On June 21, 2024, the Department of the Treasury issued a Notice of Proposed Rulemaking (NPRM), “Addressing United States Investments in Certain National Security Technologies and Products in Countries of Concern.” The NPRM builds on the Advance Notice of Proposed Rulemaking (ANPRM) issued in August 2023 in response to President Joseph Biden’s Executive Order 14105 prohibiting U.S. investments in certain industry sectors of countries of concern and imposing certain notification requirements. The NPRM currently identifies only China (and the administrative regions of Hong Kong and Macau) as a “country of concern.” For additional details on these earlier actions, see Thompson Hine’s International Trade Update of August 11, 2023. The NPRM sets forth a full draft of the proposed regulations and seeks public comments.

A Treasury Department press release highlights that the United States remains “committed to fostering an open investment environment, and this new program will not change that.” The NPRM “will be a narrow and targeted national security program focused on certain U.S. outbound investments that contribute capital as well as intangible benefits to persons of a country of concern engaged in activities involving certain sensitive technologies and products that could pose risks to U.S. national security.” Specifically, the NPRM provides detail on key concepts and aspects of the program’s implementation, including:

  • Obligations of a U.S. person regarding a covered transaction;
  • Categories of covered transactions and excepted transactions;
  • Technical specifications to inform the scope of covered transactions based on certain technologies and products in the areas of semiconductors and microelectronics, quantum information technologies, and artificial intelligence;
  • Information that a U.S. person is required to provide to Treasury as part of a notification;
  • The knowledge standard and expectations for a U.S. person to conduct a reasonable and diligent inquiry prior to undertaking a transaction; and
  • Conduct that would be treated as a violation of the proposed rule and applicable penalties for such conduct.

Treasury has again stated that the intent of this process is not to create a case-by-case review of transactions. The relevant U.S. person engaged in an outbound transaction covered by the scope of the NPRM would have the obligation to determine whether the given transaction is prohibited, permissible but subject to notification, or not covered by the rule because either it is an excepted transaction or it is not within the jurisdiction set forth under the NPRM. The NPRM also provides for a “national interest exemption” from the notification requirement or prohibition set forth in the NPRM. Written comments on the NPRM may be submitted by August 4, 2024. The NPRM will be followed at a later date by final implementing regulations which will set an effective date for the program.