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Secure U.S. Investment Overseas
Tuesday, August 15, 2017 - 8:00pm
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 topped $7 trillion in 2013 (latest available)—a sum representing about 40% 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 other factors.
Some charge that international investment is really about substituting foreign production for domestic production and thus replacing U.S. workers with low-wage foreign labor. But just 8.9% of the production of foreign affiliates of U.S. multinationals was sold in the U.S. market, according to data compiled by the U.S. Department of Commerce. In other words, more than 90% of their production is sold abroad.
U.S. multinationals have continued to concentrate their high-wage, high-skill jobs in the United States, according to a Commerce Department 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.
U.S. firms’ investments abroad bring real benefits to Americans, including on the jobs front. A 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. They are also more stable as employers and less likely to go bankrupt. 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 8 million jobs overall.
Still, myths about international investment abound. Many Americans believe “offshoring” is a major driver of job loss, but the facts show otherwise. While it discontinued compilation of these data in 2004, the Bureau of Labor Statistics previously reported the movement of work to overseas locations accounted for the loss of very small numbers of jobs, representing between 0.5% and 1.3% of all U.S. jobs lost in “mass layoffs” in the 1997-2003 period, according to a report by the American Action Forum.
Another myth is that an open investment regime allowing U.S. multinationals to invest abroad creates a race to the bottom. Not only are two-thirds of U.S. multinationals’ capital expenditures and employment in the United States, but two-thirds of the portion that does go abroad is directed to developed countries with wages and labor standards similar to those in the United States, according to data from the U.S. Department of Commerce. When U.S. multinationals do invest in developing countries, they tend to create the best paying jobs around, with the best working conditions.
For three decades, the United States has negotiated bilateral investment treaties (BITs) to protect U.S. investments abroad, and similar provisions are included in U.S. 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. Critically, they uphold the same basic of rule of law traditions central to the U.S. Constitution, including fairness, non-discrimination, and the protection of private property rights.
While investment agreements incentivize governments to resolve disputes amicably through consultations, they provide two forms of dispute settlement when these attempts fail: state-state dispute settlement and investor-state dispute settlement (ISDS). ISDS has been included in approximately 3,000 investment treaties and trade agreements over the past five decades. These neutral arbitrators have no power to overturn laws or regulations; they can only order compensation. Of the grand total of 18 disputes that have been brought against the United States over the past 50 years, the United States has won every case that has been brought to a conclusion (13).
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.