Growth, Jobs and Open Markets Archives

The New York Times: The Costs and Benefits of Free Trade

Published on July 31, 2007

To the Editor:

Congratulations for ”The Case for Trade” (editorial, July 27). We need to stop blaming the Chinese for problems that are essentially home-grown and get on with the business of ensuring that American workers and companies can compete in a globalized world market.

One key element of that process will be an expanded program of assistance, in the form of retraining, for workers who lose their jobs for whatever reason.

Congress also needs to be serious about reducing our absurd farm subsidy programs.

There are enormous benefits to be gained from approval of the pending free trade agreements with Peru, Panama, Colombia and South Korea and from conclusion of the Doha round. This is where the administration and Congress should direct their attention.

Thomas Niles

Scarsdale, N.Y., July 28, 2007

The writer is a vice chairman of the United States Council for International Business.

More on USCIB’s Trade and Investment Committee

Companies Assail Tax Bill Punishing Investment in the U.S.

Published on July 26, 2007

New York, N.Y., July 26, 2007 – America’s top global companies have expressed serious concern over proposed legislation, introduced as a potential means of funding the farm bill currently under Congressional consideration, that would discriminate against foreign companies operating in the United States. The proposal would effectively and unfairly raise taxes on foreign based companies which contribute to the U.S. economy and through American jobs and substantial U.S. based operations. It would also do serious damage to the tax treaty network on which U.S. business relies to prevent double taxation and provide certainty in its pursuit of business outside the U.S. The United States Council for International Business (USCIB), which represents U.S.-based multinationals and major exporters, said the measure could serve as an impetus for retaliation against American firms doing business in abroad.

“This bill, if enacted, would clearly violate an array of U.S. tax treaties, invite retaliation overseas, and damage our economy by discriminatorily raising taxes on foreign investment, hampering foreign investment and job creation in the United States,” said USCIB President Peter M. Robinson.

On the heels of introduction by Rep. Lloyd Doggett (D-TX) of the legislation in question, H.R. 3160, yesterday, the Administration appropriately expressed its strong opposition to the proposal in a statement of opposition delivered to Congress. The bill could come up for a vote in the House of Representatives today, without the benefit of the normal hearing process. Its effect would be to force foreign companies to pay higher withholding tax rates than their U.S.-owned counterparts on such payments as royalties, interest and management fees to their foreign affiliates. This would violate many bilateral U.S. tax treaties, which aim to both reduce double taxation and ensure cooperation with foreign tax authorities.

Mr. Robinson urged members of Congress to avoid measures targeting foreign firms specifically. “Such practices are often seized upon by foreign governments as an excuse to restrict market access and investment opportunities by American companies,” he noted. “We are concerned that formal and informal barriers to investment are on the rise in many countries. It is clearly in the interests of the United States, as the world’s largest source of overseas investment and one of the largest hosts for foreign direct investment to maintain a level playing field for foreign firms, to ensure that our own firms are treated fairly.”

Mr. Robinson noted that U.S. subsidiaries of foreign businesses account for more than five million U.S. jobs, supporting annual payrolls of over $300 billion.

USCIB promotes an open system of global commerce in which business can flourish and contribute to economic growth, human welfare and protection of the environment. Its membership includes more than 300 leading U.S. companies, professional services firms and associations whose combined annual revenues exceed $3.5 trillion. As the exclusive American affiliate of three key global business groups – the International Chamber of Commerce, the International Organization of Employers, and the Business and Industry Advisory Committee to the OECD – USCIB provides business views to policy makers and regulatory authorities worldwide, and works to facilitate international trade. More information is available at www.uscib.org.

Contact:
Jonathan Huneke, VP communications, USCIB
+1 212.703.5043 (office), +1 917.420.0039 (mobile) or jhuneke@uscib.org
More on USCIB’s Taxation Committee

USCIB Applauds Signing of Korea Free Trade Pact

Published on June 30, 2007

New York, N.Y., June 30, 2007 – The United States Council for International Business (USCIB), a pro-trade organization representing America’s top global companies, applauded today’s signing of a free trade agreement between the United States and Korea, which it cited as a major milestone in U.S. foreign trade policy.

