The panel was convened at 10:45 a.m., Friday, April 11, by its moderator, Professor Jane Bradley of the Institute of International Economic Law at Georgetown University Law Center, who introduced the panelists: Faryar Shirzad, Global Head of the Office of Government Affairs at Goldman Sachs; Carlos Henrique d'Abreu e Silva, Minister Counselor for Economic Affairs at the Embassy of Brazil in Washington, D.C.; Professor James Feinerman, the James M. Morita Professor of Asian Legal Studies at Georgetown University Law Center; and Whitney Debevoise, U.S. Executive Director at the World Bank.
INTRODUCTORY REMARKS BY JANE BRADLEY *
A number of developing countries are emerging as major players in the global economy, changing from capital importers to outbound investors, from minor participants to shapers of markets, and from debtors to creditors. In the process, they have gained a greater stake in the stability of the international economy, and arguably in the rule of law in economic affairs. Our panel this morning will examine this transformation and some of its implications: for example, whether these emerging economies will become champions of bilateral or even multilateral investment agreements, advocates of greater transparency and institutional reform across a variety of global economic institutions, and supporters of efforts to promote the rule of law. It will also consider how international institutions are preparing to deal with this shift.
* Deputy Director, Institute of International Economic Law, Georgetown University Law Center.
REMARKS BY FARYAR SHIRZAD ([dagger])
In terms of the changing global landscape, there is no doubt that there has been a significant change in terms of the global economy. The striking thing to watch is that the global economy has grown, and that there has been an enormous increase in the flow of capital across borders.
Some statistics from the United Nations Conference on Trade and Development (UNCTAD) are instructive to just put into scale the backdrop of the discussion we are having today. For example, in terms of cross-border M&A activity: the amount of cross-border M&A activity in 1987 was about US $74 billion and that has increased to about US $880 billion in 2006. It actually reached a high of about US $1.1 trillion in 2000, but still the trend is obviously an enormously upward one. Then, if you look at the actual cross-border M&A activity involving developing countries, I think the numbers are even more striking, going from a level of about US $3.5 billion in 1987 to about US $250 billion in 2006. And I think still more striking when you look at those numbers is to see the amount of M&A activity involving developing countries where the developing country actor is the buyer in the transactions: the numbers went from about US $2.9 billion in 1987 to about US $122 billion in 2006.
This is a small snapshot of a larger picture of increased activity on the part of a set of new actors on the global economic stage. It is a snapshot that is reflective of a broader, very positive trend that I think is part of global economic growth and the global distribution of wealth and all that comes with it. With it, there has been a series of very interesting policy responses that I think are worth watching, and that are the basis of the conversation we are having today.
I will talk about the policy implications of two elements of this emergence of new actors on the global stage, as they apply to the United States in particular. I think these observations are relevant to the G-7 and more generally, and I will discuss them in the context of talking about the implications for investment policy. Second, I will talk about it in terms of the impacts on policy-making in the context of sovereign wealth funds.
Now, with regard to investment policy, for those of us who have been in the this area, it has been a fairly sleepy area of policy-making in recent years until 2006, when one of these new actors, a government-affiliated investor from Dubai, entered the U.S. market in an effort to acquire some terminal port operations in the United States. That example, the Dubai Ports World acquisition and resulting controversy is instructive of some of the policy impacts that I think are worth discussing today. The interesting thing to observe is that the resulting controversy in the Dubai Ports World transaction and the implications that it has had in terms of U.S. policy-making in the area of investment policy are not unique. In fact, the whole mechanism that is the construct around which the U.S. government monitors and ultimately potentially intervenes in foreign investments is a byproduct of policy responses to the emergence of new actors in 1975, following a big flood of petrodollar investments into the United States. In response to that development, the U.S. government, by executive order, set up this CFIUS committee, the Committee on Foreign Investment in the United States. Similarly, in 1988, in response to concerns about Japanese investments into the United States, Congress enacted the Exon-Florio law, which gave the President the authority to potentially intervene. And then in 2007, with the Dubai Ports controversy, Congress and the President ultimately created a new investment regime.
With the sort of policy making that has occurred, the environment in the United States for foreign investment is still a relatively benign one in terms of the ability of foreign investors to enter this market. That said, there are a number of things worth watching that, depending on how they play themselves out here in the United States, will have cross-cutting implications in terms of other jurisdictions. The first is how this new law that Congress passed in 2007 is ultimately enacted. There has been a series of press reports talking about some of the decisions that the U.S. administration is making about how to implement some of the more discretionary elements of the law, and I think ultimately how those play themselves out will obviously have huge implications in terms of the ability of these new actors to sit comfortably on the global stage as full fledged investors alongside more traditional developed country investors.
The second issue to watch is what happens in the United States with regard to the next administration. Unlike trade policy, where the rhetoric is very sharply divided between the two political parties in the United States, the rhetoric on investment policy is largely uniform across most parts of the political spectrum, with almost everyone expressing some sentiment in favor of foreign investment, but then expressing some concern about national security issues being monitored. I think that is why, in many ways, the key issue to watch in the next administration, in terms of the ability of these new actors to enter the U.S. market, will be the personnel decisions that are made about who mans the key positions that will be operating the CFIUS process in particular. At the end of the day, given the broad discretion that applies to such decision-making, a lot of the decisions that are made in the U.S. government's reviews of investments are very much driven by the willingness and the ability of senior administration officials to step up and essentially be willing to take the political heat when criticism may come up in the context of an investment that may attract the attention of the political system or the media.
The third dimension in terms of investment policy is the copycat nature of what has happened in light of in response to the U.S. passage of the new foreign investment law. Certainly there have been actions in places like Canada and Europe, with the issuance of new communiques involving sovereign wealth funds, Australia and elsewhere talking about certain new parameters governing foreign investment. I think the interesting factor is the degree to which some of the copying of the U.S. mechanism has been adopted by some of the emerging markets themselves, including some of the countries that are big new capital exporters. Russia, China, and other such countries are beginning to adopt their own mechanisms to begin monitoring and ultimately policing through more transparent mechanisms the activities of foreign investors in their markets.
In terms of sovereign wealth funds, these are actually very interesting for a lot of obvious reasons, including the fact that they are a vehicle by which a lot of these actors are now participating in the global environment. We are very much at a formative stage in terms of policy-making on sovereign wealth funds, including recent actions that I alluded to, such as the U.S. Treasury's negotiating a new agreement with the governments of Abu Dhabi and Singapore on a set of commitments that both sides would adopt in terms of investments by these government-affiliated investors. The government of Australia has implemented new mechanisms, the European Commission has issued a communique in this context, and so there is a wide range of policy making that is being done through international mechanisms involving these sovereign wealth funds, and ultimately implicating the ability of these new actors to invest, and the shape, form and ultimate trajectory of these policy mechanisms will have real...