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Foreign investors are ruffling few feathers in Washington these days. Not long ago, Congress was in a huff over the bid by a Chinese oil company for Unocal and Dubai Ports World's purchase of a firm that managed U.S. seaports. The cross-border expansion moves sparked a drive by lawmakers for closer vetting of foreign direct investment (FDI), especially in sectors deemed critical to national security and the economy.
At the time, momentum in Congress seemed headed toward the erection of high investment hurdles for overseas firms. But that hasn't happened. Tensions are easing, thanks in large part to lessons learned by foreign firms. Those mulling a major purchase are more likely now to take preemptive action to keep the U.S. political waters calm. This means making early treks to Washington to meet with members of Congress and officials from the various federal agencies that run the Committee on Foreign Investments in the U.S. (CFIUS). The better-informed U.S. officials are, the less likely foreign companies will run into resistance.
"It's a lot less charged politically," says Joseph Quinlan, a market strategist with Bank of America and an expert on FDI. "[Foreign companies] are doing due diligence so that when deals are announced, they're not automatically torpedoed," he adds.
Nancy L. McLernon, senior vice president of the Organization for International Investment, which represents U.S. subsidiaries of foreign-based companies, also notes a change in mood. "The biggest problem with [Dubai Ports World] was that Congress felt cut out [of the process], felt they had no role or anything," says McLernon. "Now companies feel the need to be as transparent as possible to avoid dramatics."
Concrete evidence of a kinder, gentler investment climate is coming soon. We see good chances that a pending U.S. deal involving another Dubai-based company will get the official green light. It involves Dubai Aerospace Enterprise, which is in talks with The Carlyle Group about purchasing the investment firm's holdings in two aircraft maintenance firms, Standard Aero Holdings and Landmark Aviation. Even Sen. Charles Schumer (D-NY) -- who had staunchly opposed the Dubai Ports World deal on national security grounds -- thinks this latest deal will sail through. A bid by Saudi Basic Industries Corp. (SABIC), a state-owned petrochemicals conglomerate, for GE's plastics division isn't likely to see much congressional interference either.
Even with recent political flaps, foreign investment continues to flow in at a brisk clip. Incoming FDI totaled $183.6 billion last year, up nearly 70% from 2005 and the highest since 2000. "That's a hell of a vote of confidence from foreign investors around the world," says R. Bruce Josten, executive vice president for government affairs at the U.S. Chamber of Commerce. Josten notes, however, that domestic capital spending has declined in the first few months of 2007 and suggests FDI may follow a similar track for the year.
The congressional reforms of the FDI vetting process won’t raise new barriers to deter foreign investors. Rather, the lawmakers will focus on clarifying which types of deals need to be reviewed by CFIUS, to cut down on confusion and potential misunderstandings. Hopefully this will smooth out the approval process and reduce the chances for another cross-border investment flap.
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