“This agreement ranks among the most commercially significant America has entered into,” stated USCIB President Peter M. Robinson. “We congratulate our negotiators. They have secured an agreement that has huge potential economic benefits for U.S. business, workers, farmers and consumers.”

The comprehensive U.S. Korea Free Trade Agreement stands to eliminate nearly all tariffs on manufactured goods, and provide substantial new market access opportunities for U.S. services and agricultural exports. It also effectively addresses many non-tariff barriers.

Korea is a trillion-dollar economy and the seventh-largest U.S. trading partner. In 2006, bilateral trade in goods alone amounted to $78 billion, with U.S. exports to Korea totaling $32 billion in goods and $10 billion in services.

Mr. Robinson called upon Congress to ratify the agreement as soon as possible to maximize its benefits. He also expressed his hope that it would provide a spur to additional market opening trade agreements at the bilateral and multilateral levels.

USCIB promotes an open system of global commerce. Its membership includes some 300 leading U.S. companies, professional service firms and associations. As the American affiliate of three global business bodies – the International Chamber of Commerce, the International Organization of Employers, and the Business and Industry Advisory Committee to the OECD – USCIB provides business views to policy makers and regulatory authorities worldwide and works to facilitate international trade.

Contact:
Rob Mulligan
(202) 682-7375 or rmulligan@uscib.org

More on USCIB’s Trade and Investment Committee

U.S. Trade Representative’s office fact sheet on the U.S.-Korea FTA

ICC Urges G8 to Press for Global Trade Accord

Published on May 23, 2007

Halting investment protectionism, encouraging energy efficiency and stopping counterfeiting and piracy also business priorities for G8 summit

Leaders of the world’s richest countries will gather at the annual G8 summit in Heiligendamm, Germany June 6-8.
Leaders of the world’s richest countries will gather at the annual G8 summit in Heiligendamm, Germany June 6-8.

Paris and New York, May 23, 2007 – Even at this desperately late hour, a good deal can be struck in the Doha round of multilateral trade talks if G8 leaders intensify their diplomatic efforts, the International Chamber of Commerce said today in its annual statement on behalf of the world business community to the heads of state and government who will attend the G8 summit.

Leaders of the world’s richest countries will gather at the annual G8 summit in Heiligendamm, Germany on 6-8 June to find ways of addressing the most pressing issues affecting the world economic order.

With more than 8,000 member companies in over 130 countries, the Paris-based ICC is the largest, most representative private sector association in the world.  The United States Council for International Business (USCIB), based in New York, serves as ICC’s American national committee.

Last month, USCIB Chairman William G. Parrett, CEO of Deloitte and a member of the ICC Executive Board, took part in the first-ever G8 business summit in Berlin, where the heads of major business federations from each of the G8 nations met with German Chancellor Angela Merkel to urge action on the key issues reflected in the ICC statement.

The Doha trade round represents a historic opportunity to generate economic growth, raise living standards and create potential for development across the world that should not be squandered. World leaders need to urgently devote their personal attention to reaching an agreement so that rapid progress can be made on the contours of a balanced package of measures to substantially improve market access in agriculture, industrial products and services, facilitate trade and update WTO rules.

It seems that a final and very narrow window of opportunity has opened up to forge an agreement in the weeks ahead, even though the U.S. Congress will have to be called upon to extend the president’s trade negotiating authority, ICC said.

ICC has a close working relationship with the G8 and many other intergovernmental organizations, including the World Trade Organization and the United Nations. The core mission of ICC is to promote trade and investment across frontiers and help business corporations meet the challenges and opportunities of globalization.

Reverse the trend toward investment protectionism

G8 governments must set an example for the rest of the world and roll back the tide of investment protectionism showing renewed vigor – including within some G8 countries, ICC urged. Cross-border investment is crucial to spread the benefits of globalization more widely, since foreign direct investment plays an important role in transferring technology, know-how and management skills to developing countries, the statement said.

