By Mark S. Nelson, J.D.
House Democrats introduced the America Creating Opportunities for Manufacturing, Pre-Eminence in Technology, and Economic Strength (America COMPETES Act) of 2022 (H.R. 4521), a comprehensive bill addressing a variety of topics, including production of semiconductor chips, energy, and foreign affairs, with much of the bill aimed at economic competition between the U.S. and China. The bill also includes an amendment to the Holding Foreign Companies Accountable (HFCA) Act, which gave the SEC authority to delist from U.S. exchanges foreign companies whose auditors cannot be inspected by the Public Company Accounting Oversight Board. The House Rules Committee is scheduled to consider a rule for the consideration of the America COMPETES Act on February 1, 2022.
“Right now, China and other bad actors are threatening our national security and global financial stability,” said Rep. Maxine Waters (D-Calif), chair of the House Financial Services Committee, via a press release announcing the introduction of the bill. “This is why The America COMPETES Act is commonsense, long overdue legislation that will finally hold countries like China accountable for the ways that they engage in illicit or aggressive activity to harm our nation’s financial system. With this bill, our country and our allies will be stronger and better suited to compete and push back against these attacks.”
House FSC Ranking Member Patrick McHenry (R-NC), however, described the bill as a “partisan” effort that would not effectively curb the Chinese Communist Party. “Most of these partisan provisions have never been marked up by our Committee and three were already rejected during NDAA negotiations,” said Rep. McHenry. “This is bad process, bad policy, and represents an unserious approach born of Democrats’ desperation for a win—after failing on everything from inflation to the COVID response.”
Delisting foreign companies. Section 60301 of Title III of the America COMPETES Act contains language that would allow the SEC to more quickly delist certain foreign companies from U.S. exchanges because of concerns about auditor oversight. The SEC’s authority to delist such companies comes from the HFCA Act (Pub. L. No. 116-222), which became law December 18, 2020, and created a process by which the SEC can delist foreign companies whose audit work papers cannot be inspected by the PCAOB because of policy positions taken by a company’s PCAOB-registered auditor’s home country regulators. The SEC has taken steps to finalize a set of interim rules implementing portions of the HFCA Act (See, Holding Foreign Companies Accountable Act Disclosure, Release No. 34–91364, March 18, 2021; Holding Foreign Companies Accountable Act Disclosure, Release No. 34–93701, December 2, 2021).
The PCAOB also has adopted a final rule creating a framework for making determinations under the HFCA Act, while also issuing its first such designations for PCAOB-registered public accounting firms headquartered in mainland China and in Hong Kong (See, Rule Governing Board Determinations Under the Holding Foreign Companies Accountable Act, PCAOB Release No. 2021-004, September 22, 2021; HFCA Determination Report, December 16, 2021).
The provision in the America COMPETES Act is identical to the Accelerating Holding Foreign Companies Accountable Act (S. 2184; H.R. 6285), sponsored by Sen. John Kennedy (R-La) and Rep. Brad Sherman (D-Calif). The provision would shorten the compliance period threshold in the HFCA Act from three to two years. In other words, if the Commission determines that a covered issuer has two (instead of three) consecutive non-inspection years (i.e., the PCAOB cannot inspect the company’s auditors), the Commission must prohibit the securities of the covered issuer from being traded on a national securities exchange or via other modes of trading such as over-the-counter markets. The Senate version of the bill passed the senate by unanimous consent on June 22, 2021.
GOP version. The Countering Communist China Act (H.R. 4792), sponsored by Rep. Jim Banks (R-Ind), constitutes the Republican’s alternative to the America COMPETES Act. The Countering Communist China Act is an equally comprehensive bill that addresses a variety of topics, including Chinese influence in U.S. markets, the origins of SARS-Cov-2 (COVID-19), supply chains, research and development, education, human rights (including regarding the XUAR and Taiwan), defense and national security, and intellectual property.
Representative Banks issued a press release in which he characterized the America COMPETES Act as “weak.” Said Rep. Banks: “This is why conservatives wrote our own China bill last summer that is just 0.5 [percent] the cost of the USICA [a precursor to the America COMPETES Act] and includes tough measures like sanctions that would limit the Chinese Communist Party’s ability to subvert our nation’s institutions and steal our intellectual property. If Congress really wanted to confront the China threat, we’d pass the RSC’s [Republican Study Committee’s] Countering Communist China Act.”
Section 115 of Title I of the Countering Communist China Act also contains the Exposing China’s Belt and Road Investment in America Act of 2021 (S. 3038; H.R. 5806), sponsored by Sen. John Kennedy (R-La) and Rep. Chris Stewart (R-Utah), which would provide for review by the Committee on Foreign Investment in the U.S. (CFIUS) of investments that China-controlled businesses make on U.S. soil. Specifically, the bill would require CFIUS to review any investment that is made by a foreign person that involves the acquisition of real estate in the U.S., the establishment of a U.S. business on such real estate, and results in the Chinese government’s direct or indirect control of that U.S. business.
Numerous provisions within the America COMPETES Act would address China’s belt and road initiative. Section 30604, for example, would urge the president of the U.S. and the CEO of the United States International Development Finance Corporation to seek partnerships with other multilateral development finance institutions for climate-friendly development projects and would impose conditions on the co-financing of infrastructure projects. The proposed program would function as an alternative to China’s belt and road initiative.