Page 304 - DECO503_INTERNATIONAL_TRADE_AND_FINANCE_ENGLISH

International Trade and Finance

Notes Commerce. The drop in U.S. direct investment abroad in 2005 reflects actions by U.S. parent firms to
reduce the amount of reinvested earnings going to their foreign affiliates for distribution to the U.S.
parent firms in order to take advantage of one-time tax provisions in the American Jobs Creation Act
of 2004.

Billions of dollars
$350
Foreign Direct Investment in
$300
the United States
$250

$200

$150
U.S. Direct Investment
Abroad
$100
$50

$0
1990 1992 1994 1996 1998 2000 2002 2004 2006 2008
Year

Figure 27.1: Foreign Direct Investment in the United States and the
U.S. Direct Investment Abroad, Annual Flows, 1990-2008
Source : CRS from U.S. Department of Commerce data

The drop in U.S. direct investment abroad in 2005 reflects actions by U.S. parent companies
to take advantage of a one-time provision.

The cumulative amount, or stock, of foreign direct investment in the United States on a historical cost
basis increased by $195 billion in 2006 to about $1.8 trillion. This marks an 8% increase over the
previous year and a significant change from the decline in foreign investment spending that has
occurred since 2000. The rise in the value of foreign direct investment includes an upward valuation
adjustment of existing investments and increased investment spending that was driven by the
relatively stronger growth rate of the U.S. economy, the world-wide resurgence in cross-border merger
and acquisition activity, and investment in the U.S. manufacturing, information and depository
institutions as overseas banks and finance and insurance companies sought access to the profitable
U.S. financial market.
U.S. Policy toward Direct Investment
With some exceptions for national security, the United States has long been considered one of the
most receptive economies in the world to foreign direct investment. Indeed, over the past 50 years,
the United States has led efforts to negotiate internationally for reduced restrictions on foreign direct
investment, for greater controls over incentives offered to foreign investors, and for equal treatment
under law of foreign and domestic investors. In 1977, the Carter Administration issued a policy
statement on foreign direct investment that can be summarized by the neutrality clause : the United
States will neither encourage nor discourage the inflow or outflow of international investment. The
policy statement also indicated that

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