House Democrats release America COMPETES Act to negotiate comprehensive China legislation with US Senate

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Hogan Lovells

[co-author: Emily Jenkins, and Shelly Castle]

On January 25, 2022, House Democrats unveiled the sprawling America Creating Opportunities for Manufacturing, Pre-Eminence in Technology and Economic Strength Act of 2022, or America COMPETES Act (“the Act”). The Act, which is expected to pass the House as soon as this week, is intended to serve as the “House position” in conference negotiations with the Senate. In June 2021, the Senate passed the United States Innovation and Competition Act (“USICA”). In November 2021, House Speaker Nancy Pelosi and Senate Majority Leader Chuck Schumer issued a joint statement announcing a bicameral agreement to “immediately” conference USICA, though no timeline was given. Now that the America COMPETES Act has been introduced, the Biden Administration is urging lawmakers to reconcile the two pieces of legislation expeditiously. With a more active House-Senate conference now on the horizon, this piece seeks to provide a visual comparison of the notable provisions of the two massive bills.

Background on the America COMPETES Act

On January 25, 2022, Democrats in the House of Representatives released the text of a nearly 3,000 page bill, the America Creating Opportunities for Manufacturing, Pre-Eminence in Technology and Economic Strength Act of 2022, or the America COMPETES Act. The America COMPETES Act is the House Democratic legislative counter-proposal to the US Senate-passed United States Innovation and Competition Act (“USICA”). In June 2021, USICA comfortably passed the Senate on a bipartisan basis (68-32). Both the America COMPETES Act and USICA are intended to boost US economic competitiveness with China.

On November 17, 2021, Speaker Nancy Pelosi (D-CA) and Senate Majority Leader Chuck Schumer (D-NY) announced their intention for the House and Senate to convene a conference committee in order to reconcile USICA and the House’s inchoate legislative package, whenever ripe. With its introduction and almost certain swift passage by the House, the America COMPETES Act will serve as the “House position” in conference negotiations with the Senate. For more background about USICA specifically, please refer to this alert previously issued by the Hogan Lovells team.

The America COMPETES Act is a compilation of recycled and new legislation. In the first instance, the America COMPETES Act incorporates several bills introduced in the House last year, including the National Science Foundation (NSF) for the Future Act, and the Department of Energy Science for the Future Act. The America COMPETES Act also includes the Ensuring American Global Leadership and Engagement Act, or EAGLE Act, which was opposed by House Republicans due to its inclusion of climate-related measures.

The America COMPETES Act also contains many new and notable provisions. In particular, the America COMPETES Act includes its own Trade Title with provisions such as the reauthorization for the Generalized System of Preferences (GSP) and Miscellaneous Tariff Bill (MTB). With respect to GSP, the proposal goes further than the Senate version in amending the country eligibility criteria to update the existing labor criterion and adds new criteria on human rights and the environment. It also contains provisions on the de minimis tariff threshold, a package of amendments to U.S. antidumping and countervailing duty laws, and it would reauthorize and significant expansion of Trade Adjustment Assistance (TAA). TAA reauthorization previously was being considered as part of the failed Build Back Better package in the Senate. The inclusion of a Trade Title in the America COMPETES Act is particularly noteworthy given that the trade-related provisions in USICA were one of the factors that led to USICA’s exclusion from the FY2022 National Defense Authorization Act (NDAA). For more information about the NDAA drama, please refer to this alert previously issued by the Hogan Lovells team.

President Biden issued a statement on January 25, 2022 urging Congress to act quickly to send a bill to his desk for signature. Heeding President Biden’s call, the House Democratic Leadership intends to schedule a vote on the America COMPETES Act as soon as the week of January 31. While there is an ongoing amendment process for the current text, we don’t expect significant changes before a vote. Unlike the Senate version, which was developed on a bipartisan basis, the America COMPETES Act was drafted by House Democrats, with little input from Republican members, which sets up an interesting dynamic for the hard work of reconciling it with USICA. There are several provisions, discussed in more detail below, that could cause a partisan stalemate during conference.

