[Congressional Record Volume 141, Number 93 (Thursday, June 8, 1995)]
[Extensions of Remarks]
[Pages E1176-E1177]
From the Congressional Record Online through the Government Publishing Office [www.gpo.gov]


                     INVESTORS MAKE LOUSY CROWBARS

                                 ______


                         HON. MICHAEL G. OXLEY

                                of ohio

                    in the house of representatives

                         Wednesday, June 7, 1995
  Mr. OXLEY. Mr. Speaker, I commend the following column by Cynthia 
Beltz from the Journal of Commerce to the attention of my colleagues.
                   [The Journal of Commerce, May 25]

                     Investors Make Lousy Crowbars

                           (By Cynthia Beltz)

       The world's major industrialized nations this week launched 
     two years of negotiations to reduce barriers to cross-border 
     investment. Just last week, the United States threatened 
     Japan with 100 percent tariffs on luxury auto imports unless 
     its auto parts market is opened to U.S. companies. 
     Unfortunately, such tit-for-tat tactics in the trade arena 
     are now spreading like an infectious disease into the 
     investment field, threatening to thwart the negotiations 
     before they get off the ground.
       U.S. investment policy traditionally has rejected 
     aggressive reciprocity tactics. Instead, Washington has 
     maintained open-door policies at home while promoting them 
     abroad. The strategy has paid off. The best companies in the 
     world have flocked to the [[Page E1177]] United States, 
     boosting productivity and economic welfare. New research from 
     the Census Bureau shows, for example, that foreign-owned 
     plants are more productive, more technology-intensive and pay 
     higher wages than the average U.S.-owned plant. Developing 
     countries are also moving at a record pace to emulate 
     America's successful open-door investment policy. More than 
     40 nations moved in this direction in 1992 alone. Indeed, 
     attitudes have shifted from deep suspicion of multinational 
     investors to active solicitation.
       Foreign direct investment, or FDI, is now the most 
     important source of external finance for developing 
     countries, which attracted a record 40 percent of global FDI 
     flows in 1994. A lack of modern infrastructure that threatens 
     future growth is further driving FDI liberalization in areas 
     still restricted in many nations. Countries such as India and 
     Indonesia, for example, are breaking down telecommunication 
     monopolies and encouraging increased foreign participation.
       The irony is that the United States is moving in the 
     opposite direction. In contrast to the unilateral opening now 
     occurring in developing countries, the United States has 
     started to experiment with a new generation of laws and 
     regulations that promote the discriminatory treatment of 
     foreign investors.
       Since 1988 substantial machinery has been put in place to 
     block FDI deals and to penalize foreign-owned firms for the 
     offensive practices of their home-country governments. First 
     popular in the area of research and development policy, these 
     tit-for-tat tactics are now being used against foreign 
     investors through the deregulation of U.S. financial services 
     and communications sectors. In both cases, pending 
     legislation would condition the access of foreign investors--
     such as banks and telecommunication firms--on comparable 
     market-opening measures in their home countries. U.S. 
     negotiators have further indicated their intention to link 
     the two during the investment negotiations, which are being 
     held under the auspices of the Organization for Economic 
     Cooperation and Development.
       Caught in the cross-fire are deals like the proposal by 
     Deutsche Telekom and France Telecom to buy a 20 percent stake 
     in Sprint; rival AT&T wants the deal
      blocked until equal access is secured in the German and 
     French markets. Also caught are proposals to 
     unconditionally eliminate the existing 25 percent 
     restriction on foreign ownership of media and telephone 
     companies. These proposals don't have a chance until the 
     tactic of using investors as a trade tool is rejected as 
     economic nonsense.
       For starters this approach treats liberalization as a 
     concession and discounts the intrinsic value of foreign 
     investment to the U.S. economy. Opening financial services 
     and telecommunications more to competition and foreign 
     participation will generate benefits for the U.S. economy 
     that do not depend on more open rules abroad. Sir James 
     Graham, a 19th century British statesman, said it best: to 
     create a link between the two is to ``make the folly of 
     others the limit of our wisdom.''
       As San Francisco Federal Reserve Bank President Robert T. 
     Parry put it, the ``hammer of reciprocity'' is a crude policy 
     tool that misses the fundamental point: Competition is 
     America's secret economic weapon, not reciprocity.
       Take the case of the auto industry. Foreign-owned car 
     plants in this country--so-called transplants--have brought 
     key technology and management practices to the United States, 
     strengthening the domestic industry and transforming the 
     nation's Rust Belt into an export belt. By contrast, consider 
     the sheltered telecommunications industry in Germany and the 
     slow pace of deregulation, which have kept costs high and 
     hurt firms within the industry as well as downstream users.
       Further, if the United States hopes to secure an investment 
     agreement--either through the OECD or an expanded World Trade 
     Organization--that is based on the principles of 
     nondiscrimination, then approving the use of foreign 
     investors as a crowbar is hardly an auspicious start. Is this 
     really the precedent the United States wants to set for other 
     countries, especially the dynamic developing economies? Just 
     as the OECD is trying to narrow the scope of investment 
     restrictions, Washington is carving out a new category of 
     exceptions to the principle of nondiscrimination, with 
     potentially damming consequences.
       The hazard of being a leader is that others watch and 
     follow. The anti-dumping laws provide an unfortunate case in 
     point. Initially promoted as a ``trade remedy,'' anti-dumping 
     laws have spread around the world, to the detriment of U.S.-
     owned multinationals. More than 40 nations--half of them 
     developing countries--have adopted anti-dumping laws. Indeed, 
     there has been a sharp increase in cases since 1990, and U.S. 
     exporters are now the target of these laws more often than 
     any other country. What seemed to help in the short term 
     instead has worked to reduce corporate flexibility and hurt 
     the efficiency of the global economy.
       If other countries follow the U.S. lead in investment and 
     use FDI as a trade tool, we will have created an 
     administrative nightmare. We also will have squandered a rare 
     opportunity to develop a comprehensive, nondiscriminatory 
     investment regime.
       Rather than take this troubled path, the United States 
     should lead by example and resist the tit-for-tat approach to 
     investment challenges. Competing for, not restricting, 
     investor dollars--domestic or foreign--drives the economy 
     forward. Let's stick with the program that works.
       Cynthia Beltz, a research fellow at The American Enterprise 
     Institute in Washington, is editor of the forthcoming, ``The 
     Foreign Investment Debate'' (AEI, 1995).
     

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