Secure U.S. Investment Overseas

Americans derive important benefits from U.S. investment abroad. In addition to exporting, U.S. corporations can access new customers in foreign markets by investing abroad, creating foreign affiliates and becoming multinationals in the process. Sales by these foreign affiliates reached nearly $5 trillion in 2009 — a sum representing more than one-third of U.S. multinational corporations’ total sales. Many of America’s largest companies earn more than half their revenue in this way.

Why do companies invest in other countries instead of simply exporting? Most of these overseas investments are in sectors that cannot be served by means of exports from the United States. This includes many services as well as manufacturing operations for goods, such as detergent or potato chips, which generally cannot be exported due to high transportation costs or barriers to trade.

U.S. firms’ investments abroad bring real benefits to Americans, including on the jobs front. A recent study found that U.S. companies that invest abroad tend to create more jobs in the United States and pay higher wages than companies focused solely on the domestic market. Indeed, the U.S. Department of Commerce reports that U.S. multinational corporations added 289,000 U.S. jobs in 2007-2009 even as the sharpest recession in a generation caused the U.S. economy to shed more than eight million jobs overall.

U.S. multinationals have continued to concentrate their high-wage, high-skill jobs in the United States, according to the same report. The trillions of dollars in revenue U.S. multinationals earn through their foreign operations help fund their research and development activities, 84% of which continue to be performed in the United States, according to the U.S. Department of Commerce.

The U.S. Chamber is committed to ensuring strong protection of U.S. investments overseas. The rule of law, sanctity of contracts, and respect for property rights are the touchstones of respect for international investment—and the United States should fight for these principles in markets around the globe.

For three decades, the United States has negotiated bilateral investment treaties (BITs) to protect U.S. investments abroad, and similar provisions are included in bilateral trade agreements. BITs open foreign markets to U.S. investment, uphold contract and property rights, and level the playing field by prohibiting discrimination against U.S. companies and guaranteeing them the same rights and responsibilities as domestic investors. BITs guarantee transparency with respect to investment-related laws and regulations.

BITs also provide recourse to investor-State arbitration in the event of expropriation. These arbitral procedures mirror U.S. Constitutional protections against arbitrary government actions and against taking of property without compensation.

In developing countries where local judiciaries are at times slow, ineffective, or corrupt, U.S. companies have benefited significantly from recourse to investor-State arbitration. Even though these provisions are invoked infrequently, they serve as a positive admonition to governments to avoid arbitrary actions in commercial disputes lest the case wind up before an international arbitration panel.

Unfortunately, the United States badly lags its trade competitors in the race to open foreign markets through BITs. Germany, China, the United Kingdom, and France have each entered into BITs with 100 or more nations, while the United States has done so with just 40. A Chamber analysis recently found that the 10 countries with the most extensive investment treaty networks have entered into BITs with more than 100 countries where the United States has no investment agreement of any kind. As a result, U.S. companies are increasingly placed at a competitive disadvantage in growing markets such as China, India, and Russia.

The substance of these treaties is equally critical. In this context, the Chamber has urged a closer examination of the challenges posed by state-owned and state-influenced enterprises abroad. U.S. BITs have long recognized that some foreign governments skew the playing field to favor national champions and discriminate against U.S. and other foreign companies. Future BIT negotiations provide a unique opportunity to address these growing challenges.

Now more than ever, foreign governments are finding more subtle and damaging ways to evade the spirit of BIT commitments — which a focus principally on governmental rather than private action — by leveraging the state’s involvement in commercial enterprises. The Chamber has pressed for meaningful changes to the current model BIT to ensure that state involvement in economic affairs is conducted in a transparent, open, and market-based manner. Otherwise, American workers and businesses may be placed at a competitive disadvantage for years to come.

America’s continued prosperity in a highly competitive world demands that we negotiate additional high-standard investment treaties. The Chamber strongly supports negotiating BITs with India, China, and Vietnam, and, when circumstances permit, with additional large economies such as Brazil and Russia. As other countries around the globe pursue their own BITs, decision-makers in Washington should be wary of how these may place U.S. companies at a competitive disadvantage should the United States lag in its own negotiations.

In the end, BITs and other measures to protect investment are crucial, but the underlying principles of the rule of law, sanctity of contracts, and respect for property rights are even more so. Their protection should always be at the fore of American international economic policy, even in countries where formal investment protection agreements remain a distant goal.

Chamber Recommendations

• The United States should vigorously defend the rule of law, sanctity of contracts, and respect for property rights as central to our international investment policy.
• The United States should move forward in already launched bilateral investment treaty (BIT) negotiations with India, China, and Vietnam and open talks with other major markets.
• Future BITs should include disciplines on state-owned enterprises and guard against policies that promote them as national champions and discriminate against U.S. and other foreign companies.