Foreign Investment & US National Security
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Transcript Foreign Investment & US National Security
Foreign Investment & US
National Security
REBECCA TINGER
ITRN701-008
Agenda
Overview of Foreign Direct Investment (FDI)
Stakeholders & Their Positions
US Interests
Concerns vis-à-vis National Security
Past & Current US legislation
Policy Suggestions
Foreign Direct Investment (FDI)
A measure of foreign
ownership of domestic
productive assets such as
factories, land, and
organizations
Types: Mergers,
Acquisitions, Greenfield
Investments
Driver of globalization!
Gains from FDI
Both developed & developing countries have reaped
substantial gains from FDI
Job creation
Increased tax revenue
Helps source countries by allowing their firms to
compete and earn profits abroad
Way to finance current account imbalances
Global FDI Trends
Worldwide expansion of FDI began in the 1980s
FDI dropped due to global financial crisis in 2008-9
Global FDI inflows rose modestly from 2010-11
FDI inflows increased in all economic groupings
Developing & transitional countries absorbed more than half of FDI flows
(mostly through rise in greenfield projects)
Developed countries FDI inflow increase due to cross-border M&A’s
Entities engaged in FDI
Transnational Companies
Individuals, governments, regional/international organizations
Special funds (sovereign wealth funds & private equity funds)
http://www.unctad.org/en/docs/wir2010ch1_en.pdf
http://archive.unctad.org/en/docs/webdiaeia2012d1_en.pdf
Resistance to FDI
Trend toward restricting investment through
legislation and regulation
Concern about
Loss of technology
Loss of jobs due to outsourcing
How much a nation’s economy is under foreign control
Investment from “nontraditional” sources—both private and
sovereign wealth funds
Threat associated with state-backed investors who use their
investments to advance their political objectives
National security***
Global Issue
National Security issues related to FDI are a global
concern
India: concerns about infrastructure
European Union: concerns about Chinese ownership in the
telecom sector
China: in 2005, barred overseas producers from taking
majority stakes in local steel mills
FDI inflows to US
FDI has played significant role in US sector
development
In general, the US has led efforts:
To reduce restrictions on foreign investment
For greater rules on incentives offered to foreign investors
For equal treatment under law of foreign & domestic investors
Why?
The US’ general commitment to open markets & the free flow
of capital
The US is amongst the largest direct investor abroad AND
receiver of FDI
National Security Concerns
Political pressures, based on real or perceived threats
to restrict FDI have arisen from time to time
World War I
Oil Crises of the 1970s
Japanese takeover of US industry in the 1980s
9/11 Terrorist Attacks
Rise of China
CNOOC/DP World
2005: bid by China National Offshore Oil
Corporation to buy US oil firm Unocal
2006: Dubai Ports World bought the port operations
of the UK-based Peninsular & Oriental Steam
Navigation
Brief History
Event
Subsequent Legislation
WW1-Germany
TWEA
Oil Crises
IEEPA
Japan
Exon-Florio
9/11 attacks
CNOOC/DP World
Amendment
Exon-Florio Provision
Grants the president broad authority to investigate &
block proposed or pending foreign companies or
persons to acquire control of US companies for
national security purposes
Definition of national security?
Investigative authorityCFIUS
Byrd amendment: required heightened scrutiny for
acquisitions of US firms by foreign governmentowned or government-controlled firms
Legislation
Criticisms of CFIUS/Exon Florio procedures:
minimally transparent, discretionary, no definition
of national security, outrage over DP World &
CNOOC incidents
1997-2004, of 470 notices only 8 were investigated
A number of bills were proposed to improve system
http://www.youtube.com/watch?v=_4jiAtm2KOE
FINSA
Foreign Investment & National Security Act of 2007
FINSA modifications to Exon-Florio
CFIUS lead agency
Mandatory 45-day investigation (foreign governments)
Better defines national security
Unilateral initiation of review by any CFIUS member
Director of National Security must review transactions where a
foreign company has formally filed with CFIUS
Evergreen provision
Increased CFIUS accountability to Congress
Review of FINSA/Policy Proposals
Process is more formalized, accountable,
transparent, and objective
However, more burdensome & exhaustive with a
possibility of certain unintended results
Policy Proposals to avoid these:
Remove mandatory investigation of foreign government
controlled transaction
Create separate committee to review all transactions and
reviews
Amend Evergreen provision (only include intentional fraud)
Finding the Right Balance
Trade-off between desires to preserve & expand an
open international investment environment with the
national responsibility to safeguard essential security
interests
Want to avoid protectionist impulses & nationalist
concerns framed under pretext of “national security”
Rise of China
Our challenge is to strike a balance between securing
the country and continuing to promote the economic
benefits of open engagement in a global economy
Sources
http://www.relooney.info/0_New_5450.pdf
http://www.taxnews.com/news/EU_US_Adopt_Commitment_To_Open_FDI_Regime____54918.htm
l
http://www.vcc.columbia.edu/content/foreign-direct-investment-and-us-nationalsecurity-cfius-under-obama-administration
http://moritzlaw.osu.edu/lawjournal/issues/volume67/number4/byrne.pdf
http://www.fas.org/sgp/crs/natsec/RL33312.pdf
http://labhi.staff.umm.ac.id/files/2010/12/U.S.-National-Security.pdf
http://www.petersoninstitute.org/publications/chapters_preview/3918/02iie3918.pdf
http://www.fas.org/sgp/crs/natsec/RL34561.pdf
http://archive.unctad.org/en/docs/webdiaeia2012d1_en.pdf
http://www.unctad.org/en/docs/wir2010ch1_en.pdf
http://www.treasury.gov/resource-center/international/foreigninvestment/Documents/Summary-FINSA.pdf
http://www.vsb.org/docs/valawyermagazine/vl1206_global-mergers.pdf
Sources, cont’d
http://www.gao.gov/new.items/d07661t.pdf
http://www.treasury.gov/resource-center/international/foreigninvestment/Documents/2011%20CFIUS%20Annual%20Report%20FINAL%20PUBLIC.
pdf
http://www.unctad-docs.org/files/UNCTAD-WIR2011-Chapter-I-en.pdf
http://www.youtube.com/watch?v=_4jiAtm2KOE