28, 2020, 4:59 PM), https://perma.cc/3BNH-2HTL (explaining the causal relationship between Twitter’s fact checking of the President’s tweet and the executive order).
Executive orders are not only exempt from the legislative process, but they are also exempt from the notice and comment requirements of the APA.289See Dalton v. Specter, 511 U.S. 462, 469 (1994) (holding that “the President’s actions were not reviewable under the APA, because the President is not an ‘agency’ within the meaning of the APA”). While final agency regulations implementing the contents of an executive order are still subject to the APA’s notice and comment requirements for rulemaking,290See 5 U.S.C. § 553(b)–(c). such orders would allow agencies to immediately implement interim regulations while providing long term regulatory certainty.291See, e.g., Nicholas Wu, President Trump Signs Executive Order Potentially Banning Huawei Equipment, USA Today (May 15, 2019, 5:46 PM), https://perma.cc/RW9G-KUQ7 (“According to the order’s text, the secretary of Commerce and other agencies are directed to create an enforcement plan within 150 days, but ‘interim regulations’ will be implemented until then.”). Applied to the realm of foreign investments, this regulatory agility would permit the President to quickly address emerging threats, similar to the action against Huawei 5G, without waiting months or years for the statutory and rulemaking processes to occur.
D. Limiting Judicial Review
Substantive challenges to restrictions on foreign investments stand virtually no chance of success. Judicial review of CFIUS determinations is expressly prohibited by the CFIUS statutory language.292See 50 U.S.C. § 4565(e)(1) (“The actions of the President . . . and the findings of the President . . . shall not be subject to judicial review.”). While the court in Ralls held that this language did not bar constitutional due process claims, it also held that the language was sufficient to bar final CFIUS determinations by the President.293See Ralls Corp. v. CFIUS, 758 F.3d 296, 311 (D.C. Cir. 2014) (“We think the most natural reading [of the statutory text] . . . is that courts are barred from reviewing final ‘action[s]’ the President takes ‘to suspend or prohibit any covered transaction that threatens to impair the national security of the United States.’ The text does not, however, refer to the reviewability of a constitutional claim challenging the process preceding such presidential action.” (quoting 50 U.S.C. app. § 2170(e))). Similarly, executive orders issued under IEEPA would be evaluated on a case-by-case basis to assess whether the executive actions fall within the scope of IEEPA’s statutory delegation.294See Dames & Moore v. Regan, 453 U.S. 654, 670–71 (1981). Because the Supreme Court has endorsed the view that “[t]he language of IEEPA is sweeping and unqualified,”295Id. at 670–74 (quoting Chas. T. Main Int’l, Inc. v. Khuzestan Water & Power Auth., 651 F.2d 800, 807 (1st Cir. 1981)). lawsuits seeking to overturn IEEPA orders stand little chance of success.296See Casey et al., supra note 174, at 33–43.
Any successful challenge to restrictions on foreign investment would likely turn on procedural grounds. Ralls introduced legal uncertainty when the D.C. Circuit permitted a due process challenge to the CFIUS review process.297See Ralls, 758 F.3d at 325; Gent, supra note 84, at 483. While courts have declined to enforce statutory bars to judicial review in cases involving constitutional claims,298See, e.g., McNary v. Haitian Refugee Ctr., Inc., 498 U.S. 479, 491–92 (1991). they have also traditionally proven deferential to the exercise of Article II powers under IEEPA.299See Dames & Moore, 453 U.S. at 670–74; Casey et al., supra note 174, at 33–43. A due process takings claim challenge to IEEPA failed in Dames & Moore, despite the fact that the plaintiffs arguably had a significantly stronger claim than the Ralls Corporation.300Compare Dames & Moore, 453 U.S. at 663–68 (finding that petitioner had obtained a final judgement against the Iranian government for contractual debts, only to see their claim suspended under President Carter’s executive order), with Ralls, 758 F.3d at 301–02 (finding that appellant successfully challenged the CFIUS order denying its purchase of wind farms on the basis that it posed a threat to national security). While a limited set of case law makes it difficult to state definitively how courts will handle due process challenges to CFIUS orders versus IEEPA orders in the future, Dames & Moore is a precedent much more favorable to government agencies than Ralls. If nothing else, the use of IEEPA would allow agencies to avoid the precedent from Ralls.
E. IEEPA Safeguards
While critics of an IEEPA-grounded regulatory approach to foreign investments may decry the expansion of executive power, both the legislative and judicial branches retain ample opportunities to check the exercise of such power. Under the NEA, Congress retains the ability to terminate a declaration of national emergency with the passage of a veto-proof joint resolution.301See Halchin, supra note 164, at 11. Additionally, Congress could amend IEEPA to automatically sunset declarations of national emergency or to require congressional ratification of any new emergency.302See Casey et al., supra note 174, at 46. Finally, the President is afforded broad deference in the exercise of IEEPA powers because the Court has granted such deference.303See Dames & Moore, 453 U.S. at 671–74. Faced with hypothetical challenges to the arbitrary exercise of IEEPA powers, the Court could always narrow the scope of the deference afforded in Dames & Moore.304See id. The fact that Congress and the judiciary have historically neglected to exercise these safeguards on IEEPA regulation suggests a general acquiescence in the strong exercise of executive power over foreign trade and investments.
The legacy CFIUS review process, governed by statute and regulation, is limited by its broad scope, an absence of transparency regarding process, its dependence on the ponderous legislative and rulemaking processes to make regulatory changes, and uncertainty regarding the potential for judicial review. As the threats posed by Chinese economic aggression become more salient, so will these CFIUS shortcomings. Bright-line rules governing foreign investments are necessary to promote a stable investment climate while ensuring national security. The President should supplement CFIUS by utilizing his Article II powers under IEEPA to narrowly tailor bans on specific foreign investments, while rapidly adjusting for changing technological circumstances. This two-tier framework for restricting harmful investments would increase legal certainty and alleviate CFIUS’s resource constraints. Most importantly, it would acknowledge the obvious: the national security threats posed by foreign investment are largely a product of Beijing’s geopolitical ambitions. Codifying this fact into policy through China-specific prohibitions will better enable government agencies to address these security threats, without chilling friendly foreign investment. Although the Trump administration ultimately declined to take such an approach when evaluating its options in the summer of 2018, it later demonstrated second thoughts by using IEEPA orders to target specific Chinese companies.305See Exec. Order No. 13,959, 85 Fed. Reg. 73,185, (Nov. 12, 2020) (titled “Addressing the Threat from Securities Investments that Finance Communist Chinese Military Companies”); Exec. Order No. 13,942, 85 Fed. Reg. 48,637 (Aug. 6, 2020) (titled “Addressing the Threat Posed by TikTok, and Taking Additional Steps To Address the National Emergency with Respect to the Information and Communications Technology and Services Supply Chain”); Exec. Order No. 13,943, 85 Fed. Reg. 48,641 (Aug. 6, 2020) (titled “Addressing the Threat Posed by WeChat, and Taking Additional Steps to Address the National Emergency with Respect to the Information and Communications Technology and Services Supply Chain”). It remains to be seen whether a future administration will complete the work of bringing bright lines to the black box.