Senator Todd Young (R-IN), Majority Leader Schumer’s cosponsor on the core Senate bill, suggested last week that a realistic timeline for final passage is around Memorial Day. Based on conversations with Congressional sources familiar with these developments, we agree with this assessment. We caution, however, that the Congressional agenda is jammed with must-pass items, now including the confirmation of a new Associate Justice of the United States Supreme Court, and that this bill is not immune from the political crosswinds of an election year.

Comparing USICA and the America COMPETES Act

The Chart below summarizes key provisions from USICA and the America COMPETES Act to highlight the similarities, differences, and discrepancies between the Senate and House approaches to invigorating U.S. innovation and competing with China.

USICA vs. House Legislation

USICA

America COMPETES Act

CHIPS Act and ORAN 5G Emergency Appropriations

CHIPS for America Fund

Allocates $52 billion to incentive programs for semiconductor production in the U.S.

Allocates $52 billion to incentive programs for semiconductor production in the U.S.

Authorizes $1.5 billion for the Public Wireless Supply Chain Innovation Fund to create incentive programs for wireless broadband

Authorizes $1.5 billion in FY 2022, to remain available until FY 2031, to the Public Wireless Supply Chain Innovation Fund

The Endless Frontier Act

The NSF For the Future Act

Creates a Directorate for Technology and Innovation within the NSF that will focus on key technology areas like AI and drones

Creates an NSF Directorate for Science and Engineering Solutions to accelerate use-inspired and translational research and development to advance solutions to pressing societal challenges

Allocates $5.22 billion for FY 2022-2026 for a STEM scholarship fund, and $4.06 billion for an academic technology transfer fund

Increases NSF funding to $12.5 billion in FY 2022, increasing to $17.9 billion in FY 2026

Prohibits IP developed through NSF from being transferred to foreign entities of concern, and federal science agencies from participating in a foreign government talent recruitment program

Requires grant applicants to certify they are not an active participant of a malign foreign talent recruitment program from a foreign country of concern and will not be a participant in such a program for the duration of the award

Requires merchandise offered for sale online to be marked with country of origin

Requires merchandise offered for sale online to be marked with country of origin, unless the seller qualifies for an exemption

Prohibits the President from engaging in nuclear cooperation with the Chinese government, or with entities owned by the Chinese government or incorporated in China, subject to certain exceptions

Includes sense of Congress that it is in the best interests of the US and China to cooperate in reducing risks of conventional and nuclear escalation

Authorizes over $23 billion to the advancement of space exploration, science, technology, education, and safety

The COMPETES Act contains no similar provisions.

The Endless Frontier Act

America COMPETES Act

Establishes a supply chain resiliency and crisis response program in the Department of Commerce DOC

Supports supply chain resilience by creating a Supply Chain Resiliency and Crisis Response Office in the DOC and authorizing $45 billion for supply chain resiliency program at DOC

USICA contains no similar provision

Authorizes $600 million each year from FY 2022-2026 to encourage development of a domestic solar supply chain

Bans the possession, transport, sale, offer for sale, or purchase of shark fins or products containing shark fins; with certain exceptions, including dogfish.

Bans the domestic sale of shark fins and creates a violation of penalty.

