In a manufacturing powerhouse like South Carolina, you hear a lot about foreign direct investment (FDI), economic development and job growth, but what exactly does this all mean for the United States and particularly South Carolina?
FDI is critical to the U.S. economy, especially in South Carolina, as most of us can attest to firsthand. Think BMW, Michelin, Volvo Cars; South Carolina is home to more than 1,200 operations of foreign-affiliated companies and is in a strong economic standing thanks to these investments.
FDI is an investment in or acquisition of a business by an investor from another country who has authority over management, operations and policies of the company purchased; for this reason, most governments want to track who invests in their country’s businesses.
The U.S. is about average in terms of its restrictiveness on foreign investment, and other developed countries are getting stricter along the way.
Recently, Congress introduced two pieces of legislation that could significantly change traditional FDI assessments:
- The Foreign Investment Risk Review Modernization Act of 2017, which seeks to modernize and strengthen the Committee on Foreign Investment in the U.S. process to more effectively guard the risk of U.S. national security posted by certain types of foreign investment.
- The United States Foreign Investment Review Act of 2017, which is proposed to create a new process whereby the economic effects of certain proposed foreign investments in the U.S. would be reviewed by the U.S. Department of Commerce.
In a nutshell, these bills are being presented to protect national security interests. The focus is on key industries related to national security, critical infrastructure, emerging technologies and high-tech firms. FIRRMA and USFIRA do not go hand in hand and it is most likely that FIRRMA will be passed in the next few months and USFIRA is less likely to be enacted.
Many have questioned the nature and scope of CFIUS’s reviews, which is governed to advise the president to suspend or block an investment if no other laws apply and if there is evidence that the transaction threatens to impair the national security. To date, only four investments have been blocked by past presidents — telling of the traditional assessment process.
This new bill is a bipartisan effort that will reinforce the review of FDI to protect U.S. based companies, our security, technology and protection against outsourcing of U.S. jobs. The language in the bill is narrowly tailored to focus on specific national security concerns. It distinguishes between investments that are financially motivated and investments that are strategically motivated. In addition, the legislation changes the review process and timing.
So, why even participate in FDI if there could be a national threat? Because FDI is critical for developing economic prosperity. What would South Carolina jobs be without BMW, Michelin, GE and others?
FDI raises the standard of living for communities, which essentially, puts the roof over our heads, the food in our bellies and allows us to do the fun things like go to a Carolina versus Clemson football game or that Bahamas trip you’ve always wanted to take.
In addition, FDI gives the economy and businesses who are investing a competitive advantage because of the diversification, which typically increases return without increasing risk.
As a known manufacturing powerhouse, South Carolina needs to continue to attract FDI and have legislation, mechanisms and policies in place that encourage it. However, as a country we need to ensure we afford proper protection to U.S. businesses and our key security and technology interests.
There needs to be a balance of protecting our interest, but not having protectionist policies. FIRRMA authorizes certain declarations for certain covered investments and enforces the initial review period to increase from what is now 30 days to 45 days.
Under FIRRMA and extraordinary circumstances, CFIUS may extend the 45-day review period by an additional 30 days. Additionally, FIRRMA comes with many improvements to the current process and is a reasonable approach to afford the key protection we must have as a country. This helps the U.S. fight foreign trade barriers while allowing the country and state’s economy to continue to prosper.
Brian Gallagher is vice president of marketing for O’Neal Inc., an integrated architecture, engineering and construction firm. He can be reached at 864-298-2037 or email@example.com.