Assessing the Foreign Investment Controls

Abstract

The objective of the foreign investment controls has been declared to be a reduction of foreign investment outlays so as to improve U.S. international payments. This objective should be pursued under two general constraints: one is the equitable treatment of capital-exporting companies covered by the controls, and the other is avoidance of unnecessary interference in business practice. Criticism can be leveled at the control procedures on the grounds that they are inequitable; the Office of Foreign Direct Investment (OFDI) admits that some inequities still exist and is trying to correct them. Some procedures also seem to interfere unnecessarily with business practice. But these criticisms merely call for improvement in the provisions, not for the abandonment of controls. The criticism that I wish to make is against the over-all objective of the Government of cutting U.S. foreign investment. The techniques which have been employed are probably either neutral in their impact on international payments or damaging to the U.S. deficit. OFDI does not want to reduce all foreign outlays by U.S. companies, however; capital outlays which are financed from foreign sources (borrowing abroad and depreciation allowances) are excluded from the controls. The foreign outlays which the Government wants reduced are those financed from dollar outflows and retained earnings abroad. An analysis of the returns to the U.S. balance of payments from foreign direct investment outlays indicates that, on the average, there has been a prompt recoupment of dollar outflows through earnings, sales of capital equipment, and concomitant exports.' If dollar outflows are recouped in a short time, every effort should