The Strategic Competition Act of 2021

The EAGLE Act

Encourages regaining leadership positions in international standard-setting boards, requires enhancing cooperation with allies in the Indo-Pacific region, enhancing U.S. relations with Taiwan, enhancing cooperation with allies on challenges related to China, and authorizes funds for State and Defense departments to advance U.S. foreign policy interests and objectives in the Indo-Pacific region

Directs the State Department to negotiate with Indo-Pacific allies to facilitate closer cooperation, requires the President to develop strategies to enhance cooperation with allies in managing relations with China, and authorizes funds for State and Defense departments to advance U.S. foreign policy interests and objectives in the Indo-Pacific region

Provides assistance to U.S. companies for diversifying their supply chains outside of China

Authorizes the Secretary of State to develop a program to assist U.S. companies in diversifying their supply chains outside of China

Requires the creation of a whole-of-government approach to combat Chinese predatory lending in developing countries, and for the United States to oppose additional lending from the International Bank for Reconstruction and Development and the Asian Development Bank to China

Requires the President to develop a whole-of-government approach to combat Chinese predatory lending in developing countries

Expands CFIUS reviews to cover foreign gifts and contracts to colleges and universities that equal or exceed $1,000,000 in a single year or aggregate gifts or contracts from the same foreign source of a value over $1M during a two-year period

The COMPETES Act contains no similar provisions.

Amends Section 117 of the HEA to capture additional foreign gifts and contracts received by institutions of higher education by lowering the threshold of required reporting of gifts and contracts from $250,000 under current law to $50,000 in any given year

 

Adds a new requirement that institutions that have more than $5 million in research and development expenditures in any given year will be required to maintain a policy requiring the applicable faculty and staff to report foreign gifts and contracts to the institution, maintain a database of such reporting, and develop a plan to identify and manage potential information gathering by foreign sources through espionage targeting faculty and staff

Amends Section 117 of the HEA to capture additional foreign gifts and contracts received by institutions of higher education totalling more than $100,000 in any given year and $250,000 in three years

 

Adds a new reporting requirement for faculty and staff to disclose to the institution gifts or contracts with a foreign source the value of which is $50,000 or more.

Authorizes funds to counter China’s informational and ideological influence

Authorizes $100 million for the United States Agency for Global Media to combat Chinese disinformation inside and outside of China, and to counter foreign state and non-state sponsored propaganda

Requires the imposition of sanctions against individuals determined to be responsible for serious human rights abuses in the Xinjiang Uyghur Autonomous Region

Permits the President to impose Global Magnitsky sanctions for individuals responsible for human rights violations, or government officials responsible for corruption

 

Applies sanctions to foreign individuals, including Chinese government officials, who the President determines are responsible for serious human rights abuses in the Xinjiang Uyghur Autonomous Region

Provides support to the people of Hong Kong by authorizing $10 million for the State Department’s Bureau of Democracy, Human Rights, and labor to promote democracy in Hong Kong

Provides support to the people of Hong Kong by authorizing $10 million for the State Department’s Bureau of Democracy, Human Rights, and labor to promote democracy in Hong Kong and providing temporary protected status and refugee status for qualifying Hong Kong residents for the 18- month period beginning after enactment

Reaffirms U.S. commitment to Taiwan, recognizes Taiwan as a vital part of the U.S. Indo-Pacific strategy, and encourages the Secretary of State to consider establishing a United States-Taiwan cultural exchange program

Provides a statement of policy of U.S. interests in maintaining the peace and stability and deter military acts or other forms of coercive behavior in the Indo-Pacific and reiterates US commitment to Taiwan and recognizing Taiwan as a vital part of the US approach to the Indo-Pacific

Requires a report to Congress on assessing the use of advanced maritime domain awareness technologies to combat illegal, unreported, and unregulated fishing in Oceania.

America COMPETES Act

Authorizes $20 million per year through FY26 to combat human trafficking through seafood import monitoring and strengthening international fisheries management; Prioritizes audits of imports from countries identified as having forced labor or child labor in any part of the seafood supply chain; Expands the U.S.’s authority to withhold or revoke U.S. port privileges for fishing vessels from nations that have been identified for illegal or unreported fishing.

The Securing America’s Future Act

America COMPETES Act

Codifies provisions from President Biden’s “Buy American” Executive Order, including creation of the “Made in America” office; requiring infrastructure projects source all iron, steel, manufactured products and construction materials be produced in the U.S. to qualify for Buy American; and minimizing use of the public interest waiver

The COMPETES Act contains no similar provisions.

