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Economists Warn Against Restricting Foreign Investment

A study released Thursday by Washington's Institute for International Economics says foreign direct investment has positive effects on the U.S. economy, and warned against possible Congressional restrictions on national security grounds.

The study is entitled US National Security and Foreign Direct Investment. It was commended by Michael Oxley, the Republican chairman of the House Financial Services Committee, which is considering legislation to regulate foreign investment. Recalling the contentious recent debate over whether a state-owned United Arab Emirates company should be allowed to manage several US ocean container terminals, Oxley said trade protectionism is on the rise.

"We live in an age of nascent protectionism," he said. "Let's make no mistake about it. We can't afford as a nation to take that kind of head in the sand approach, because the world has changed. There are a lot of other places to invest. China has a growing market, India is a growing market, South America has a lot of potential."

The study says direct foreign investment in U.S. industry is good because foreign companies generally pay higher wages than U.S. firms.

In recent years foreign investors have greatly increased their holdings of both US financial and corporate assets. The United States and China rank one and two worldwide in attracting foreign investment.

One of the report's co-authors, David Marchick, says Americans may be becoming less receptive to foreign investment because it is beginning to come from China, whose companies until recently were discouraged from investing abroad. Marchick says the Chinese have choices as to what they do with their large dollar surpluses.

That money can either come to the United States and buy bonds, liquid assets, or it can be direct foreign investment, which actually creates productive assets and productive activity on the ground," he said. "Or it can go elsewhere if we create a hostile environment for Chinese investment."

Last year, China's National Offshore Oil Corporation (CNOOC) was prevented on national security grounds from buying the U.S. based UNOCAL oil company. This year congressional opposition caused Dubai Ports World to withdraw its offer for several ocean terminals that had been run by a British company.

The report's authors say there are cases in which national security could be endangered by foreign ownership. But they say both the CNOOC and Dubai Ports deals did not fall into that category.