Regulation of Foreign Direct Investment after the Dubai Ports Controversy: Has the U.S. Government Finally Figured out How to Balance Foreign Threats to National Security without Alienating Foreign Companies?

Article excerpt


Congress has consistently struggled with balancing regulation of foreign direct investment (FDI) so as to protect the national security of the United States while promoting foreign investment that improves the U.S. economy. Congress has often enacted these FDI regulations in response to a real or perceived threat to national security. Congress passed the latest installment of FDI regulation, the Foreign Investment and National Security Act of 2007 (FINSA), and it became effective in October 2007.1 Part II of this Note examines the history of the specific laws that Congress has passed to regulate FDI, the threats to national security that prompted congressional action, and the details of the current law after FINSA.

FINSA made seven major changes to the existing FDI regulation. Part III details the FINSA modifications to existing FDI regulation. This Note scrutinizes each of the seven changes, examining the congressional intent behind the changes and the likely result these changes will have on future FDI in the United States.

Finally, in Part IV, this Note formulates four recommendations intended to make future FDI regulations more business friendly to foreign investors without sacrificing the ability of the U.S. government to monitor transactions that could impair national security. Congress should adopt the following recommendations when drafting the next statute that addresses FDI: (1) remove the mandatory investigation of foreign government-controlled transactions, (2) create a separate committee in addition to the Committee on Foreign Investment in the United States (CFIUS) to instigate CFIUS reviews, (3) rework the evergreen provision to create a stronger res judicata effect on companies that voluntarily submit their transactions to CFIUS reviews, and (4) give the CFIUS more power to protect the secrecy of the information gathered in a review.


Foreign investment has been an extremely important part of the financial well-being of the United States since the beginning of the U.S. economy, but never more so than today. In 2005, foreign investors poured more than $100 billion into the United States in the form of FDI.2 Dependence on FDI is reflected everywhere in the U.S. economy, with the beneficial effects demonstrated in higher employment and increased research and development.3 In 2003, foreign investors employed over five million workers in the United States.4

With this awesome inflow of money and power from abroad also comes the threat of losing control over national security. By allowing foreign countries to invest in the United States the government cedes much of its control to these companies.5 In 2006, 53% of the U.S. population had a "negative view of foreign investors owning U.S. companies."6 Terrorism has brought national security to the forefront of the public eye. The U.S. Government has repeatedly responded to national security scares caused by FDI by restricting foreign investment flow across U.S. borders.7 This tightening of FDI has led to a balancing act between regulating potential foreign threats and not alienating the foreign investors who legitimately improve the U.S. economy.8

A. The Turbulent History of the Legislature Choosing Sides Between FDI and National Security

The U.S. government regulates foreign investment under the authority granted to it by the Commerce Clause of the U.S. Constitution.9 The Commerce Clause gives Congress the power to "regulate commerce with foreign nations, and among the several states."10 The current attempt to regulate FDI started in the 1970s when Congress began investigating the large inflow of FDI.11 In response, Congress passed the Foreign Investment Study Act of 1974 and the International Investment Survey Act of 1976.12 These Acts allowed the President to collect information on international investment and provide information to Congress.13

1. Committee on Foreign Investment in the United States

Governmental investigation under the Foreign Investment Study Act of 1974 led Congress to conclude that "the United States lacked a coherent mechanism to monitor foreign investment. …