Global FDI Policy: Correcting a Protectionist Drift (Bernard and Irene Schwartz Series on American Competitiveness)

In the past three years, many countries have adopted or expanded regimes to review inward foreign direct investment (FDI) for either "national" or "economic" security purposes. These examples of potential restrictions, however, have occurred amid ongoing changes in the patterns of FDI flows. FDI is actually flowing more into sectors, such as energy, telecommunications, and infrastructure, that are widely seen as critical for national security. But in many countries there has been a drift in public opinion away from global engagement. In the United States and elsewhere, voters have long expressed concerns about the labor market pressures of FDI —consistent with the overall pressure on real and relative earnings for many workers in the United States and elsewhere. This report explores what best practices and principles should guide governments in formulating and implementing policies to govern national security reviews of FDI inflows, including how to prevent legitimate national security reviews from becoming tools for economic protectionism. The authors also consider what should be the policy responses from advanced nations and leadership groups, including the Group of Eight, Association of Petroleum Exporting Counties, and Organization for Economic Cooperation and Development to the emergence of new FDI restrictions.