The Custom-House

Rules for FDI Security Reviews

Foreign direct investment (FDI) can have a lot to offer an economy.  But, the world's nations are becoming increasingly concerned about the impact of FDI on national security.  As governments have placed more emphasis on screening investments, they've increased the costs of investments - and reduced the attractiveness - to foreign investors.

David Marchick and Matthew Slaughter look at trends in foreign investment reviews in their new Council of Foreign Relations report, Global FDI Policy. Correcting a Protectionist Drift (June 2008).  Marchick was the author, with the late Edward Graham, of US National Security and Foreign Direct Investment (Peterson Institute, 2006).

Marchick and Slaughter point to three reasons for heightened security concerns:

New Poll Shows Loss of Support for Free Trade Since October

U.S. voters are almost (but not quite) evenly divided on free trade in the abstract (36% think free trade is bad for the economy, while 34% think it is good), but a majority would like to see NAFTA renegotiated (New findings from two Rasmussen polls conducted this June: 56% Want NAFTA Renegotiated, Americans Divided on Free Trade, report, June 20).

The free trade percentages show a falling off in support for free trade since last October, when a Rasmussen poll found that 41% thought free trade was good while only 31% thought it was bad. 

For more posts about public opinion on trade: Public Opinion.

Hat tip to Eyes on Trade: Poll roundup: Americans want to renegotiate NAFTA.

"Expanding" Scope of CFIUS

The comment period on the Treasury's proposed regulations to govern security reviews of foreign investment in the U.S. ended on Monday, June 9.  The comments may be found here: Regulations Pertaining to the Mergers, Acquisitions, and Takeovers by Foreign Persons.

Shortly before the period closed, Richard Willoughby and Tim Martin of the law firm Torys LLP published a short note on the content of the proposed rule: United States: The Expanding CFIUS Mandate For Review Of Foreign Investment In The United States (June 6).

As the title indicates, Willoughby and Martin are interested in the expanding scope of CFIUS. Foreign control triggers CFIUS interest, and the range of arrangements that may create control is larger under last year's legislation and the regulations; a new emphasis on critical infrastructure and critical technologies may extend the range of CFIUS authority to new sectors of the economy.

Expanding scope also crops up in a description of the proposed rule by Philip Thompson of Duane Morris LLP: United States: Treasury Department Issues Proposed Regulations Governing Review of Foreign Investment in the United States (May 22):

• The proposed regulations have expanded the procedures to make explicit the opportunity for interaction between CFIUS and the parties to a transaction before a notice is formally filed. Information provided to CFIUS as part of a pre-notice consultation becomes part of the formal notice and is accorded the existing confidentiality protections of section 721(c).
• The proposed regulations have expanded the scope of information required to be submitted to CFIUS to include additional data that CFIUS has routinely requested of parties in connection with a voluntary notice. This includes, for example, additional information regarding ultimate and intermediate parents of the foreign person making the acquisition; identification of any special government rights over the foreign person making the acquisition; and personal identification information for certain key personnel.

German Marshall Fund Tracks Obama-McCain Trade Debate

The German Marshall Fund of the U.S. has set up a web page to track the trade debate in the U.S. Presidential elections: Debate Tracker: Trade. This is one of several similar "debate trackers" on other issues. Some are already up and running, others, including one on immigration, are planned.  There's some background information here, and "one-stop" shopping to a variety of links to stories and analysis.

CFIUS Investigation of CSX-TCI Relationship Unlikely?

Stephanie Kirchgaessner reports that the U.S. Treasury is "...unlikely to pursue a request by senators to investigate [through the auspices of CFIUS - Ben] an attempt by the Children’s Investment Fund, a British hedge fund, to replace some members of the board of the rail operator CSX." (UK fund set to escape Cfius probe, Financial Times, June 11).

Rising Fuel Prices And Changes in the Places Where Things Are Made

A few days ago Jeff Rubin and Benjamin Tal with the Canadian International Bank of Commerce created a stir with a briefing paper on the impact rising fuel prices were likely to have on restricting trade: Will the Rising Price of Oil Choke Off Global Trade? (The Custom-House, June 4)

Andrew Leonard at Salon asked, "Who needs tariffs when you have expensive oil?"(June 6). Leonard noted that services delivered electronically wouldn't be affected, and observed...

...that blue-collar workers who make physical things in the West will stand to benefit, newly protected from foreign competition by energy tariffs, while white-collar workers who live off their wits will still feel the immense pressure of competing with everyone else in the world.

Rubin and Tal discussed sea transport; Menzie Chinn added that airfrieght would also be affected: More on De-Globalization: Oil, Transport Costs and Inflation (Econbrowser, June 4).

This morning Timothy Aeppel reports picks up the discussion for the Wall Street Journal.  High fuel prices increase the cost - and the relative costs - of moving goods (see graphic) and create incentives to move manufacturing operations closer to markets.  Aeppel focuses on shifts from China to North America.: Stung by Soaring Transport Costs, Factories Bring Jobs Home Again (Wall Street Journal, June 13).  Aeppel focuses on the way manufacturers see the changing incentives, rather than on analytical estimates of actual impacts. 

Climate Change and Trade

Greenhouse gas legislation that increases the cost of production for greenhouse gas emitting businesses in the U.S. raises concerns about U.S. firms that compete with firms from countries without equivalent greenhouse gas legislation.

The Brookings Institution held a conference on the issue on Monday.  Here's some of the background, and links to papers, from the conference web site (Climate Change, Trade and Competitiveness: Is a Collision Inevitable?):

Actual Enthusiasm for Trade

A new Pew Center "Global Attitudes" survey of adults in 24 countries finds actual enthusiasm for trade in many places, although not so much in the U.S.: Some Positive Signs for U.S. Image. GLOBAL ECONOMIC GLOOM – CHINA AND INDIA NOTABLE EXCEPTIONS 24-Nation Pew Global Attitudes Survey. (June 12). The Center surveyed 24,000 people in 24 countries from March 17 to April 21.  Here's the section on trade attitudes from their report:

CSX Plays the CFIUS Card

The railroad company CSX is trying to head off the election of directors sponsored by one of its investors, a British hedge fund: CSX, hedge funds square off in forum  (CNNMoney, June 9).

Oil and Air Freight

The CIBC article I posted yesterday focused on the impact of fuel prices on marine transportation (Will the Rising Price of Oil Choke Off Global Trade); Menzie Chinn adds that fuel price increases are also increasing the costs for air freight, "which was critical to so much of the New Economy just-in-time innovations...": More on De-Globalization: Oil, Transport Costs and Inflation (Econbrowser, June 4)