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Friday, February 19, 2010

Foreign Investment, CFIUS, and Homeland Security: An Overview

James K. Jackson
Specialist in International Trade and Finance

The President is generally seen as exercising broad discretionary authority over developing and implementing U.S. direct investment policy, including the authority to suspend or block investments that "threaten to impair the national security." Congress is also directly involved in formulating the scope and direction of U.S. foreign investment policy, and some Members are urging the President to be more aggressive in blocking certain types of foreign investments. Such confrontations reflect vastly different philosophical and political views between members of Congress and between Congress and the Administration over the role foreign investment plays in the economy and the role that economic activities should play in the context of U.S. national security policy. In July 2007, Congress asserted its own role in making and conducting foreign investment policy when it adopted and the President signed P.L. 110-49, the Foreign Investment and National Security Act of 2007. This law broadens Congress's oversight role, and it explicitly includes the areas of homeland security and critical infrastructure as separately identifiable components of national security that the President must consider when evaluating the national security implications of a foreign investment transaction. The act may well draw Congress into a greater dialogue, and possibly greater conflict, with the Administration over efforts to define the limits of the broad rubric of national economic security. 

The United States is the largest foreign direct investor in the world and also the largest recipient of foreign direct investment. By year-end 2008, foreign direct investment in the United States had reached $2.3 trillion and U.S. direct investment abroad had reached $3.2 trillion. This dual role means that globalization, or the spread of economic activity by firms across national borders, has become a prominent feature of the U.S. economy and that through direct investment the U.S. economy has become highly enmeshed with the broader global economy. 

The globalization of the economy also means that the United States has important economic, political, and social interests at stake in the development of international policies regarding direct investment. With some exceptions for national security,1 the United States has established domestic policies that treat foreign investors no less favorably than U.S. firms. In addition, the United States has led efforts over the past 50 years to negotiate internationally for reduced restrictions on foreign direct investment, for greater controls over incentives offered to foreign investors, and for equal treatment under law of foreign and domestic investors. In light of the terrorist attacks on the United States on September 11, 2001, however, some Members have questioned this open-door policy and have argued for greater consideration of the long-term impact of foreign direct investment on the structure and the industrial capacity of the economy, and on the ability of the economy to meet the needs of U.S. defense and security interests.

Date of Report: February 4, 2010
Number of Pages: 9
Order Number: RS22863
Price: $29.95

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