USICA and its House equivalents go to conference: what will be the likely outcome?

Hogan Lovells
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Hogan Lovells[co-authors: Shelly Castle and Emily Jenkins]

On November 17, 2021, House Speaker Nancy Pelosi and Senate Majority Leader Chuck Schumer issued a joint statement announcing a bicameral agreement to conference the United States Innovation and Competition Act (USICA). This announcement follows Leader Schumer’s original attempt to include USICA on the National Defense Authorization Act (NDAA) that was met with resistance from Senate Republicans. In the statement, Speaker Pelosi and Leader Schumer noted that, while there is much agreement between the two chambers on the legislative proposals within USICA, there are still a “number of important unresolved issues.” This article offers, first, background on USICA and corresponding House proposals, notably the Ensuring American Global Leadership and Engagement Act (EAGLE Act); second, a chart comparing the most important provisions within each proposal; third, a review of the NDAA drama that led to the initiation of a conference; and finally, an analysis of which provisions are likely to emerge out of conference and those which are unlikely to survive conference.

Background on USICA and the House’s Corresponding Legislation

On June 8, 2021, the Senate passed the United States Innovation and Competition Act (USICA) with bipartisan support. USICA began as the Endless Frontier Act, which was originally introduced by Senator Schumer and Senator Todd Young (R-IN) in 2020 during the 116th Congress. After review by at least seven different Senate committees, the Endless Frontier Act was expanded to include various proposals by the reviewing committees addressing U.S. competitiveness and China. The culmination of these proposals became USICA, a sprawling piece of legislation nearly 2,400 pages long that addresses everything from shark fin sale elimination to establishing a Directorate for Technology and Innovation with the National Science Foundation. USICA includes $52 billion for the creation of an National Science Foundation Directorate of Technology and Innovation, $52 billion for CHIPS Act implementation to strengthen the domestic microprocessor supply chain, and tens of billions more for basic research into a range of scientific fields.

Meanwhile, the House of Representatives has taken a more piecemeal approach rather than a similar, comprehensive piece of legislation like USICA. On June 28, 2021, the House passed two pieces of legislation: the National Science Foundation (NSF) for the Future Act, and the Department of Energy Science for the Future Act. Both bills address investing in research, infrastructure, and STEM workers to spur scientific innovation. The House also has under consideration the “Ensuring American Global Leadership and Engagement Act,” or EAGLE Act, which the House Foreign Affairs Committee (HFAC) passed on a party line vote in July and, similar to USICA, aims to counter challenges posed by China by encouraging diplomatic engagement with international institutions and U.S. allies with a particular focus on the Indo-Pacific region.

Like USICA, the NSF for the Future Act similarly includes funding for a new Directorate for Science and Engineering Solutions at NSF, as well as funding for semiconductor manufacturing and significant domestic investment in the sciences. The Department of Energy Science for the Future Act would invest $50 billion over five years in the Department of Energy’s Office of Science and National Labs and invest in renewable energy and research on emergent tech. Taken together, these three bills will likely form the foundation of the House’s negotiations on USICA.

Comparing USICA and the House’s Corresponding Legislation

The Chart below summarizes key provisions from USICA, the NSF for the Future Act, and the EAGLE Act to display 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

House Legislation

CHIPS Act and ORAN 5G Emergency Appropriations

The House bills do not contain any similar provisions

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

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 advance research and development solutions to address societal and national 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 $11 billion in FY 2022 and up to $14.5 billion over the next 5 years

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

The House bills do not contain any similar provisions.

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

The House bills do not contain any similar provisions

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

The House bills do not contain any similar provisions

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 to diversify 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 House bills do not contain any similar provisions

Authorizes funds to counter China’s informational and ideological influence

Authorizes funds 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

The Securing America’s Future Act

The House bills do not contain any similar provisions

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

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

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 House bills do not contain any 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

 

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

The Generalized System of Preferences and Miscellaneous Tariff Bill Modernization Act of 2021 introduced in the House Ways & Means Committee reauthorizes the GSP and MTB, updates environmental and labor criteria for eligible GSP countries and institutes new transparency requirements

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

The House bills do not contain any 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 House bills do not contain any similar provisions

 

The EAGLE 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

NDAA Drama

Legislative action to make the United States more competitive with China and to address a range of other issues in the bilateral relationship, seemingly had been considered “must pass” or close to it all year. Both Senate Majority Leader Schumer and House Speaker Nancy Pelosi (D-CA) have long viewed China as a challenge necessitating action and Schumer is the prime mover behind the Senate’s vehicle, USICA.

While the goals of leaders in both chambers is consistent, there are differences in their approaches, stalling efforts to marry up the various proposals and get a bill to the President for his signature. This prompted Leader Schumer to announce that he would seek to have USICA appended to the NDAA. This attempt to force the issue and “jam” the Senate’s formula on the House was not well received and it quickly became obvious that USICA had the potential to hold up the entire $750 billion defense bill.

