Mattis urges anti-China measure to be included in U.S. defense bill

WASHINGTON (Reuters) - Defense Secretary Jim Mattis urged top lawmakers shepherding a must-pass defense bill through Congress to include measures that would tighten oversight of foreign investment in the United States in hopes of hampering Chinese efforts to gain access to sensitive U.S. technology.

FILE PHOTO: U.S. Defense Secretary Jim Mattis testifies before a Senate Armed Services Committee hearing on the “Defense Department budget posture in review of the Defense Authorization Request for FY2019 and the Future Years Defense Program” on Capitol Hill in Washington, U.S., April 26, 2018. REUTERS/Aaron P. Bernstein

In the letter dated Friday, which was seen by Reuters and has not been previously reported, Mattis urged the Republican chairmen and top Democrats on the Armed Services committees in the House and the Senate to include in the National Defense Authorization Act (NDAA) measures that would broaden the powers of the Committee on Foreign Investment in the United States.

Mattis said in the letter that he supported foreign investment but added: “DOD (the Department of Defense) also believes we must be clear-eyed that our adversaries have studied the weaknesses of our current laws and regulations and are exploiting them today.”

CFIUS, as it is usually known, reviews foreign investment in the United States and stops deals that would harm national security.

The NDAA authorizes the level of defense spending and sets policies controlling how the funding is used. It is one of the few pieces of major legislation passed by Congress every year and, because of this, the NDAA is used as a vehicle for a broad range of policy measures.

Attaching measures to toughen CFIUS to the defense bill would all but guarantee that they would become law. The standalone CFIUS bill has bipartisan support and is a major piece of the Trump administration’s effort to reduce Chinese access to U.S. technology in a bid to curb its plans to dominate key technology sectors.

“Of particular concern is the national security risk that may arise from coercive industrial policies that force the transfer of technology and associated support through joint ventures,” Mattis wrote in his letter.

Mattis also lent his support to a measure in the bill that would force a foreign buyer of vacant land to go through CFIUS. “DOD further appreciates the broadening of the scope of review of real estate transactions that have implications of co-location in close proximity to a military facility,” he wrote in the letter.

The bill in the Senate and a companion measure in the U.S. House of Representatives would broaden CFIUS’ reach in hopes of reining in China’s acquisition of U.S. high tech knowledge even as China has sought to focus on production of higher-value goods, like robots, computers and telecommunications equipment.

The bipartisan legislation has the support of President Donald Trump’s administration but is opposed by some tech companies, on the grounds that it would hurt exports, and some in the investor community, who fear that small, uncontroversial investments by Chinese entities would have to be reviewed by CFIUS, an inter-agency task force.

Reporting by Diane Bartz; Additional reporting by Mike Stone; Editing by Susan Thomas