White House Makes Push to Draw Foreign Capital



By Deborah Solomon

WASHINGTON -- President Bush and Treasury Secretary Henry Paulson are embarking on a campaign to convince other nations that the U.S. remains open to foreign investment, despite recent fights over attempted international takeovers.

Mr. Bush is expected to release a statement today hailing foreign investment as key to creating jobs, stimulating growth and boosting productivity in the U.S. While past presidents have made similar statements, the last one was released 15 years ago by his father. Mr. Paulson, meanwhile, said in an interview that he plans to "go on the offensive" and will host a panel at George Washington University today to tout the benefits of foreign investment, before heading to St. Louis tomorrow to visit two foreign-owned companies.

The push comes amid a weakening in the U.S. of foreign direct investment, or investment of foreign assets into domestic organizations and structures such as manufacturing facilities and real estate. Such investments peaked in 2000 with $321 billion invested by foreign firms, but fell off after the Sept. 11, 2001, terrorist attacks, hitting $184 billion in 2006.

The decline has coincided with a growing perception overseas that the U.S. is hostile to foreign investment and to foreign countries in general. Those concerns have been fueled by the war in Iraq as well as controversies surrounding foreign companies' efforts to buy assets in the U.S. An outcry erupted last year when a Dubai-owned company tried to buy operations at five American ports, and complaints flew in 2005 when a state-owned Chinese company, Cnooc Ltd., tried to buy Unocal Corp.

In response, Congress moved to revamp the way the Committee on Foreign Investment in the U.S., or CFIUS, reviews foreign investments with national-security implications. The House recently passed legislation strengthening U.S. scrutiny of such investments and the Senate is expected to act within weeks.

In the interview, Mr. Paulson said the "consensus that an open economy was fundamental to our economic strength and well being...is beginning to erode in this country and around the world."

He attributed the decline in foreign investment to a number of factors, including a belief overseas that the U.S. doesn't welcome foreign investment and a sense that doing business in the U.S. might come with unnecessary burdens.

"I have seen signs as I travel around the world -- and this may be partially resulting from the confusion around Dubai Ports -- that there's some that are questioning whether we're welcoming foreign investment," Mr. Paulson said. "Some even believe we're erecting new barriers, and then there are some that are asking themselves questions about the perceived regulatory or legal burdens in this country. We just want to make it very clear that we're open for investment."

He said foreign investment "is the ultimate vote of confidence" in the U.S. economy and that he's not certain whether the drop-off is a trend or a short-term phenomenon. "It could be the simple fact that other nations are doing a very good job of lowering their tax rates, working to attract investment," he said.

Matthew Slaughter, a Dartmouth College professor who recently left the President's Council of Economic Advisers, said the administration's push will help allay concerns overseas, particularly given the coming congressional changes in how the national-security review process works.

"I think that it is a very welcome and needed statement. The difficulty the U.S. has been experiencing with the CFIUS process makes it even more important for U.S. policy to be open and welcoming to foreign companies and foreign governments," he said.

Since coming to Washington last year, Mr. Paulson has warned repeatedly about a growing "protectionist" sentiment, both here and abroad, that stems from doubts about the benefits of free trade. While he has frequently extolled the virtues of free trade, he has been less aggressive in talking about the benefits of foreign investment in the U.S. Mr. Paulson said the focus on foreign investment is intended to address confusion in the world about U.S. policy and that the country has been silent for too long.

"If you look back over history, there have been a number of statements on the importance of an open economy [but] the last one was 15 years ago," he said. "There's been a lot of changes in the global economy since then and, as I said, in some quarters of the world, people may be confused."

The U.S. recovered its position as the largest single host country for foreign direct investment last year; the United Kingdom was the top recipient in 2005.

With concerns about free trade fueling much of the protectionist sentiment on Capitol Hill, it's unclear whether Mr. Paulson's argument to boost foreign investment will hold much sway with Congress, which could complicate foreign deals. Many Democrats used antitrade rhetoric in their campaigns and are looking for ways to slow global trade.