Permits the Secretary of State to deem an alien inadmissible if the Secretary determines the alien is entering the U.S. to knowingly acquire emerging technologies to benefit an adversarial foreign government’s security or strategic capabilities

The COMPETES Act contains no similar provisions.

The American Security Drone Act of 2021 bans federal procurement of unmanned aircraft systems (UAS) manufactured or assembled by Chinese-controlled or Chinese-influenced firms, with exemptions available on a case-by-case basis

Prohibits the Secretary of DHS from operating, procuring, or providing financial assistance for an UAS that is (1) manufactured in a covered foreign country, (2) uses devices manufactured in a foreign country, (3) uses a ground control systems or operating software developed in a foreign covered country, or (4) uses network connectivity or data storage located in a covered foreign country

Meeting the China Challenge Act of 2021

The EAGLE Act

Creates an interagency task force dedicated to addressing Chinese market manipulation in the U.S.

Authorizes funds to create a “China Watcher Program” within the State Department dedicated to monitoring and combating Chinese malign influence across economic and political sectors in foreign countries

Requires imposition of sanctions on entities that engaged in cyber-attacks in the U.S. on behalf of the Chinese government

The COMPETES Act contains no similar provisions.

Directs the Department of Commerce to conduct a review of items with critical capabilities to enable human rights abuses to determine if export controls should be applied

Directs the Department of Commerce to review crime control and detection equipment and determine whether export controls are needed to protect human rights

The Trade Act of 2021

American Worker and Trade Competitiveness Act

Reauthorizes the Generalized System of Preferences (GSP) and the Miscellaneous Tariff Bill (MTB)

Reauthorizes GSP and goes further than USICA in amending country eligibility criteria, including updating existing labor criterion and adds new criteria on human rights and the environment. Reauthorizes the MTB

Reinstates all previous exemptions to Section 301 China tariffs through the end of 2022 and revives the USTR tariff exclusion process

The COMPETES Act contains no similar provisions.

Requires USTR to identify and report on trading partners engaging in anticompetitive digital trade and censorship practices, and to negotiate with allies on preventing importing goods made with stolen IP

The COMPETES Act contains no similar provisions.

USICA contains no similar provisions.

Includes numerous provisions to amend trade remedies laws such as establishing successive antidumping and countervailing duties investigations, requiring DOC to investigate allegations of currency undervaluation as a countervailable subsidy, and authorizing DOC to consider and address subsidies offered to producers in the country under investigation by a government located elsewhere

USICA contains no similar provisions.

Prohibits non-market economies and countries on USTR Priority Watch List from violating intellectual property standards from receiving de minimis treatment (duty free) upon importation, and prohibits importers that are suspended or debarred from receiving de minimis treatment.

USICA contains no similar provisions.

Establishes process for the US government to review transactions that may impact national critical capabilities, including creating the Committee on national Critical Capabilities. The Act defines “national critical capabilities” as “systems and assets so vital to the United States that the inability to develop such systems/assets would have a debilitating impact on national security or crisis preparedness.”

USICA contains no similar provisions.

Reauthorizes and significantly expands Trade Adjustment Assistance to workers, firms, communities and farmers.

USICA

America COMPETES Act

USICA contains no similar provisions

Authorizes $4 billion annually for FY 2022-2023 for the U.N. Green Climate Fund, prohibits a person or entity from exporting or reexporting electronic waste, and authorizes funds to establish an International Climate Change Adaptation, Mitigation and Security Program

USICA contains no similar provisions

Authorizes $150 billion to expand U.S. Fish and Wildlife Service law enforcement in efforts to stop wildlife trafficking.

USICA contains no similar provisions

Establishes a Climate Impacts Task Force in the State Department

Participants and Timing of Conference

The November 17, 2021 announcement indicated that the conference would commence “immediately,” but without a conferenceable House product, those discussions have had to be informal and neither side has appointed conferees.

