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

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 116^th 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.

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.

Next steps

Hogan Lovells would be pleased to help with questions about how the final version of USICA will likely affect you or your business.

Authored by Timothy Bergreen, Ari Fridman, Kelly Ann Shaw, Shelly Castle, and Emily Jenkins.