The OISP is one of the latest efforts by the US to restrict China’s technological and military development. The US Department of Treasury finalised it on 28 October, after President Joe Biden issued an executive order in August of 2023.
The OISP requires companies to avoid or report investments in companies involved with certain tech sectors. It will take effect starting 2 January 2025, just a few weeks before Donald Trump is due to take office again. However, given Republicans’ hawkish view on China, it is unlikely his administration will drift from Biden’s efforts to decouple from the eastern powerhouse.
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What does the OISP say?
The OISP is focused on restricting outward investments into “countries of concern” in three sectors: quantum information technologies, semiconductors and microelectronics, and AI. However, the only identified country of concern is China, including Hong Kong and Macau territories.
The rule does not only apply to US companies. It also applies to the foreign branches of US companies, US citizens residing outside the US and non-citizen US residents. It can also apply to foreign companies that employ Americans, particularly in senior positions.
The onus of responsibility is now on companies to create OISP compliance frameworks. If they are reported for breaching the rules, they could be fined up to $1m, while individuals who break the rules wilfully may even face 20 years in prison.
Some have expressed concern about the ability of a US policy to potentially affect foreign companies in such a direct way.
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By GlobalDataThe regulation will automatically increase non-US companies’ liability exposure, according to criminal lawyer and Varghese Summerset and Lawft founder Benson Varghese.
“Suppose a foreign company with American executives invests in a restricted country or flagged sector. In that case, the company could face compliance issues and US enforcement actions against American employees. The Treasury has broad penalty authority, and non-compliant individuals may face personal consequences. I have seen similar risks in export controls and sanctions cases where American workers for international companies unintentionally broke the law,” Varghese added.
A way to mitigate risk would be through establishing “pre-approval protocols for certain investments to avoid violating US laws”.
Impact
While the consequences for compliance failures may seem hefty, the US’ push to decouple from China over the past few years has already caused investments in these sectors to dwindle. In the case of quantum computing, there have been zero greenfield investment projects in the past ten years.
However, the policy does highlight the US’ commitment to further isolating its technology from China.
John Kabealo, founder of Kabealo Law, believes that the policy is intended as a “signal” to investors that “the US is willing to adopt new tools… as technology becomes more central to national security”.
It may also be an effort to address attempts to curb the tight restrictions. For example, it has been reported that Chinese solar power companies are building factories in neighbouring countries to skirt US tariffs.
The policy comes amid Trump’s reelection and growing speculation over the extent to which he will follow through on campaign promises such as high import tariffs.
“If Trump goes through with the proposed 60% tariff on Chinese imports, US companies will be less keen to invest in China. In that scenario, China will retaliate with their own tariffs, decoupling investment ties between the two countries without any outright investment restrictions,” GlobalData analyst Carolina Pinto explains.
“This will happen in the tech sectors, semiconductors, AI, clean energy and biotech first as those industries are already subject to actual and proposed trade restrictions.”
“Having said this, the trade restrictions include a series of grandfather clauses and exemptions that will dilute the decoupling over the next decade or so.”