Once the House completes work on its bill, we expect a two-track process, whereby most of the heavy lifting will be done by staff of the various committees and leadership in both chambers, with a conference committee to formally consider and bless what is sent to the full Congress for final passage. Speaker Pelosi has an oft-expressed preference for regular order and according to our sources, that is her desire in this case.

Which provisions are likely to survive conference?

With the release of the America COMPETES Act, there is, in principle, a bipartisan path for a successful conference, although success is never guaranteed and that admonition is truer still in 2022. As discussed in our previous alert, establishing an NSF Directorate dedicated to strengthening U.S. leadership in critical technologies, enhancing diplomatic relations in the Indo-Pacific region, and enhancing cooperation with U.S. allies in managing relations with China are all provisions that are likely to survive conference. Further, the America COMPETES Act now provides funding for the CHIPS Act, a measure that has enjoyed bipartisan support for quite some time. Though the appropriations amounts proposed by the two chambers are slightly different, the final version of USICA will include significant CHIPS appropriations.

The recent enactment into law of the Uyghur Forced Labor Prevention Act (UFLPA) indicated that the two chambers are broadly aligned when it comes to confronting China’s human rights record and countering Beijing’s influence in the Indo-Pacific, which should bode well for many of the provisions in USICA and the America COMPETES Act.

We anticipate that two of the most difficult policy issues for conference will be climate and labor provisions. Specifically, the America COMPETES Act contains the House Foreign Affairs Committee’s EAGLE Act, which received substantial pushback from Committee Republicans due to its inclusion of climate provisions. It is highly likely that the Democrats’ narrow majority in the Senate will not be enough to ensure climate-related measures are included in the final bill. House Democrats also have taken a firm stance on some of the trade provisions including the inclusion of a greatly expanded TAA and heightening environmental and labor standards under the GSP and MTB for countries to be eligible for those programs. Our sense is it is unlikely that these new requirements will prevail over USICA’s bipartisan renewal package of updates to GSP and MTB. It’s not yet clear what will happen with TAA, which has bicameral but not bipartisan support and normally, is only reauthorized in connection with a large trade deal or Trade Promotion Authority, neither of which are at play in the China package.

Elsewhere, the America COMPETES Act would 1) prohibit non-market economies and countries on the USTR Priority Watch List for violating intellectual property standards from receiving de minimis treatment upon importation, as well as 2) prohibit importers that are suspended or debarred from receiving de minimis treatment. It is likely these provisions will face significant industry pushback, and their inclusion in the final version of USICA is unclear. The de minimis exception, which allows goods worth less than $800 to enter the U.S. duty-free, has recently been a hot-button issue for some Members of Congress concerned with combatting China’s influence and counterfeit goods. The commercial impact of this change on small and medium-sized businesses, including the administrative burden, however, would be crushing. House Ways & Means Trade Subcommittee Chair Earl Blumenauer’s (D-OR) recently introduced the Import Security and Fairness Act designed to claw back de minimis, much of which was included in the American COMPETES Act.

Finally, the America COMPETES Act contains significant provisions establishing an interagency committee chaired by the U.S. Trade Representative to review transactions that could pose a risk to U.S. national critical capabilities—or transactions that involve the shifting, relocation or transfer of the production, supply, management, design, or investment of a critical capability to a country of concern. In other words, the legislation includes a significant outbound investment screening mechanism focused not just on traditional national security metrics but also trade and economic security related ones. USICA does not contain any such provisions, though an alternative outbound screening measure was proposed by Senators Bob Casey (D-PA) and John Cornyn (R-TX), which was ultimately defeated by heavy lobbying from industry. As a result, it ended up not receiving a vote on the Senate floor. Though the idea of an outbound screening mechanism enjoys some support on both sides of the aisle, how to execute one is controversial and unlikely it will survive conference due to the strong business interests aligned to defeat it.

[View source.]

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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