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Historically, businesses involved in the U.S. defense industrial base have been protected from foreign direct investment by the Committee on Foreign Investment in the U.S. (CFIUS) — but changes to U.S. laws and regulations on foreign direct investment have expanded the types of businesses that are now protected.

The recent Foreign Investment Risk Review Modernization Act (FIRRMA) expanded CFIUS to protect businesses engaged in critical technologies, critical infrastructure and sensitive personal data. Continuing changes to U.S. foreign direct investment regulations will impact Alabama businesses engaged in critical technologies, critical infrastructure and sensitive personal data.

If enacted, the proposed Foreign Adversary Risk Management Act (“FARM” Act) will expand the definition of “critical infrastructure” to include agricultural production facilities and real estate. Similarly, recent changes by the U.S. Department of Commerce assert control over certain genetic assemblers and software, rendering them “emerging technologies” subject to CFIUS.

Protection of the U.S. Agricultural Supply Chain

The FARM Act may be the next expansion of CFIUS. The FARM Act is a bipartisan bill cosponsored by Alabama Sen. Tommy Tuberville. If passed, the FARM Act would designate the U.S. agricultural supply chain as “critical infrastructure,” extending CFIUS review to any merger, acquisition, transfer, joint venture or other transaction that could result in foreign control of a U.S. business engaged in agriculture production and/or usage of agricultural products. The bill also proposes to add the Secretary of Agriculture to CFIUS and requires reports on foreign investments in U.S. agriculture to Congress.

However, the FARM Act would not be the first protection of the U.S. agricultural supply chain. Rather, CFIUS jurisdiction also arises from the invocation of the Defense Production Act based on the FIRRMA list of “critical infrastructure.”

The Defense Production Act “allows the President to provide economic incentives to secure domestic industrial capabilities essential to meet national defense and homeland security requirements.” The act was invoked by former President Donald Trump’s COVID-19-related Executive Orders regarding medical supplies and food production. As a result, even non-controlling foreign investments in U.S. medical or food producers that received funding under the act are subject to CFIUS review and continue to be for a period of 60 months following the receipt of that funding.

As a result, Alabama agricultural-based businesses should be aware that the FARM Act, if passed, may require regulatory filings and/or approvals for foreign direct investment.

Protection of Genomics Tools as “Critical Technologies”

On October 5, 2021, the U.S. Department of Commerce, Bureau of Industry and Security (BIS) amended the export control regulations to require export licenses for certain genomics software and tools that can be used for designing or manufacturing biological weapons. In doing so, the U.S. Commerce Control List was amended to add two new U.S. export classifications that now target software utilized for certain nucleic acid assemblers and synthesizers capable of “designing and building functional genetic elements from digital sequence data,” as well as tools used to develop the software and assemblers.

More specifically, an export license for certain countries will be required for software determined to be within technology based on chemical and biological weapons and anti-terrorism risks. Similarly, technology used for the development of controlled genomics software will be controlled for the same chemical and biological weapons and anti-terrorism risks — requiring an export license for designated countries.

Based on the foregoing, genomics software and development tools may be considered “critical technology” under CFIUS.

As a result, Alabama life science businesses that design, develop, produce or utilize certain genomics software and development tools should be aware that foreign direct investment may require regulatory filings and/or approvals for foreign direct investment.

Recent actions related to genomics software and development tools and the proposed FARM Act reinforce the need for Alabama businesses to be mindful of U.S. regulations applicable to changes in foreign ownership, control or influence, and the need for early diligence as part of any transaction involving international investment.

Republished with permission. This article, "Guest Column: CFIUS Expansion into Agricultural Supply Chain and Genomics Tools," was published in Business Alabama on November 1, 2021.

 

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