In the past three years, many countries have adopted or expanded regimes to review inward foreign direct investment (FDI) for either “national” or “economic” security purposes. The U.S. Congress recently passed legislation reforming the Committee on Foreign Direct Investment with the United States, which is charged with reviewing the security risk posed by inbound investments. France has adopted a new regulation requiring reviews of foreign investments (excluding EU investments) in nineteen sectors of their economy. Russia is close to adopting a law, modeled largely on the CFIUS process, requiring reviews in thirty-nine sectors. China has adopted a regulation allowing the government to block investments that harm “economic security,” and Korea and Canada are debating new restrictions.
State-owned multinationals are increasingly prominent, especially in developing countries. In 2005, twenty-four of the top 100 multinationals headquartered in developing countries were majority state-owned. Of particular note is the rising number and size of developed-country firms being acquired by developing-country sovereign funds of central banks and/or fiscal authorities. The recent Chinese investment in the U.S. private-equity firm Blackstone is one notable example.
This CSR will examine the scope, nature, causes, and consequences of rising restrictions to inward FDI around the world. It will discuss what best practices and principles should guide governments in formulating and implementing policies to govern national security reviews of FDI inflows, including how to prevent legitimate national security reviews from becoming tools for economic protectionism. It will also consider what should be the policy responses from advanced countries and important leadership groups, such as the G-8, APEC, and the OECD, to the emergence of new FDI restrictions. The recommendations will also cover ways to avoid actions in the United States being used as justification for other countries to restrict foreign investment.