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)
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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
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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
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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:
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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
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Definition of national security?
Investigative authorityCFIUS
 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
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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
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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:
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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
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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
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