Investing in Investment

June 26, 2013
Container Ship Anchored in Panama City

In line with Secretary Kerry’s guidance that foreign policy matters more than ever to U.S. economic growth and vitality, the State Department works closely with other U.S. agencies to support and foster international investment.  With 80 percent of global trade linked through investment to the international production networks of multinational firms, we would be remiss if we didn’t.  The World Investment Report, released today, reinforces the importance of these “global value chains.”  Integration into global value chains boosts economic growth.  The best way to promote integration is through lowering investment barriers along with barriers that impede trade, the flow of ideas, and the interaction of talented people and innovators around the world.  American companies that invest abroad usually export more from the United States than those firms without foreign investments. 

Although there is no global focal point for negotiating international investment rules, countries do keep in touch with each other on key issues.  One frequently discussed issue is investor-State arbitration.  The United States looks at this issue from multiple perspectives.  Our view is that it is critically important to maintain a broad scope of investor-State arbitration, but we also want to protect governments’ ability to regulate in the public interest in a non-discriminatory way.  In our Model BIT, we included innovations that improve the operation of investor-State arbitration procedures, including on transparency, mechanisms to dismiss frivolous claims, and means to help ensure the treaty is properly interpreted.  We think our text strikes the right balance.    

Another important topic is the increasing visibility and influence of state-owned enterprises (SOEs).  Some SOEs benefit from government preferences and operate without transparency and accountability.  Absent a level playing field for private investors, countries home to SOE investors find it difficult to realize the full potential of private sector growth, innovation, and productivity, and foreign companies are also adversely affected.  Ongoing discussions at the OECD and elsewhere can play a critical role in better understanding these issues, such as transparency and best practices of corporate governance. 

Open investment climates, with strong investor protections, are also critical to attracting investment in infrastructure sectors.  We encourage countries to adhere to the principles of non-discrimination, and to encourage rather than restrict foreign investment and technology.  Creative financing is often necessary.  For example, the Administration’s Global Infrastructure Development Initiative is a whole-of-government effort to help the U.S. private sector take better advantage of the expanding global infrastructure market. 

President Obama has “reaffirmed our commitment to an open investment policy” and our belief that other countries should do the same.  Those that choose openness will prosper at home, grow the international economy, and reinforce the rules-based global system to the advantage of all.

About the Author: Robert D. Hormats serves as Under Secretary of State for Economic, Energy and Agricultural Affairs.

 

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