There are troubling signs the U.S. may be losing its traditional appeal as a destination for foreign investment, the White House says, a veiled warning to legislators now contemplating tighter controls over such investment.

This year's Economic Report of the President, released Monday, says foreign investment in the U.S. has numerous benefits: foreign-owned firms in the U.S. pay higher wages, invest more in research and development, and export more than purely domestic firms, on average. Moreover, foreign direct investment (FDI) helps modernize U.S. plant and equipment and finance the U.S.' large trade deficits, it says. (Read the full report)

"Recently, however, some trends have developed with respect to FDI in the United States that may be cause for concern," says the report, prepared each year by the president's Council of Economic Advisers.

While the share of U.S. output accounted for by foreign-owned firms has grown over the last two decades, "it has stagnated and even declined in recent years." In addition, foreign-owned firms' share of employment has declined, from 5.1% in 2000 to 4.7% in 2004. Finally, foreign direct investment's share of all foreign investment in the U.S. has declined since 1999; the balance is primarily "portfolio" investment such as stocks, bonds and bank deposits.

The report says it isn't clear whether "these are benign and temporary trends or whether this development is symptomatic of deeper issues with respect to the attractiveness of the United States as a country in which to make direct investment."

While the report doesn't elaborate on what those deeper issues may be, administration officials have worried that foreign investors could shun the U.S. in the wake of public and congressional hostility to foreign investment, in particular since the Sept. 11, 2001 terrorist attacks have elevated national security over economic efficiency considerations in many economic matters. A 2005 bid by Dubai Ports World to manage six U.S. ports was ultimately abandoned last year in the face of congressional opposition. Congress now proposes tightening the process by which the administration's secretive Committee on Foreign Investment in the United States approves foreign takeovers of U.S. companies.

While the Dubai Ports controversy is too recent to be reflected in the data cited by the Economic Report of the President, administration officials say that and several similar events could threaten foreign investment flows. Deputy Treasury Secretary Robert Kimmitt, in a speech delivered Monday in Frankfurt, said the recent focus on CFIUS has "raised questions in the minds of global investors about whether the doors to foreign investment remain open both in Europe and in the United States."

Last week, Treasury Assistant Secretary Clay Lowery warned Congress that foreign investors will be closely watching the current debate over CFIUS. Investment controversies, foreign barriers to investment and "increasingly negative media coverage of the U.S. investment climate, underscore the need to improve and reform the CFIUS process. It is also important to note that our actions to reform CFIUS are and will continue to be closely watched."

Still, the report's emphasis on the benefits of foreign investment didn't get a receptive ear from Democrats. The report "pays lip service to the … anxiety and sense of insecurity that many Americans feel in the face of growing international competition," New York Senator Charles Schumer, chairman of the Joint Economic Committee of Congress, said in a news release. "It does not talk about the kinds of policies that will be necessary to reassure the average American family that it can expect to share in the benefits of more open international markets."