Foreign Investment and Economic Security Act of 2016

To amend the Defense Production Act of 1950 to provide for a net benefit review of certain covered transactions, and for other purposes. 1. Short title This Act may be cited as the Foreign Investment and Economic Security Act of 2016 2. Review of greenfield investments Section 721(a)(3) of the Defense Production Act of 1950 ( 50 U.S.C. App. 2170(a)(3) (1) by striking means any merger means— (A) any merger ; (2) by striking the period and inserting ; and (3) by adding at the end the following: (B) any construction of a new facility in the United States by any foreign person. . 3. Net benefit review (a) In general Section 721 of the Defense Production Act of 1950 ( 50 U.S.C. App. 2170 (1) in subsection (b)— (A) in the heading for such subsection, by inserting and net benefit National Security (B) in paragraph (1)— (i) in the heading for such paragraph, by inserting and net benefit National security (ii) in subparagraph (A), by striking clauses (i) and (ii) and inserting the following: (i) shall— (I) review the covered transaction to determine the effects of the transaction on the national security of the United States; and (II) consider the factors specified in subsection (f) for such purpose, as appropriate; and (ii) shall review the covered transaction to determine whether such transaction is of net benefit to the United States, as provided under subsection (o). ; and (iii) by adding at the end the following: (G) Mandatory net benefit review for certain covered transactions The President and the Committee shall initiate a net benefit review of a covered transaction under subparagraph (A)(ii) if such transaction meets the requirements of paragraphs (1) and (2) of section 7A(a) of the Clayton Act ( 15 U.S.C. 18a(a) ; and (C) in paragraph (3)(A), by inserting national security review (2) by adding at the end the following: (o) Performance of net benefit determination (1) Factors to be considered For purposes of carrying out the net benefit determination under subsection (b)(1)(A)(ii), the President, acting through the Committee, shall consider— (A) the effect on the level of economic activity in the United States on— (i) the level and quality of employment; (ii) resource processing; (iii) the utilization of parts and services produced in the United States; (iv) the utilization of products, parts, and services imported into the United States; and (v) exports from the United States; (B) the effect of the proposed or pending transaction on productivity, industrial efficiency, technological development, technology transfers, and product innovation in the United States; (C) the effect of the proposed or pending transaction on competition within any industry in the United States or between the United States and other countries; (D) the compatibility of the proposed or pending transaction with national industrial and economic policies; (E) the effect on the public health, safety, and well-being of United States consumers; (F) in the case of a covered transaction that is a foreign government-influenced transaction— (i) the governance and commercial orientation of the foreign person engaging in such transaction; (ii) how and the extent to which the foreign person engaging in such transaction is owned or controlled by a foreign government or its conduct and operations are influenced by a foreign government, including considering the stated government policies of the country of origin of the foreign person regarding government support or policies relating to the economic sector involved in such transaction; (iii) whether the foreign person engaging in such transaction— (I) adheres to United States standards of corporate governance (including commitments to transparency and disclosure, independent members of the board of directors, independent audit committees, and equitable treatment of shareholders); (II) adheres to United States laws and practices; and (III) is a foreign person of a country whose government has adequately engaged with the Securities and Exchange Commission and the Public Company Accounting Oversight Board in order to promote and ensure adequate transparency; and (iv) whether the foreign person engaging in such transaction will likely operate on a commercial basis if such transaction is completed, including with regard to— (I) where to export; (II) where to process; (III) the participation of United States citizens in its operations in the United States and elsewhere; (IV) the impact of the investment on productivity and industrial efficiency in the United States; (V) support of on-going innovation, research, and development in the United States; (VI) sourcing patterns; and (VII) the appropriate level of capital expenditures to maintain the United States business in a globally competitive position; and (G) such other factors as the Committee determines appropriate. (2) Determining net benefit In making a net benefit determination under subsection (b)(1)(A)(ii)— (A) judgments will be made both in measuring the effects of a proposed or pending transaction in relation to the relevant individual factors under paragraph (1) and in measuring the aggregate net effect after offsetting the negative effects, if any, against the positive ones; and (B) a proposed or pending transaction will be determined to be of net benefit to the United States when the aggregate net effect is positive, regardless of its extent over the short and long term. (3) Right to appeal; final determination (A) Appeal of determination If the Committee makes a determination that the covered transaction will not be of net benefit to the United States, the parties to the