U.S. Treasury Department. Photo: Michael Scarcella/ALM

The dust is settling after the shock of last week's sudden announcement that more foreign investments in American technology businesses would soon be subjected to national security reviews and mandatory reporting requirements as part of a federal pilot program.

But it appears that the initiative, which caught many by surprise, might not cast as wide a net as initially feared, according to Richard Matheny, a litigation partner at Goodwin Procter in Washington, D.C., who heads the firm's global trade practice.

“I liken the pilot program to a mortar round launched into your practice group. It exploded and there's rubble and dust everywhere and your ears are ringing and you're not sure if you're bleeding,” he said. “What I've tried to do is calm the ringing in the ears and help people understand what this means.”

The pilot program is part of the recently enacted Foreign Investment Risk Review Modernization Act and is slated to take effect on Nov. 10. Under the new rules, any American business that has a hand in “critical technology” and accepts certain types of foreign investments, including noncontrolling investments, must file a declaration that provides details of the transaction to the Committee on Foreign Investment in the United States at the U.S. Treasury Department.

The program applies to “critical technologies” in 27 industries, which includes a wide range of businesses. They cover aircraft manufacturing, aluminum production, battery makers, biotech, nanotech and communications equipment, among others.

“People are going to rush to that list of 27 industries and say, 'Holy smokes! I'm in that industry. I must be covered by the program,'” Matheny said. But that might not be the case. 

Like Matheny, Kevin Wolf, a partner in Akin Gump Strauss Hauer & Feld's international trade practice in Washington, D.C., said the scope of the mandatory filing requirement is “narrower in the sense that not everything involving the technologies … is triggering.”

“It has to be a critical technology, which is defined as what's on one of the export control lists and even then it's not all technologies on one of the export control lists,” he added. “Everybody has to become an export control attorney now. Everybody has to get into the weeds of the commerce control list.”

Matheny noted that the company in question must have a hand in at least one of five categories of critical technologies that trigger the reporting requirements. Four of the five categories apply to weapons and defense services technologies.

“Most U.S. businesses don't do anything in those categories,” Matheny said.

But the fifth category, which concerns “emerging and foundational technologies,” could be troublesome. The problem now is that the government has yet to define this category,  Matheny said.

He said clarity would eventually emerge through the rulemaking process and an upcoming public comment period, the date of which has not been set.

It's also expected that the U.S. government will look to the Chinese government's “Made in China 2025” plan and define the high-tech sectors highlighted in that program, which includes the agricultural, aerospace and biotech fields, as “emerging and foundational.”

“It's going to be key to see what things are added to foundational and emerging tech,” said Clif Burns, an international trade lawyer and counsel at Bryan Cave in Washington, D.C. “That will vastly expand the scope of things that are subject to these mandatory declarations.”