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1 1 (December 7, 2022)

handle is hein.crs/govejqm0001 and id is 1 raw text is: Updated December 7, 2022 Foreign Direct Investment: Background and Issues Both inward and outward foreign direct investment (FDJ) are significant to the U.S. economy, international trade, and global supply chains, and form a key component of U.S. trade policy. Traditionally, the United States has supported a rules-based and open investment environment domestically and internationally to promote U.S. economic growth and other policy objectives, such as ensuring that the United States remains a premier destination for FDJ and ensuring the competitiveness of U.S companies overseas. U.S. investment policy includes negotiating rules and market access commitments concerning FDJ in free trade agreements (FTAs) and bilateral investment treaties (BITs), and administering investment promotion programs. At the same time, the United States maintains a foreign investment review regime to review a small share of inbound transactions that may pose a risk to U.S. national security; many other countries have such policies in place. What is Foreign Direct Investment (FDI)? FDI occurs when a resident of one country obtains a lasting interest in, and a degree of influence over the management, of a business enterprise in another country (commonly defined as 10% or more of the voting securities or equivalent interest). FDI can take the form of the establishment of new operations (greenfield investments), the purchase of existing operations (mergers and acquisitions, M&As), or the addition of capital to existing operations. It is distinct from portfolio investment, i.e., ownership of stocks, bonds, or other financial assets. In June 2021, President Biden reflected these policy aims, reiterating the U.S. commitment to an open investment posture to treat all investors fairly and equitably under the law and maintain a level playing field, while acknowledging that the government would review certain foreign investments to protect national security. In recent years, Congress has enacted laws affecting U.S. investment policy, driven by a number of policy concerns, including the potential security and competiveness risks posed by China's investments in the United States and overseas. There is ongoing debate among various stakeholders about policies governing foreign investment and certain investor protections in U.S. trade agreements. Globally, FDI flows rebounded in 2021, surpassing pre- Coronavirus Disease 2019 (COVID-19) pandemic levels. Recovery, however, was uneven; developed economies attracted more FDI than developing economies, and flows were concentrated in international project finance deals. Cross-border M&As were a big driver of U.S. FDI inflows. The United States is the world's largest source and recipient of direct investment. In 2021, on a market value basis, U.S. direct investment abroad (USDIA) stock stood at $11.0 trillion, while FDI stock in the United States totaled $14.8 trillion (Figure 1). From 2005 to 2021, USDIA more than quadrupled, while FDI into the United States nearly tripled (not adjusting for inflation). As a share of U.S. multinational enterprise (MINE) activity worldwide, in 2020, U.S. parent companies accounted for 67% of employment, 74% of value-added, 78% of capital expenditures, and 86% of research and development. Figure I. U.S. Direct Investment Position: Market Value (Stock), 2005-2021 WI position (stock) at market val $16 Trillions $12 $8 ForignDirct $14.8 Ut $11.0 ,rt $0 I I I I I I I I I I I I I 2005 2010 2015 2020 Source: CRS with data from the U.S. Bureau of Economic Analysis. On a historical-cost basis, most USDJA (stock) was in high- income countries. By region, Europe is the top U.S. investment partner, accounting for 61% of U.S. outbound investment and 64% of U.S. inbound FDJ (Figure 2). By sector, in 2021, USDJA was mainly in holding companies (47%); financial services (16%); and manufacturing (14%), particularly chemicals. The largest share of U.S. inbound FDJ (42%) was in manufacturing, again mainly chemicals. Figure 2.U.S. Direct Investment Position: Historical- Cost Basis (Stock), 2021I U.S.. $ billions Eta -.- 3$3,981 Can aa $0 52 Hstorical-cost basis Asia & Pacifi(sok $9 71 US7. Dlrect Investment LA & West. He $11 Ara $,8 S240~~ Foeg Direct Investment Middle East $8te1. $,7 $42 Afia$45 2021, in ail counitnes Source: CRS with data from the U.S. Bureau of Economic Analysis. Key Deae an kse fo ' _- r Congress At the intersection of many competing interests, U.S. investment policy has been the subject of long-standing debate. According to some policymakers, foreign investment allows U.S. firms to expand in global markets, and attracts capital and businesses to the United States that

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