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Pentagon pushes to add foreign investment curbs to defense bill

  • The Department of Defense has asked the House and Senate armed services committees to include new restrictions on foreign investment in the United States in a defense spending bill that's expected to be unveiled this week.
  • Defense Secretary General James Mattis expressed support for foreign investment but that the Department of Defense also believes that "adversaries have studied the weaknesses of our current laws and regulations and are exploiting them today."
  • Outside business groups and lawmakers in the House have raised issues with the substance of the bill and there are potential procedural roadblocks in the Senate.
Secretary of Defense James Mattis
Aaron P. Bernstein | Reuters
Secretary of Defense James Mattis

The Department of Defense has asked the House and Senate armed services committees to include new restrictions on foreign investment in the United States in a defense spending bill that's expected to be unveiled this week.

Defense Secretary Gen. James Mattis made the request in a letter that was dated May 4 and sent to the House and Senate armed services committee, a copy of which CNBC has obtained and confirmed.

In the letter, Mattis expressed support for foreign investment but added that "DoD 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."

The bipartisan legislation would significantly expand the purview of the Committee on Foreign Investment in the United States to review transactions involving non-US parties, specifically China.

The letter from the Pentagon reaffirms the Trump administration's support of the bill, in which the Treasury Department has been closely involved. In recent weeks, trade advisor and noted China hawk Peter Navarro has increased pressure to pass CFIUS expansion sooner rather than later, according to a senior White House official.

"The Administration cares very strongly about this," said Stephen Myrow, managing partner of Beacon Policy Advisors and former Treasury official. With the urging from Mattis, "the chances of something actually passing Congress have gone up a bit."

But questions remain about the avenue through which the proposed bill, first introduced in November 2017, would become law: Outside business groups and lawmakers in the House have raised issues with the substance of the bill, and there are potential procedural roadblocks in the Senate.

Neither Sen. John Cornyn nor Sen. Dianne Feinstein, the co-sponsors, sit on the committee with jurisdiction over the issue. The Senate Banking Committee delayed a markup of the CFIUS legislation originally scheduled for May 8 and has been prioritizing passage of a bipartisan regulatory relief bill, according to three people familiar with the matter.

The National Defense Authorization Act (NDAA) would greenlight more than $700 billion in military funding and is seen among the last "must-pass" bills Congress will take up this session. House lawmakers released a summary of the legislation Friday, with the full text of the bill expected to be released this week.

The deadline to include amendments in the NDAA is Monday, May 7, an aide for the House Armed Services Committee confirmed.

Download the full letter here.