Foreign Acquisition in the U.S.

Jean Jacques Servan Schreiber. The American Challenge (New York: Atheneum, 1968); Vernon Raymond , Sovereignty at Bay—The Multinational Spread of US Enterprise (New York: Basic Books, 1971); and Muller Ronald Barrett Richard . Global Reach—The Power of the Multinational Corporation (New York: Simon & Schuster, 1974).

A foreign direct investment in the U.S. is defined as the direct and/or indirect ownership through intermediaries or affiliates of 10 percent or more of the voting securities of an incorporated business enterprise or an equivalent interest in an unincorporated enterprise. Note that prior to the passage of Public Law 93–179, the “Foreign investment Study Act of 1974,” the othcial level for a foreign direct investment was 25 percent ownership. Foreign direct investment differs from foreign portfolio investment because the latter refers merely to foreign purchase of U.S. securities without participation in the day-to-day control of the firm.

The data of this paper have been drawn: From surveys made by the U.S. Department of Commerce. Foreign Direct investment in the US (Washington, D.C., 1976–78) and Foreign Investments in the US (Washington, D.C., 1974); and from the Morgan Guaranty Trust Company of New York. “Foreign Investors—Bullish on America” (September 1978).

A major portion of oil revenue has been invested by Middle Eastern countries in securities classified as foreign portfolio investment, which give no operating control of the issuing firms in the U.S.

Little Jane S. , “Locational Decisions of Foreign Direct Investors in the US.” Federal Reserve Bank of Boston (July/August 1978), p. 48.

U.S. News and World Report, “U.S. Business” section (23 April 1979), p. 83.

U.S. Department of Commerce. Foreign Direct investment in the United States (Washington, D.C., 1978), p. 116.

Federal legislation restricts foreign investment in radio communication, nuclear energy, hydroelectric power, mining on federal lands, domestic air transport, and coastal and inland shippings. In addition, some states impose restrictions of foreign investment, particularly in banking, insurance and land ownership. No federal legislation directly prohibits foreign investment in the defense industry but the Defense Department's Industrial Security Program scrutinizes foreign control or influence over firms engaged in performing classified work for government agencies.

Section 368 (c) of the Internal Revenue Code. Note that in a case where a foreign acquisition is involved, the U.S. shareholder must obtain a U.S. Treasury ruling in advance of the exchange to the effect that the exchange is not entered into mainly to avoid U.S. tax (Section 367).

Note, however, that such tax deduction could be limited when the interest expense related to acquisition indebtedness exceeds $5 million (Section 279 of the Internal Revenue Code.)

Another example of a nontariff barrier, called orderly marketing agreement (OMA), is the U.S.-Japanese agreement limiting Japanese TV exports to the U.S. to 1.75 million sets annually. As a result, the Tokyo Shibaura Electric Company announced plans to build a color TV plant in Tennessee. Data from Alexander Hamilton Institute. Direct Investment/USA. 1 (3 January 1978), p. 1.

U.S. Department of Commerce (1976), op. cit.

Federal Reserve Bank of Boston, op. cit., p. 45.

U.S. Bureau of Labor Statistics. Monthly Labor Review, various issues (Washington, D.C., 1977–78).

“Now It's ‘Yankee, Don't Go!”’ Time (February 1979), p. 82.

U.S. Congress. Subcommittee on International Trade, Investment, and Monetary Policy. International Investment Uncertainty (Washington, D.C., December 1976), p. 23.

U.S. Department of Commerce. 1976, op. cit.

Federal Reserve Bank of Boston, op. cit., p. 46.

U.S. Congress, op. cit., p.27.

The $3.3 billion increase in the foreign direct investment position in 1977, for instance, represented less than 2 percent of total domestic private investment. As to industrial concentration. U.S. manufacturing affiliates of foreign firms accounted for less than 6 percent of total output in any industry. Statistics from Morgan Guaranty Trust Company, op. cit.

The Washington Post. “Most Areas Welcome Foreign, Funds.” 24 July 1979.

Note that foreign banks could establish in other states branches that accept only such deposits as those permissible for an Edge Act Corporation.

Coverage is required if foreign banks accept deposits of less than $100,000.