Milestones : Us Remains A Prime Beneficiary Of Foreign Direct Investment


To listen to some politicians on the US campaign trail, the United States will soon have no employment opportunities left as its companies shut down factories and move to lower-cost countries of Asia, taking American jobs with them. It seems they might be missing the point: Certainly some companies are shipping jobs overseas, but the reverse flow of jobs to the US as a result of foreign investment is even greater, analysts say.

The US was the top recipient of foreign investment in 2003 and the leading country for manufacturing investment in automobiles, pharmaceuticals and chemicals, according to data compiled by IBM Business Consulting Services.

The United Nations Conference on Trade and Development says the leading investment destinations for the next four years will be China, India and the US.The top locations predicted for foreign direct investment (FDI) among the developed economies are the US followed by the UK, France and Canada.

While FDI inflows to the US fell sharply in 2002 amid concerns about terrorism, foreigners more than doubled the amount of money they invested in US facilities last year to $82 billion. This was well ahead of the $57 billion of FDI that found its way to the second-largest recipient, China.

Consultants at A.T.Kearney warn that the future attractiveness of the US market could be affected by a backlash against US policy in the Middle East, which could re-ignite worries over terrorism. Global investors, however, view the open and competitive US market system, flexible labor markets and productivity rates as the most important factors affecting the FDI competitiveness of the US, according to the consultants.

Economists say that foreign firms introduce new technology that increases productivity and that foreign-owned plants in the US produce finished goods that replace imports.


Many experts said it couldn’t be done, but global bank regulators met the June 2004 deadline for the Basel II capital accord that will eventually replace the landmark, but now obsolete, Basel I agreement on bank-capital rules reached in 1988. The new accord is the result of five years of hard work and cooperation between US and European regulators and will make the world of global banking a safer place.

Recognizing that globalization, technology and innovation have accelerated in recent years, regulators agreed to adopt modern risk-management techniques that have already been implemented by the biggest banks that operate worldwide. The new rules will link capital requirements more closely to the risk inherent in various asset classes. As a result, banks that follow best practice and manage their risks properly will be allowed to cut back on their capital holdings.

The new accord was reached by the Basel Committee on Banking Supervision, a group of central bankers and regulators from 13 countries, whose framework is applied by more than 100 countries worldwide. Wide acceptance will ensure that emphasis on risk makes its way into supervisory practices and into market discipline through increased public disclosure.

The new rules will start to take effect at the end of 2006, although EU and US political agendas threaten to disrupt their smooth implementation. The first step has been taken toward a level playing field with less systemic risk. If national accounting standards can be brought into line, effective market discipline could be made to work.

The Basel Committee suggests that supervisors should consider implementing key components of the new accord even if the minimum capital requirements are delayed beyond 2006.


Gordon Platt