Encourage energy efficiency

ICC welcomed the focus at this year’s summit on energy efficiency, but asked G8 leaders to keep in mind that investments on the massive scale needed to stimulate innovation will require a more favorable policy and regulatory framework. Strict adherence to a number of conditions is also a prerequisite, such as upholding laws against corruption, ensuring fair competition, and guaranteeing contracts.

But lack of global consensus and stable policies is discouraging innovation and investment in future sources of clean energy, ICC said. The UN Framework Convention on Climate Change provides a useful forum for international cooperation to help reduce greenhouse gas emissions over the longer term.

Uphold commitments to curb counterfeiting and piracy

While counterfeiting and piracy remain a topic at this year’s G8, deeds continue to fall short of words in addressing a global epidemic that leaves virtually no sector untouched, ICC said.

ICC called on the G8 to make counterfeiting and piracy a higher priority by gathering more accurate data, launching public awareness campaigns of the damage done, and improving training and cooperation of national enforcement agencies. ICC’s initiative, Business Action to Stop Counterfeiting and Piracy, addresses these issues in a comprehensive anti-counterfeiting plan that fosters world business collaboration with government.

USCIB promotes an open system of global commerce in which business can flourish and contribute to economic growth, human welfare and protection of the environment.  Its membership includes some 300 U.S. companies, professional service firms and associations whose combined annual revenues exceed $3 trillion.  As American affiliate of the leading international business and employers organizations, including ICC, USCIB provides business views to policy makers and regulatory authorities worldwide and works to facilitate international trade.

Contacts:

Jonathan Huneke, VP of Communications, USCIB

+1 212 703 5043 or jhuneke@uscib.org

Mary Kelly, Director of Communications, ICC

+33 1 4953 2987 or mary.kelly@iccwbo.org

ICC statement to G8 leaders

Press release: At G-8 Business Summit, USCIB Chairman Urges Governments to Avoid Investment Protectionism (April 24, 2007)

USCIB Welcomes Bipartisan Trade Policy Accord

Published on May 14, 2007

3699_image002New York, N.Y., May 14, 2007 – The United States Council for International Business (USCIB), which represents hundreds of America’s top global companies, welcomed the agreement between the White House and Congress on a new trade policy “template,” which it said should clear the way toward approval of pending U.S. free trade pacts and renewal of the president’s trade negotiating authority.

USCIB, the U.S. affiliate of the International Organization of Employers, which represents business in the International Labor Organization, said it was especially pleased that negotiators had forged a compromise approach to incorporating international labor principles into U.S. trade agreements that recognizes the role of the ILO to help its member countries advance labor conditions.

USCIB President Peter M. Robinson applauded the efforts of U.S. Trade Representative Susan Schwab and Rep. Charles Rangel, chairman of the House Ways and Means Committee, to conclude the deal.

“Ambassador Schwab and Chairman Rangel have worked tirelessly to forge a bilateral consensus on trade policy, paving the way for further trade liberalization that will benefit business, workers, consumers and farmers,” stated Mr. Robinson.  He noted that, at last December’s USCIB annual award dinner, Congressman Rangel had underscored his strong interest in promoting a forward-looking trade agenda.  “The Chairman delivered, and we are most appreciative.”

Mr. Robinson said the way was now clear to gain approval of the free trade agreements currently before the Congress.  “Hopefully, Congress will approve these FTAs and extend the president’s trade promotion authority,” he stated.  “Extension of trade authority is urgently needed to generate movement in the Doha Round, which is a high priority for U.S. business.”

Mr. Robinson said he was gratified that the agreement’s labor provisions prominently feature the International Labor Organization’s Declaration on Fundamental Principles and Rights at Work, which was developed at the initiative of the International Organization of Employers’ members, including USCIB.  The ILO’s tripartite structure encompasses representation from governments, employers and trade unions, so the ILO declaration’s principles have the support of all three groups in the U.S. and internationally.  It is therefore appropriate to reaffirm them in U.S. trade agreements as objectives that all countries should recognize and strive to realize in their national laws.