In particular, differences over trade provisions surfaced. Speaker Pelosi and House Ways & Means Committee Chairman Richie Neal (D-MA) would not agree to USICA’s trade provisions. Specifically, the Trade Act, which was incorporated into USICA, reauthorizes the Generalized System of Preferences (GSP) and the Miscellaneous Tariff Bill (MTB); reinstates all previous exemptions to Section 301 China tariffs through the end of 2022 and revives the USTR tariff exclusion process; and 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. Given House objections to the trade package and possible blue slip issues, Leader Schumer advocated for moving USICA without its trade provisions, but Senate Finance Committee Chairman Ron Wyden (D-OR) rejected this gambit, insisting that USICA move with its trade provisions intact.

Leader Schumer bowed to the inevitable and joined with Speaker Pelosi in issuing a statement that read in part, “While there are many areas of agreement on these legislative proposals between the two chambers, there are still a number of important unresolved issues. After Senate Republicans made it clear they would block the inclusion of USICA on the NDAA, we have decided that the best way to get an agreement will be through the conference process. Therefore, the House and Senate will immediately begin a bipartisan process of reconciling the two chambers’ legislative proposals so that we can deliver a final piece of legislation to the President’s desk as soon as possible.”

Participants and Timing of Conference

Our understanding is that the conference proposed by Leader Schumer and Speaker Pelosi is, as a practical matter, not intended to have the trappings of a formal conference. In other words, the intent is not for both chambers to appoint conferees and negotiate legislation at the Member-level—at least not at the outset. Rather, the conference will occur at the staff level. We understand that House and Senate committee staff will engage in negotiations over legislative differences in the two chambers’ legislative vehicles. For example, the staffs of the HFAC and Senate Foreign Relations Committee (SFRC) will attempt to conference the priorities of the leaders of both committees. It is unclear whether additional committees of jurisdiction will become involved in the conference.

It is very early days for these staff-level negotiations. Thus far, initial conversations between HFAC and SFRC staff appear to have been limited to terms of engagement, but may proceed to substance this week. Knowledgeable congressional sources advise us that it would be extremely unlikely for a reconciled China bill to pass this year (on the order of 5%, according to a senior GOP Senator). Democrats remain optimistic (85%) that a reconciled bill will be passed sometime before the end of May 2022 (presumably the Memorial Day recess). This means, of course, that this package is likely to be finalized in the midst of an intense mid-term in a white hot political environment.

Which provisions are likely to survive conference?

In comparing the two chambers’ respective legislative approaches, it is likely that many of the USICA provisions will survive conference. The two main objectives of USICA—funding U.S. innovation and competing with China—have support in the House based on similar EAGLE Act provisions. Accordingly, 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 of the kind that are likely to survive conference.

One thorny issue is the Uyghur Forced Labor Prevention Act (UFLPA), of which there are competing versions in both the House and Senate. The UFLPA would create a rebuttable presumption that goods imported from China’s Xinjiang Uyghur Autonomous Region are the product of forced labor and, therefore, subject to the U.S. forced labor statute (19 U.S.C Section 1307), which requires U.S. Customs and Border Protection (CBP) to detain the product (effectively an import ban, unless proven otherwise). The legislation would also impose sanctions on foreign persons responsible for committing human rights abuses in XAUR as well as impose SEC reporting requirements for companies doing business with entities in the region (House version only).

Senator Marco Rubio (R-FL), its prime Senate sponsor, was unsuccessful in attaching the UFLPA to the NDAA, which originally passed the Senate in July. . On December 8, the House of Representatives passed a companion version of the Uyghur Forced Labor Prevention Act with a number of key differences from the Senate version. There remains enormous pressure to act on China’s human rights before the opening of the Winter Olympics, but time and competing priorities may push the UFLPA into 2022. The administration’s decision to stage a diplomatic boycott of the Olympics, seen by hardliners as a half-measure, may, nonetheless, remove some of the urgency to act before the opening ceremonies on February 4. As of the writing of this article, there are reports that Congress may have reached a compromise to move UFLPA as a standalone bill, apart from the broader China package before the end of the year.

Other provisions in USICA are likely going to be subject to greater compromise. Most notably, the House has yet to take steps to fund the CHIPS Act, which generally has bipartisan support. Lawmakers in both chambers, as well as multiple state governors, have urged the House to take action on the CHIPS Act. It is likely that some amount of CHIPS funding will be included in the final version of USICA, but the precise amount and parameters of the funding are unclear. Moreover, the two chambers differ on their approaches to the GSP and MTB, with the House taking a firmer stance on environmental and labor standards for beneficiary countries than the Senate’s Trade Act of 2021. Lastly, House Republicans criticized the EAGLE Act for its lack of language on export controls, so it is likely export controls will be an important topic during the conference period.

Finally, more progressive provisions in the EAGLE Act will likely not make it into the final version of USICA. Specifically, Republicans oppose the EAGLE Act’s provisions on climate and conservation and, with a narrow majority in the Senate, it is unlikely Democrats will prevail on including those provisions in USICA. On the other hand, Democrats have expressed disapproval toward the $10 billion funding for NASA in USICA, which is viewed as a giveaway to Jeff Bezos’ Blue Origin, and do not believe it should be included in this particular package. It is unclear whether the $10 billion NASA funding will survive conference.

[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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