Academic journal article Washington International Law Journal

Comparing Foreign Investment in China, Post-WTO Accession, with Foreign Investment in the United States, Post-9/11

Academic journal article Washington International Law Journal

Comparing Foreign Investment in China, Post-WTO Accession, with Foreign Investment in the United States, Post-9/11

Article excerpt

I. INTRODUCTION

Foreign investors exist in different shapes and sizes: two friends from Canada decide to devote their life savings into opening a seafood restaurant and bar in Costa Rica, which had been their lifelong dream; a newly divorced mother of three from the United States invests half her earnings in stock in a foreign oil company; or a major manufacturing company with its operations in the United Kingdom invests in opening up three new factories in various provinces of China. Foreign investment is perhaps one of the most invaluable, sought-after resources a nation could ask for. While the United States traditionally is considered the most attractive country for foreign investment, countries such as China recently have been realizing their potential for attracting foreign investment at an exceedingly rapid pace.

Foreign investment involves "the ownership or control, directly or indirectly, by one foreign person [e.g., individual, branch, partnership, association, government] of 10 per centum or more of the voting securities of an incorporated U.S. business enterprise or an equivalent interest in an unincorporated U.S. business enterprise. . . ."2 As used today, investment is defined as "the placing of capital or laying out of money in a way intended to secure income or profit from its employment."3 Every country has unique rules regarding foreign investment, with some regulations more restrictive than others. Regardless of how amenable a country is to foreign investment, each national economy has a specific framework that foreign investors must abide by in order to regulate domestic foreign investment.

The United States holds the title as the world's largest economy;4 however, China is on course to becoming the largest economically attractive country in the world.5 The success of America's liberalized foreign investment regulations has been the result of a system intended to foster a mutually beneficial relationship that assures national security.6 In contrast, China, set to overtake the United States in attracting foreign investment in the next twenty years, officially instituted a regulatory scheme not less than thirty years ago to attract foreign investment.7

America's history of foreign investment dates back to 1606, 170 years before America's founding fathers declared independence from Great Britain. Investments made from 1606 to 1776 were direct investments, with overseas owners assuming full control over their American assets.8 The first such form of foreign direct investment was through the Virginia Company in 1606, which established the first permanent English settlement in America, in Jamestown, Virginia.9 In forming the Virginia Company, the Crown was under the belief that stockholders involved would benefit from discoveries of gold and silver in America.10 After failing to find any gold or silver, the Virginia company transitioned into a trading post, and, in 1613, the first "profits" appeared in the form of Virginia tobacco. During America's revolution in 1776, America was a nation of debts, relying heavily on foreign financing as domestic needs heavily increased due to funding requirements for the Revolution.11 Since the Declaration of Independence was signed, foreign investment has been pursued liberally, most noticeably through alien governments and private businesses' investment in American securities in the form of stocks and bonds, leading to a substantial amount of foreign investment.12 The U.S. federal government has refrained from designating clear federal guidelines, spotlighting the liberal attitude of the United States toward foreign investors. Due to the lack of clear federal guidelines on foreign investment, foreign investors must rely on state foreign investment guidelines and codified restrictions set out in statutes, which are flexible and encouraging toward foreign investors. For instance, an 1830 Supreme Court decision expresses the restrictions on aliens to retain ownership over land in the United States. …

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