USCIB said it recognized that the negotiations on transforming the agreement, presently in the form of a joint “concept paper,” into legislation would require continued bipartisan cooperation between the Executive Branch and Congress.  It also recognizes that concerns may persist in the business community on non-labor issues covered by the agreement, particularly on intellectual property.  “We are confident that, at the end of the day, the same sense of bipartisanship that led to this agreement will carry forward in the drafting of actual legislation,” stated Mr. Robinson.

The United States Council for International Business promotes an open system of global commerce in which business can flourish and contribute to economic growth, human welfare and protection of the environment.  Its membership includes more than 300 leading U.S. companies, professional services firms and associations whose combined annual revenues exceed $3.5 trillion.  As the exclusive American affiliate of three key global business groups – the International Chamber of Commerce, the International Organization of Employers, and the Business and Industry Advisory Committee to the OECD –  USCIB provides business views to policy makers and regulatory authorities worldwide, and works to facilitate international trade.

Contact:

Jonathan Huneke, USCIB

Tel: +1 212 703 5043 or +1 917 420 0039 (mobile)

E-mail: jhuneke@uscib.org

More on USCIB’s Trade and Investment Committee

More on USCIB’s Labor and Employment Committee

Head of Leading Industry Group Applauds President’s Statement on Open Economies

Published on May 10, 2007
USCIB Chairman William G. Parrett speaking at the G-8 Business Summit in Berlin (Photo: BDI).
USCIB Chairman William G. Parrett speaking at the G-8 Business Summit in Berlin (Photo: BDI).

New York, May 10, 2007 – The chairman of the United States Council for International Business, William G. Parrett, applauded President Bush’s reaffirmation today of an open-door policy toward foreign investment in the United States and his encouragement that other nations follow this approach.

President Bush today issued a ringing endorsement of open markets worldwide, urging other nations “to join us in supporting an open investment policy and protecting international investments.”

Mr. Parrett, chief executive officer of Deloitte, welcomed the administration’s statement, calling it an important signal to markets and U.S. trading partners. “This is the first time in some 15 years that the U.S. has made such a high-level reaffirmation of the importance of open markets,” he said.  “Business sees U.S. government leadership as critical to preserving open markets, and I applaud the President’s commitment announced today.”

At last month’s first-ever G-8 business summit in Berlin, Mr. Parrett joined the heads of business federations from the other G-8 nations in appealing to governments to avoid recourse to investment protectionism.

“Governments need to take action at the highest level to avoid investment protectionism if we want to encourage the free flow and benefits of international investment,” Mr. Parrett said at the April business summit.  “They need to affirm, in word and practice, their commitment to open, cross-border investment.”

The business community has seen worrisome signs that the pendulum is swinging away from open markets in many countries.  Mr. Parrett said, “U.S. business recognized that the world had changed dramatically since 9/11 and that governments must pay more attention to national security issues, but a legitimate concern for national security needs to be considered alongside the benefits of allowing foreign investment.”

The United States Council for International Business promotes an open system of global commerce in which business can flourish and contribute to economic growth, human welfare and protection of the environment.  Its membership includes more than 300 leading U.S. companies, professional services firms and associations whose combined annual revenues exceed $3.5 trillion.  As the American affiliate of several leading global business groups, USCIB provides business views to policy makers and regulatory authorities worldwide, and works to facilitate international trade.  More information is available at www.uscib.org.

