Barriers to Foreign Investment in the U.S. and Other Nations

Abstract

Foreign investment has often been a controversial issue because of fears that it may become a tool for foreign influence in a country's economy. This attitude was common in Latin America and other countries, but, until recently, it was rare in the United States since this country, for much of this century, had been a net capital exporter. Recent years, however, saw a change in attitude when the United States became a net capital importer. This article surveys the restrictions on foreign direct investment imposed by the United States and other major countries. It concludes that the United States is still the most hospitable country—or at least one of the most—to foreign direct investment. Recent changes, however, have reduced the distance between the U.S. openness and that of other countries mainly by making the U.S. climate for foreign investment less welcoming.

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References

1. This is the more so when foreign interests control important natural resources of the host country.

2. Also, the realization that some important foreign technology can only be obtained through equity investment may have contributed to the change in attitude.

3. As an example, there has been a remarkable change in attitude toward direct investment in Mexico over the past couple of years.

4. Actually, this concern had already begun to surface after 1974, when huge balances were accumulated by oil-exporting Arab nations and were at times used to buy physical assets in the United States.

5. Occasionally, however, a license may be granted to a vessel from a foreign country.

6. Foreign civil aircraft, however, may fly over the United States on the basis of reciprocity.

7. In the case of mineral deposits lying on the submerged lands of the continental shelf, leases may also be granted to resident aliens.

8. The overwhelming share of total direct investment in the United States is owned by the United Kingdom rather than Japan. (See Table 2.) The real position of the Japanese investment, which is relatively recent, would appear still less important if all foreign investment were recorded at constant prices.

9. The same poll indicated that 83 percent of the chief executive officers of corporations would oppose these restrictions. See Richard J. Whalen and R. Christopher Whalen , Trade Warriors: The Guide to the Politics of Trade and Foreign Investment (Washington, DC: Whalen Co., 1990), p. 80.

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10. J. Jackson , “Introduction,” in Foreign Direct Investment: Effects on the United States (Washington, DC: Congressional Research Service, 1989).

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11. Kashiwagi , “Revised Oral Statement on Tax Treaty Overrides” (Statement delivered at the BIAC Consultation with OECD Council Meeting at Ministerial Level, Paris, 29 May 1990).

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12. Other sources of information on restrictions on foreign investment, especially those related to trade performance, are mentioned in Theodore H. Moran and Charles S. Pearson , “Do TRIPs Trip up Foreign Investment? An International Business Diplomacy Perspective,” in Foreign Direct Investment in the 1990s: A New Climate in the Third World, ed. Cynthia D. Wallace (Dordrecht: Nijhoff, 1990), pp. 28-60.

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13. See Vito Tanzi and Parthasarathi Shome , “The Role of Taxation in the Development of East Asian Economies” (Paper prepared for the Conference on the Political Economy of Tax Reforms and Their Implications for Interdependence, Seoul, South Korea, 14-16 June 1990).

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14. Greater flexibility, however, was introduced in the sector of informatics, an area of conflict with the United States for many years.