covered transaction may, within the 30-day period following such determination, submit additional information to the Committee to demonstrate that the transaction will be of net benefit to the United States. (B) Final determination The Committee shall— (i) make a final determination of whether the covered transaction will be of net benefit to the United States before the end of the 30-day period beginning on the date that additional information is submitted pursuant to subparagraph (A); and (ii) if such determination is that the covered transaction will not be of net benefit to the United States, refer such determination to the President. (4) Certifications to Congress Notwithstanding subsection (b)(3), upon a final determination by the Committee under this subsection, the chairperson and the head of the lead agency shall make certifications to the Congress on the net benefit determination that are as close as practicable to the certifications required under subsection (b)(3) for the national security review. (5) Action by President after net benefit review (A) In general If the Committee refers a determination to the President pursuant to paragraph (3)(ii), the President shall, within the 15-day period beginning on the date of such referral, review such determination and announce whether the President determines the covered transaction is of net benefit to the United States. (B) Factors to be considered For purposes of making a determination under subparagraph (A), the President shall consider, among other factors each of the factors described in paragraph (1), as appropriate. (C) Prohibition of certain transactions If the President, pursuant to subparagraph (A), determines that a covered transaction is not of net benefit to the United States, such covered transaction is prohibited. (D) Enforcement The President shall direct the Attorney General of the United States to seek appropriate relief, including divestment relief, in the district courts of the United States, in order to implement and enforce this paragraph. (E) Determinations nonreviewable A determination of the President under this paragraph shall not be subject to judicial review. (6) Committee membership for purposes of a net benefit determination For purposes of carrying out the net benefit determination under subsection (b)(1)(A)(ii) and this subsection, the Committee shall be composed of the following members or the designee of any such member: (A) The Attorney General of the United States. (B) The Secretary of Commerce. (C) The Secretary of Labor. (D) The Secretary of the Treasury. (E) The United States Trade Representative. (F) If the President determines that the covered transaction may affect the agricultural sector, including food safety, the Secretary of Agriculture. (G) If the President determines that the covered transaction may affect the public health, including food safety, the Secretary of Health and Human Services. (7) Foreign government-influenced transaction defined For purposes of this subsection, the term foreign government-influenced transaction . (b) Rulemaking Not later than the end of the 180-day period beginning on the date of the enactment of this Act, the President shall issue regulations to carry out section 721(o) of the Defense Production Act of 1950, as added by subsection (a).

Summary: Foreign Investment and Economic Security Act of 2016 This bill amends the Defense Production Act of 1950 to provide for: (1) national security reviews of transactions involving the construction of a new facility in the United States by any foreign person (currently, national security reviews are conducted only for certain mergers, acquisitions, or takeovers by or with a foreign person); and (2) net benefit reviews of new construction, mergers, acquisitions, or takeovers by or with a foreign person to determine whether the transaction is of net benefit to the United States. The bill makes net benefit reviews mandatory for transactions that meet specified requirements under the Clayton Act. The bill requires the Committee on Foreign Investment in the United States (CFIUS), for purposes of carrying out net benefit determinations, to consider the effect of the transaction on: (1) employment, resource processing, the utilization of parts and services produced in or imported into the United States, and exports; (2) industrial efficiency, technological development, technology transfers, and product innovation; (3) competition within any U.S. industry or with other countries; (4) compatibility with national industrial, economic, and cultural policies; and (5) public health, safety, and well-being of U.S. consumers. In the case of a net benefit determination concerning a foreign government-influenced transaction, CFIUS must consider additional factors including: the governance and commercial orientation of the foreign person engaging in such transaction; the extent to which the foreign person is owned, controlled, or influenced by the foreign government; and adherence to U.S. law and corporate governance standards, engagement of the foreign country with the Securities and Exchange Commission and the Public Company Accounting Oversight Board, and the likelihood of operation on a commercial basis. The bill also revises the composition of CFIUS, for the purpose of carrying out net benefit determinations. The bill requires final CFIUS determinations to be certified to Congress and referred to the President if a transaction will not be of net benefit to the United States. The bill prohibits transactions that the President determines are not of net benefit to the United States and bars judicial review of such determinations.