Contacts:
Jonathan Huneke, VP Communications, USCIB
Tel: +1 212 703 5043 or +1 917 420 0039 (mobile)
E-mail: jhuneke@uscib.org

Madonna Jarrett, Director, DTT Public Relations and CEO Communications
Tel: +1 212 492 3738 or +1 646 388 2335 (mobile)
Email: mjarrett@deloitte.com

President Bush’s statement on open economies (White House website)

G-8 Business Declaration: Joint Statement of the G-8 Business Organizations (PDF file, 1.8 MB)

More on USCIB’s Trade and Investment Committee

Deloitte website

Joint Business Letter on Iran Sanction Legislation (S 970 S 1234)

Published on May 9, 2007

Dear Senator:

We agree that preventing Iran from developing the capability to produce nuclear weapons is a very important U.S. national security objective.  We are concerned, however, that both S. 970 and S. 1234 contain provisions that will undermine rather than promote this critical objective.

First, the extraterritorial extension of sanctions would over-ride and preempt provisions of 17 Executive Orders issued over a 28 year period that provided the legal authority for current sanctions.  Second, as explained more fully below, extraterritorial extension of sanctions will reignite economic, diplomatic and legal conflicts with our allies that will frustrate rather than promote multilateral action against Iran.

Both S. 970 and S. 1234 propose, among other troubling provisions, that the existing unilateral U.S. prohibitions on trade and investment with Iran by U.S. persons and entities be expanded by making the parent company liable for the actions of its subsidiaries that are domiciled in foreign countries.

The history of similar efforts demonstrates clearly that such a unilateral effort will provoke a negative response from our allies that will divert attention from developing an effective economic and diplomatic multilateral response to Iran:

  • During the Soviet invasion of Afghanistan in the early 1980s, the U.S. sought to ban participation in the Siberian pipeline project by European subsidiaries of U.S. companies.
  • In response to the U.S. sanctions on the pipeline project, the U.K., France, the Netherlands, and other countries passed blocking statutes, requiring the subsidiaries to honor existing contracts and disobey the U.S. sanctions, thereby putting the subsidiaries and their parents in the impossible position of not being able to obey both U.S. and applicable foreign law at the same time.
  • Under considerable pressure from EU governments and American corporations, the Reagan Administration withdrew the extraterritorial measures to avert adverse rulings in multiple pending legal cases in both U.S. and overseas courts.  Beginning with the regulations implementing sanctions on Libya in 1986, the United States has repeatedly recognized that extraterritorial sanctions will not work.

The United States and its allies are making progress in assembling broad, multi-national economic and diplomatic action against Iran.  Enacting either S. 970 or S. 1234 and thereby imposing mandatory U.S. penalties on entities in the same countries that are assisting us would only undercut the progress that our diplomats are making.  At worst, these other governments could use existing or new blocking statutes and other measures to counteract the threat of U.S. penalties.

In targeting our allies for penalties, these bills would draw international attention away from the core problem: Iran’s threatening behavior in seeking nuclear weapons.  As Ambassador Nicholas Burns noted on March 29 in testimony before the Senate Foreign Relations Committee, the administration “could not support… modifications to this act now being circulated in Congress that would turn the full weight of sanctions not against Iran but against our allies that are instrumental in our coalition against Iran.” It is counterproductive to penalize entities and individuals in the very countries whose cooperation we need to effectively counteract Iran’s dangerous behavior.

In addition, Section 5 of S. 970 would make the United States more vulnerable to international commercial complaints and damage U.S. global financial leadership by greatly expanding the universe of entities subject to sanctions to include insurers, creditors and foreign subsidiaries.  The United States would undoubtedly face complaints and lawsuits from our trading partners questioning their legality if sanctions were imposed on these entities.

Congress must ensure that the world’s focus remains on applying multilateral pressure on Iran and that the United States and our allies continue to present a united front to influence Iran’s behavior.  S. 970 and S. 1234 would not further the interests of U.S. national security – indeed, they might detract from current efforts.  We respectfully request that any action on these bills be preceded by a thorough and careful review of its potential for counterproductive and harmful consequences.

