The U.S. Needs a Fast Track for Foreign Investment

Yesterday the U.S. Treasury Department announced the beginning of what could become a fast track for foreign investment into the United States, just days before President Donald Trump heads to the Middle East. Trump is eager to ink deals, but bringing many investments home will require getting past the Committee on Foreign Investment in the United States (CFIUS), which turned fifty this week and is not built to move as fast as he desires. 

During the past half century, Congress has transformed CFIUS from a passive fact finder into a powerful gatekeeper. The rise of this once-obscure entity illustrates how U.S. national security has expanded beyond military issues to cover more of the marketplace. Its struggles to keep watch over a growing swath of transactions suggest that more tailored approaches are needed for separating friends and foes. 

In the early 1970s, the wealth of Mideast oil producers inspired fear in Washington. Mideast investors bought apartments on Fifth Ave in New York City, controlling stakes in California banks, and even an island off the coast of South Carolina. In 1975, President Gerald Ford created CFIUS, an interagency body chaired by the treasury secretary, simply to collect basic information and improve monitoring. 

Fears of Japanese investment gave CFIUS its first real teeth. In 1988, following the Japanese corporation Fujitsu’s attempt to purchase the American company Fairchild Semiconductor, Congress passed legislation giving the president authority to review and block foreign investments that threatened “national security and essential commerce.” Concerned that the legislation reached too far, however, President Ronald Reagan vetoed the bill and negotiated a new version that removed the “essential commerce” language. 

But following the September 11, 2001, terrorist attacks, U.S. policymakers vastly expanded the boundaries of national security. In 2007, after the Dubai–based company DP World attempted to acquire terminals at several U.S. ports, Congress gave CFIUS new marching orders that stretched beyond national defense impacts to consider critical infrastructure, energy, and other critical resources and materials. 

As Trump heads to the UAE next week, fears about one of its state-owned enterprises investing in U.S. ports feel like ancient history. Since the DP World controversy, the Abu Dhabi sovereign wealth fund Mubadala has made major investments in U.S. energy, finance, and technology firms, including two semiconductor companies. In March, the UAE announced a framework to invest $1.4 trillion in the United States over ten years. 

There is demand for trillions more. Delivering artificial intelligence data centers in the United States, for example, is expected to require $1.8 trillion by 2030. Improving U.S. energy and transportation infrastructure will require another $3.7 trillion. Trusted sources of foreign capital could help bankroll those and other strategically important investments and support millions of U.S. jobs in the process. 

But CFIUS is not designed to handle a significant upswing in foreign investment. Responding to China’s rise, Congress in 2018 further expanded CFIUS’s scope and introduced mandatory filings. The resulting mountain of paperwork has been good for lawyers but less so for investors, who have been shouldering higher legal costs and waiting longer for approval. 

Given those challenges, Treasury’s announcement on Thursday that it is creating a fast track for investment from “ally and partner sources” is an encouraging development. This will include piloting a “Known Investor portal” to collect information from investors ahead of filings, according to the announcement, which is itself quite light on information. It is unclear whether the process will go far enough, fast enough. 

One way to further enhance this process is by updating and expanding the list of “excepted” states and investors, a feature that has created more grumbling than goodwill among U.S. partners. To date, only the Five Eyes nations, the United States’ closest allies for intelligence sharing, have earned spots: Australia, Canada, New Zealand, and the United Kingdom. 

Left out are eight allied countries that along with Canada and the United Kingdom are responsible for about 80 percent of U.S. inbound investment. Easing access from those economies, which include Japan, South Korea, and several European countries, makes commercial and strategic sense. Other partners could be considered based on their track record investing in the United States, their capacity for future investment in priority areas, and their exposure to U.S. adversaries. 

At present, qualifying as an excepted investor requires that at least 75 percent of a company’s board members and owners are nationals of the excepted state or the United States. Given that the Five Eyes nations account for only about 4 percent of the global population, most foreign investors have no chance at making the cut. That bar could be lowered or replaced by an assessment of ties to U.S. adversaries. 

This updated system would be akin to TSA PreCheck, which facilitates the flow of airline passengers but still retains the ability to conduct searches. Trusted investors would avoid mandatory filings, removing one of the primary pain points in the current process. CFIUS would retain its ability to review any and all transactions of concern. Most important, speeding the flow of trusted investments would strengthen U.S. competitiveness and security.