18 investment treaties we have signed. Most recently, the U.S./Canada Free Trade Agreement liberalizes capital restrictions, paving the way for increased American investment in our great friend to the north. B. U.S. National Security Is Adequately Safeguarded. Like Madam Chairman, any consideration of U.S. international investment policy must take into account provisions to assure America's national security. Our government has available to it a number of measures to safeguard our national security. U.S. investors, foreign investors must comply with all applicable laws, such as Securities and Exchange Commission reporting requirements and the antitrust laws. Unlike U.S. investors, a number of special restrictions exist for activities in certain key sectors, such as radio and television broadcasting, 28/ coastal and inland shipping, 29/ air transportation within the 30/ and the production and use of nuclear power.31/ The Defense Department has a comprehensive set of guidelines, the Industrial Security Regulation, 32/ covering the United States, 28/ 29/ 30/ 31/ See 47 U.S.c. SS 153, 310(b)(1)−(4) (1982 & Supp. 1987) See 46 U.S.c. SS 251, 292, 316, 319, 802, 883 (1982 & Supp. 1987) (discussing regulation of vessels in domestic commerce and shipping acts). 49 U.S.C. App. SS 1301(3)&(6), 1372, 1378, 1508(b) (1982 & Supp. 1986). 42 U.S.C SS 2133, 2134 (1982 & Supp. IV 1986). 19 performance of government contracts involving classified information which limits or bars foreign ownership of the contractor. Section 232 of the Trade Expansion Act of 1962,33/ as amended by Section 127 of the Trade Act of 197434/ and the Reorganization Plan of 1979,35/ authorizes the President to impose restrictions on imports which threaten to impair national security. The International Emergency Economic Powers Act 36/ grants the President emergency authority to regulate foreign exchange transactions, transfer of payments between banking institutions where a foreign interest is involved, import or export of currencies or securities, and control or freeze property transactions where a foreign interest is involved. Export licensing for most commercial goods and technical data is authorized by the Export Administration Act.37/ In addition, since 1975 CFIUS has been empowered to review certain foreign investments in this country which, in the judgment of the Committee, might have major implications for United States national interests.38/ Most recently, Section 721 of the Defense 35/ Reorg. Plan No. 3 of 1979, 44 Fed. Reg. 69,173 (1980), reprinted in 19 U.S.C. at 147-54 (1982). 36/ 371 38/ 50 U.S.C. SS 1701-06 (Supp. 1987). 50 U.S.C. S 2401 (Supp. 1987). Exec. Order No. 11,858, 40 Fed. Reg. 20,263 (1975), amended by Exec. Order No. 12,188, 45 Fed. Reg. 989, 992 (1980), amended by Exec. Order No. 12,661, 54 Fed. Reg. 779, 780-81 Production Act of 1950, "Exon-Florio," provides the President with authority to suspend or prohibit any acquisition, merger, or takeover by a foreign person on certain national security grounds. As you know, Madam Chairman, draft regulations to implement Exon-Florio were published by the Treasury Department. AFII submitted detailed comments on the proposed regulations,39/ which will give shape and content to the law. We understand that the final regulations will not be issued prior to February 1990. C. The Traditional U.S. Policy Should Not Be Changed. 1. The U.S. Is a Beneficiary of Foreign Investment. a. Foreign investment, like domestic investment, promotes real growth. Like domestic investment, foreign investment promotes real growth and increases the competitiveness of U.S. industry. It adds to the industrial capacity of the economy by expanding the nation's stock of new plants and equipment. This is particularly important at this time since, in the economy as a whole and in many manufacturing sectors, we are operating close to the highest levels of capacity utilization in 9 years.40/ order to continue to grow domestically and to exploit our comparative advantage in the global marketplace and thereby to increase our international market share, we need to expand our industrial base. This, of course, is in large measure dependent In 40/ Board of Governors, Federal Reserve System, Capacity 21 upon the availability of investment capital at reasonable interest rates. We are, moreover, a beneficiary in another way of foreign acquisitions of U.S. enterprises. Just as U.S. shareholders generally receive premium prices as a result of domestic acquisitions, they also receive premium prices from foreign purchasers. These funds, in turn, are usually reinvested in the U.S. economy and help to expand America's industrial base. b. Foreign investment helps keep domestic ΟΙ At least until the budget deficit is eliminated, until the American private savings rate is increased, or some combination of those factors, foreign investment will continue to exert downward pressure on U.S. interest rates. Lower interest rates benefit the U.S. economy, encouraging domestic business expansion and the creation of new jobs. A well-known economist has estimated that real U.S. interest rates would have risen by 3.5 to 5.5 percentage points in the absence of the surge in foreign investment since 1981.41/ These higher interest rates would have serious adverse consequences for the American economy and would almost certainly precipitate a recession. 41/ S. Marris, Deficits and the Dollar 44, 140-41 (rev. ed. Aug. Americans.42/ Some is "greenfield" investment, such as the new Japanese auto plants in Tennessee and Ohio. A larger portion of foreign investment results from the acquisition of existing enterprises. The employment effects of foreign direct investment have long been debated and are the subject of a recent study.43/ Let it suffice to say that employment effects can be measured in two ways: jobs created and jobs saved. While greenfield investment represents jobs created, as does the expansion of an acquired enterprise, jobs saved are more difficult to measure since one must guess at what might have happened in the absence of a particular investment. reveal an interesting contrast in employment trends. While employment overall in U.S. manufacturing declined 6.4 percent between 1980 and 1987,44/ employment by U.S. affiliates of foreign firms rose 37 percent in the same period. 45/ This 42/ Benchmark, supra note 19, at Table 5. 43/ 44/ 45/ N. Glickman & D. Woodward, The New Competitors: How Foreign Economic Report on the President 1989 356 (Jan. 1989). U.S. Dep't Commerce, Foreign Direct Investment in the United |