Sincerely,

Business Roundtable

Coalition for Employment Through Exports

Emergency Committee for American Trade

National Association of Manufacturers

National Foreign Trade Council

National U.S.-Arab Chamber of Commerce

Organization for International Investment

U.S. Chamber of Commerce

U.S. Council for International Business

USA*Engage

More on USCIB’s Trade and Investment Committee

EU’s Barroso Calls for Easing of Transatlantic Regulatory Hurdles

Published on April 30, 2007
At the New York Stock Exchange, NYSE CEO John Thain (left) and President Barroso (center) visit a trader. (Photo: NYSE)
At the New York Stock Exchange, NYSE CEO John Thain (left) and President Barroso (center) visit a trader. (Photo: NYSE)

Speaking to an audience of USCIB members and other invited guests gathered at the New York Stock Exchange, José Manuel Barroso, the president of the European Commission, delivered remarks on “Strengthening the Transatlantic Economy” on April 27.

Joined by German Chancellor Angela Merkel, who holds the rotating presidency of the European Union, and other European leaders, President Barroso later met with President Bush at the White House in the annual U.S.-EU summit.  Topics on the agenda included rekindling the WTO’s Doha Round and efforts to deal with climate change.

The European Commission chief used his remarks in New York to call for joint measures between the United States and Europe to ease regulatory burdens that can impede trade, investment and other cooperative action.  He cited OECD estimates that removal of such barriers could lead to permanent gains in per capita GDP on both sides of the Atlantic of between 3.0 and 3.5 percent.

“It is no longer tariffs, but non-tariff barriers and regulatory burdens which act as the biggest brake on the transatlantic engine,” said Mr. Barroso.  “By further reducing unnecessary obstacles to trade and administrative burdens linked to different standards, we will do much to stimulate further economic growth.”

Mr. Barroso called for both parties to work together, through a joint commission, to address existing, unnecessary barriers posed by divergent regulations, and take steps to avoid the emergence of new ones.

“This of course does not prejudice the right of each party to adopt measures to achieve legitimate policy objectives, like protecting consumers or our environment,” he stated.

At the April 30 summit meeting at the White House, President Bush and the European leaders said they had made progress in efforts to address global warming, agreeing that climate change requires global action but that countries have the right choose their own ways to tackle it.

“I think that each country needs to recognize that we must reduce our greenhouse gases and deal, obviously, with their own internal politics, to come up with an effective strategy,” stated Mr. Bush.

The leaders also promised to press their respective Doha Round negotiators to reach agreement on a comprehensive package in the multilateral trade talks.

Staff contact: Justine Badimon

Remarks by President Barroso, “Strengthening the Transatlantic Economy” (PDF file)

More on USCIB’s European Union Committee

European Commission website

NYSE website

World Trade Week NYC Spotlights Small Business Success in the Global Marketplace

Published on April 30, 2007
The hustle and style at Grand Central Terminal epitomizes the spirit of New York’s smaller traders.
The hustle and style at Grand Central Terminal epitomizes the spirit of New York’s smaller traders.

New York, N.Y., April 30, 2007 – This year’s World Trade Week celebration in New York City, which takes place May 21-25, will spotlight small and medium-sized enterprises (SMEs) that have built their businesses by accessing global markets and made the world their oyster.

In the public mind, international trade has become synonymous with big business and big money, seemingly far removed from the needs and concerns of smaller entrepreneurs.  Yet recent statistics from the U.S. government tell a different story.  For example, SMEs make up over 90 percent of all New York State exporters, and the value of the goods they sell abroad accounts for fully half of the state’s merchandise exports – the third-highest percentage of any state in the nation.

“The question is no longer whether SMEs can go global,” said Peter M. Robinson, president of the United States Council for International Business (USCIB), a lead partner organizations for World Trade Week NYC.  “The real questions are when and where.”

Patrick J. Foye, chairman of the Empire State Development Corp./Downstate, and Roy W. Hoffman, managing director for international client service with RSM McGladrey, will serve as co-chairs of World Trade Week NYC 2007, part of a nationwide celebration of international trade, to be observed by business and trade-related organizations across the New York metropolitan area.

