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1 1 (February 21, 2024)

handle is hein.crs/goveojs0001 and id is 1 raw text is: Updated February 21, 2024 Foreign Direct Investment: Background and Issues Both inward and outward foreign direct investment (FDI) 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 FDI and ensuring the competitiveness of U.S. companies overseas. U.S. investment policy includes negotiating rules and market access commitments concerning FDI 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 reiterated the United States' commitment to an open investment posture to treat all investors fairly and equitably under the law and maintain a level playing field, while prioritizing review of certain foreign investments to protect national security. Congress also has enacted laws and considered legislation affecting U.S. investment policy, driven by the potential security and competitiveness risks posed by China's investments in the United States and overseas, and other policy concerns. These issues remain actively debated in the 118th Congress. FDA Trends and Recent Investmnents Following a strong recovery from the COVID-19 pandemic, global FDI flows fell by 12% in 2022 compared to 2021. The slowdown was driven primarily by overlapping global crises (e.g., Russia's war in Ukraine, high food and energy prices, and debt pressures) and lower multinational enterprise (MNE) financial flows and transactions in developed economies. FDI fell by 37% in developed economies and increased by 4% in developing economies. The United States is the world's largest source and recipient of direct investment. In 2022, on a market value basis, U.S. direct investment abroad (USDIA) stock stood at $9.3 trillion, while FDI stock in the United States totaled $12.3 trillion (Figure 1). From 2005 to 2022, FDI into the United States nearly quadrupled while USDIA more than doubled (not adjusting for inflation). As a share of U.S. MNE global activity, in 2021, U.S. parent companies accounted for 68% of employment, 76% of value-added, 79% of capital expenditures, and 85% of research and development. Figure I. U.S. Direct Investment Position: Market Value (Stock), 2005-2022 FOI position (stock) at market value $16 Trillions Foreign Dfrect $12 $8 $9.3 $8 $0 2005 2009 2013 2017 2021 Source: CRS with data from the U.S. Bureau of Economic Analysis. On a historical-cost basis, most USDIA (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 65% of U.S. inbound FDI (Figure 2). By sector, in 2022, USDIA was mainly in holding companies (47%); financial services (14%); and manufacturing (15%), particularly chemicals. The largest share of U.S. inbound FDI (42%) was in manufacturing, again mainly chemicals. Figure 2. U.S. Direct Investment Position: Historical- Cost Basis (Stock), 2022 U.S. $ billions Europe r339t Caada - - stoca cost basis Asia & Pa$9ic S951( $1,0102 U.S Dirt.nvestmrenst LA & West. Hem S1038 oad 581 $212 Foreign Dir ect Middle East 20tInv rnent in the U.S. $4 $5,255 Africa p$4F $11 222, in a cltoutrres Source: CRS with data from the U.S. Bureau of Economic Analysis. Key Debates and Issues for Congress At the intersection of many competing interests, U.S. investment policy has been the subject of long-standing debate. FDI can allow U.S. firms to expand in global markets, and attract capital and businesses to the United States that may support jobs. Some policymakers assert that FDI can also advance U.S. foreign policy and other strategic objectives. At the same time, some policymakers argue that U.S. outbound investment may offshore U.S. production and jobs. Some contend that certain outbound investment and related technology transfer may not be market-driven and may undermine U.S. competitiveness. There are also concerns that China's FDI in the United States challenges U.S. economic and national security

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