Where do we draw the line between national security and economic benefit? It’s a tough question. On one hand, the government must do everything in its power to safeguard the American people. On the other, foreign investors provide jobs for the American people.
Investing in the U.S. provides foreign companies with domestic market opportunities and innovative, productive workers. While the cost of labor may be higher, the technology available and worker productivity can offset much of the extra cost, according to Steve Ackerman, President, UK-based FKI Logistex, a provider of automated material handling solutions.
Thanks to outsourcing and oil, most of the companies looking to invest in the U.S. are from China or Arab countries—a red flag for most Americans.
But the United States can’t shelter itself from investments that can boost the economy and add jobs.
How helpful can those investments be? Take Georgia—the state saw $2 billion worth of foreign direct investment (FDI) last year, according to Heidi Green, Deputy Commissioner for Global Commerce with the Georgia Department of Economic Development. Georgia is not alone. States across the country try to woo international companies like Toyota and BASF.
Traditionally, the U.S. has had an open investment policy, with the exception of cases that may prove a risk to national security. As a safety net, the Exon-Florio provision was built into the investment policy. Although it is limited solely to acquisitions, it establishes the Committee on Foreign Investment in the United States (CFIUS), an inter-agency committee which reviews cases that may be a security risk.
According to the Treasury Department, Exon-Florio was not designed to inhibit foreign investment. It allows the U.S. to remain open to foreign investors, and when necessary, evaluate potential security risks.
While it is optional for a foreign company to file with CFIUS, it is beneficial. Attorney Christopher Wall of Pillsbury Winthrop Shaw Pittman LLP says the filing “is a clean bill of health—a vaccine of sorts—against suspicion later on.”
That ‘clean bill of health’ has an additional advantage following the most recent reform to the CFIUS legislation. It has been expanded to cover anything that can be defined as “critical infrastructure.” Wall says the open-ended term can be made to apply to just about anything. Usually, it refers to sensitive technological exports and classified contracts, but could be any asset vital to U.S. national security.
“Foreign ownership of assets is a risk,” said Wall. “But the new jobs and technology create a stronger economy, which makes the country more secure.”
The U.S. is not alone with its screening either. Other countries have potentially harsher restrictions in the name of security, but with Arab countries and the Chinese looking to invest more overseas, we need to be careful, but not restrictive, Wall cautions.
Wall also stresses that businesses need predictability; they need to be able to adjust for areas of high demand, low labor and favorable infrastructure. There is the potential for the critical infrastructure clause to be abused, but the bottom line is that countries need foreign investment.
“To put a fence around it would hurt long-term growth,” he added.
FDI isn’t just good for the economy; it’s good for manufacturers too. Foreign investments help to bring companies into the global marketplace.
As Ackerman points out, more and more companies are designing for the global marketplace. From using metric instead of imperial measurements to moving beyond geographical boundaries, globalization is a competitive necessity.
“American companies can’t have blinders on and only look at the North American market,” said Ackerman. “They need to look at things from a global perspective or the world will pass them by.”
“A domestic-only focus would shortchange any country’s economy,” added Wall.
The U.S. isn’t just out to court foreign investors; it is also looking to expand domestic companies on a worldwide scale.
China is Georgia’s fifth-largest trading partner, and the state is looking to increase its global footprint. Georgia has missions where it sends delegations abroad and brings foreign representatives to the U.S. Companies are matched with similar U.S.-based companies or suppliers, improving the trade balance for all involved.
Participating in the global marketplace won’t hurt domestic companies’ ability to compete. Investments boost the economy, which in turn boosts the market. Moreover, as Green notes, some of the foreign companies use domestic suppliers.
“We have room for everybody,” she adds.
For more information on Exon-Florio, click here.