Kicking off the week’s events is the annual International Trade Awards Breakfast on Monday, May 21, at the Weissman Center for International Business, Baruch College/CUNY.  World Trade Week NYC 2007 organizers are proud to announce the following award recipients:

  • S.S. Sampliner & Co., Inc. will receive the Export Achievement Award
  • Max Brenner Chocolate will receive the NYC International Achievement Award
  • The New York State Small Business Development Center at LaGuardia Community College/CUNY will receive the Export Appreciation Award
  • Stewart B. Hauser, Chairman, NY/NJ Foreign Freight Forwarders & Brokers Association, Inc., will receive the Global Trade Award

World Trade Week NYC 2007 is hosted by the New York District Export Council and supported by Presenting Sponsor, RSM McGladrey.  The United States Postal Service, Empire State Development, HSBC and Roanoke Trade are also sponsors.  Many nonprofit economic development organizations are involved, including several internationally based chambers and trade associations.  Complete, up-to-the-minute information on World Trade Week NYC 2007 events and supporting organizations is available at www.worldtradeweeknyc.org.

The United States Council for International Business promotes an open system of global commerce in which business can flourish and contribute to economic growth, human welfare and protection of the environment.  Its membership includes more than 300 leading U.S. companies, professional services firms and associations whose combined annual revenues exceed $3.5 trillion.  As the exclusive American affiliate of three key global business groups – the International Chamber of Commerce, the International Organization of Employers, and the Business and Industry Advisory Committee to the OECD –  USCIB provides business views to policy makers and regulatory authorities worldwide, and works to facilitate international trade.

Contact:

Jonathan Huneke, USCIB

(212) 703-5043

jhuneke@uscib.org

World Trade Week NYC website

More on USCIB’s Trade and Investment Committee

More on USCIB’s Business Services to Expedite Trade

Other Upcoming USCIB Events

Striking the Balance Between Open Investment, Mergers and Acquisitions, and National Security

Published on April 25, 2007

Remarks Delivered to the Federation of German Industries (BDI) G8 Business Summit

Berlin, April 25, 2007

William G. Parrett

Chairman, United States Council for International Business and

CEO, Deloitte Touche Tohmatsu

  1. Introduction

Thank you Herr Gloss.

It is a pleasure to be here and participate in this timely and important event.

I wish to congratulate Chancellor Merkel for the vision and foresight to seek the views of the private sector on three critical issues being considered by G-8 governments: investment, intellectual property rights, and climate change.

I have been asked to speak on striking the right balance between keeping markets open for foreign investment/mergers and government measures to protect the national security.

Let me state the U.S. business position at the outset:  Governments need to re-gain self restraint in the use of national security as a reason to interfere with foreign investment and mergers and acquisitions!

  1. Why Liberal Investment Regimes Are Important

As the Chairman of the United States Council for International Business, an organization representing some 300 multinational companies who trade and invest globally, the benefits of open investment regimes are readily apparent.

Our members know that open investment regimes by governments enables them to compete in global markets on the basis of their best offerings—their product design, development, production, sales and service.

And over the years, governments have recognized and welcomed the contribution foreign investment brings to their economies in terms of increased employment, output, productivity, technology and managerial skills and the like.  Increasingly from the mid 1990’s and into the mid 2000s, governments tore down their barriers to foreign investment.

The data on foreign investment flows reflect this attitude of governments.  In 2005, the value of global cross border investment flows throughout the world exceeded ten trillion dollars, nearly triple the amount of 1995.

III.  The Beginnings of Change

In the early years of this century, the drive to continue liberalization of barriers to foreign investment began to change in the United States and throughout the world.

September 11, and subsequent bombings in Spain, UK, India and Bali led to heightened security concerns in the U.S. and eventually these concerns found their way into the world of international investment.    

The failed attempt by a Chinese firm, CNOOC, to acquire a medium size U.S. oil company Unocal, raised questions in Congress and the public about foreign investors acquiring vital assets in the U.S.  Subsequently, the Dubai Ports transaction, which cleared the U.S. CFIUS national security review process, was unwound in the face of intense Congressional and public pressure.

