Government Regulation Can't Secure America's Supply Chain
Chinatopix via AP, File
Government Regulation Can't Secure America's Supply Chain
Chinatopix via AP, File
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Creating a new bureaucracy intended to protect America's economy from foreign nations that won't play by the rules is the wrong solution to a real problem.

Empowering unelected officials to decide whether American companies can invest overseas won't stop China, but it will damage America's economy and plunge us into a vicious retaliatory cycle with other nations.

Congress should certainly focus on securing supply chains for critical goods.  America must amp up her competition with China and other bad actors, but the solution must be carefully tailored and must focus on incentivizing innovation.

Yet, H.R. 4521, the America COMPETES Act which narrowly passed the House, does the opposite.  The provision that starts on page 2,167 incorporates an unclear, wide-ranging bill, H.R. 6329, the National Critical Capabilities Defense Act.  This onerous legislation will create new barriers to investment and ultimately impair U.S. innovation.

Bestowing vast power to unelected, unaccountable government gatekeepers without clear limits or rules will hurt domestic companies.  The provision creates a Committee on National Critical Capabilities, or CNCC, composed of officials from the U.S. Trade Representative's office and at least 11 other government agencies.

These officials are tasked with reviewing American companies’ foreign transactions to ensure they aren't outsourcing vital functions to our rivals.  The devil is in the details, and thoughtful analysis of Section 104001 shows it won't work.

Companies would have to clear any transaction with the CNCC that "could result in an unacceptable risk to a national critical capability" before finalizing it.  One problem is that the measure doesn't define "unacceptable risk,” which in fact is what the CNCC itself is supposed to determine through its reviews. 

Also, the CNCC must approve any transaction that "shifts or relocates to a country of concern, or transfers to an entity of concern, the design, development, production, manufacture, fabrication, supply, servicing, testing, management, operation, investment, ownership, or any other essential elements involving one or more national critical capabilities."

This overly broad rule could apply to virtually every transaction in some industries, including minor repair work or basic product tests.  Instead of carefully targeting transactions that directly affect national security, the measure casts a wide net that’s certain to sweep in routine business activity.

This breadth of the rule combined with a lack of detail leaves companies in limbo because of the absence of clear operating guidelines for the CNCC.  For example, the provision doesn't indicate whether companies submit information to the CNCC before or after completing a transaction or how to appeal the committee's rulings.

Even more concerning, there’s no timeline imposed on the CNCC to approve a transaction.  It’s easy to imagine a company submitting paperwork for a crucial acquisition — or indeed an ordinary course business transaction — only to see it collapse because the CNCC drags its feet.  Or just because the CNCC is overwhelmed by the volume of transactions subject to its review. 

Unpredictable bureaucratic hoops will keep businesses from engaging in routine transactions because of fear of being lost in CNCC purgatory.  Instead of a constructive role in a vibrant economy that could respond quickly to Chinese aggression, America—with CNCC’s Mother-May-I on steroids—would be choking off innovation.

Presumably, no one wants to prevent American companies from investing overseas, but the CNCC will have an unintentional chilling effect.

Other nations won't sit idly by while American economic dynamism goes static. Historically, governments haven't implemented restrictions on where domestic businesses can invest because investments benefit the country as a whole.  But the CNCC could create a paradigm shift.

If other nations start limiting domestic investments, the situation would quickly devolve into tit-for-tat protectionism.  The inevitable outcome would be a more insular, less vibrant global economy.

In 2018, members of Congress considered similar legislation, only to scrap their plans when it became clear the bill wouldn’t work. Today, Congress should look to the recent past and reject this legislation because it will drown U.S. businesses in red tape.

America's response to China and other foreign threats must be smart and measured, not wild, overreaching and erratic.  The last thing we should do is build up bureaucracy at the expense of innovation.  We must counter China, but giving such breathtaking power to government officials isn't the solution.

James Edwards, Ph.D., is executive director of Conservatives for Property Rights (@4PropertyRights) and patent policy advisor to Eagle Forum Education & Legal Defense Fund.  The views expressed are his own.

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