The Impact of U.S. Laws on Foreign Direct Investment

Abstract

The U.S. economy has been and continues to be more open to foreign direct investment than any economy in the world. National policy is one of complete neutrality, but when state and local incentives are considered, the overall stance may be one of encouragement. At the national level, potential foreign investments are scrutinized only vis-à-vis their threat to national security, and very few are subjected to even this examination. Monitoring foreign direct investment is now done but is not done well. Improvements in data gathering are possible and recently have been considered more seriously. More prominent recent issues in the control of foreign direct investment seem to concern infiltration of the political system, specific nationalities, and the purchases of landmark properties. In spite of discussion and legislative proposals, there is little enlightened opinion that restrictions on foreign direct investment in the United States should increase. As long as the nation-state continues to be the predominant form of world political organization, however, there will always be at least some potential—if only nominal—barriers on national security grounds.

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References

1. For more complete development, see Mira Wilkins , The History of Foreign Investment in the United States to 1914 (Cambridge, MA: Harvard University Press, 1989), chap. 16.

2. It is sometimes argued that even though foreign hurdles may exist de jure, on average the de facto situation across most countries is more equal and liberal. It is accepted knowledge, however, that some major countries such as Japan have erected substantial barriers.

3. Some observers have detected a perceptible shift away from neutrality toward actual encouragement in the early Reagan years, which perhaps not coincidentally is also when increasing current-account deficits began to require financing. See, for example, Edward M. Graham and Paul R. Krugman , Foreign Direct Investment in the United States (Washington, DC: Institute for International Economics, 1989), chap. 6.

4. For example, in 1982 the U.S. Interior Department attempted to invoke the Mineral Lands Leasing Act of 1920 against Kuwait Petroleum Company and its U.S. affiliate Santa Fe. The act depends on reciprocity and gives the U.S. government the authority to deny foreign mining on federally leased land if the involved nation does not allow U.S. mining on its land. A court challenge by Santa Fe resulted in the reversal of the decision in 1985.

5. A complete review of recent bills introduced in the Congress, the issues and positions involved, and how proposed legislation fared is naturally beyond the scope of this article. An often discussed proposal for more detailed reporting and disclosure in recent years was the Bryant Amendment, first introduced by Congressman John Bryant (D-Texas) in 1984 and included again as part of the 1988 Omnibus Trade Bill. The Exon-Florio Amendment to this bill was enacted, and the impact of this amendment is discussed subsequently in this article.

6. From the beginning, CFIUS had a broader mandate than just auditing national security aspects. The executive order creating it tasked it to (1) analyze trends in foreign investments, (2) negotiate advance consultations with foreign governments desiring to invest in the United States, (3) review investments that affect U.S. national security, and (4) consider new legislation or regulations on such investment. Narrow interpretation of its mission, confined almost entirely to the third item, came from the reluctance of subsequent administrations to interfere with foreign direct investment flows.

7. For further discussion of national- security-related aspects, see Graham and Krugman , Foreign Direct Investment, chap. 5.

8. Pub. L. 94-472, 94th Cong., 2d sess. (11 Oct. 1976).

The basic ITA data source is Foreign Direct Investment in the United States, 19— Transactions (Washington DC: Department of Commerce, International Trade Administration, Office of Trade and Investment Analysis, published annually).

10.

10. Pub. L. 101-533, 101st Cong., 2d sess. (7 Nov. 1990).

11.

11. See DeAnne Julius , Global Companies and Public Policy: The Growing Challenge of Foreign Direct Investment (New York: Council on Foreign Relations, 1990), chap. 3 and p. 81.