Examples of government interference or potential interference with foreign takeovers are not limited to the U.S.:

  • Legislation has been proposed in Canada to amend the Investment Canada Act to provide clearer authority to review and prohibit if necessary foreign investments that could threaten the national security.
  • Japan is enhancing its pre-notification system regarding foreign takeovers of Japanese firms.
  • China has issued new rules that allow the government to vet foreign investments that involve a major industry, the impact of the investment on its economic security or the transfer of famous Chinese trademarks.
  • India is considering a new law to intensify its rules to restrict foreign investment in sensitive areas.
  • Russia is adopting legislation that would restrict foreign investment in natural resources and selected other industries and the ability of foreign enterprises to develop natural resource industries.

Beyond these pending legal changes there are a number of other disturbing developments:

  • The investment community has witnessed public declarations by political officials that certain industries were “off limits”
  • Market observers readily noted Pepsico’s failed bid for Danone Yougurt and Arcelor’s bid for Mittal Steel to foreign investors.
  • Italy had informed a foreign bidder for its toll road system that their investment “would not be welcomed” and the potential investor withdrew. (Since then Italy’s new Central Banker stated that Italy will not interfere with foreign takeovers in the financial sector).
  • French Presidential candidate Sarkhozy stated in a campaign speech that if elected President, French owned companies would be off limits to foreign buyers.

The investment community also witnessed seizing of property or forced sale of companies by Bolivia and Venezuela and Russia’s pressure on a large Western oil company (Shell) to sell a major stake in its Sakhalin Island oil project to a state-owned firm, Gazprom.

The point here is not to cast stones at the practices of others, but to demonstrate that in my view the cumulative effect of these actions has created a new policy challenge for global business and governments—to combat investment protectionism

  1. The Task Ahead

Business recognizes governments’ responsibility to protect the national security whether the threat comes in the form of military action or is imbedded in some aspects of a commercial transaction.

The difficulty for business is that governments seem to be losing self-restraint as the concept of national security has become extremely elastic when applied to foreign takeovers.  Moreover, in addition to national security constraints, governments are using their political influence to protect “strategic industries” and establish “national champions” from foreign takeovers.

Contributing to these developments, informal barriers such as public declarations or statements from high level officials that a bid for one of their companies “would not be welcomed,” and/or tacit arrangements with leading firms/financiers in the private sector supported or condoned by the authorities also have a deleterious effect on foreign investment.

Structural and cultural barriers may also have an adverse impact.  In many countries shares are not listed, some countries maintain a golden share, which can be used to block a takeover, and there may be cross holdings of shares that deter takeovers.  In some countries it just is not possible to undertake a “hostile” takeover.

  1. Recommendations

Transparency:

Last fall, the OECD Secretariat compiled an inventory of member practices to restrict investment on grounds of national security. Transparency of such measures can be an extremely helpful tool to hold governments accountable to their commitments.

Recommendation:

The OECD should update this inventory on an annual basis, and expand its scope to include the use of informal barriers, as these types of barriers can be quite powerful in deterring foreign takeovers.

Protecting the National Security:

Business recognizes that the world has changed dramatically since 9/11 and that governments must pay more attention to national security issues. But a legitimate concern for national security should not serve as an excuse to impede foreign investment. Blocking a foreign takeover for reasons of national security should be an extremely rare occurrence and should be taken as a measure of last resort, only when all other rules or tools that are designed to protect the national security are not adequate or effective. Further, blocking a foreign investment should not be used to obtain a commercial advantage for domestic firms.

Recommendation:

Governments need to take action at the highest level to avoid investment protectionism and to affirm in word and practice, their commitment to open, cross border investment.

Further, the G-8 should encourage the OECD to reach out to the Business and Industry Advisory Committee to the OECD to provide their input on the ways in which informal barriers can impede foreign investment and engage in a dialogue with OECD governments on ways in which these barriers can be reduced.

Taken together, these actions can make a difference and will serve to encourage the free flow and benefits of foreign investment.

Thank you for your attention!