Over the last quarter century, foreign investment has accelerated at a breathtaking pace and shifts

in the flow of this investment are now reshaping the global economic landscape. We have seen
inward foreign direct investment stock roughly triple worldwide over the past decade -- and that
holds true for developing countries as well as developed economies.
Today more than 80,000 multinational corporations (MNCs) are operating worldwide with more
than 800,000 foreign affiliates compared to 37,000 multinational corporations and 170,000
foreign affiliates active in 1993. Foreign investors not only bring fresh capital, technology,
competitive spirit and ideas to new markets; they also bring jobs. They employ nearly 80 million
people worldwide, a figure that is roughly twice the size of Germanys labor pool and one that
has quadrupled over the past three decades. These foreign affiliates also point to a deeper level of
economic integration among nations. They show a purpose and commitment beyond one-time
sales or market entry into well-established trade patterns. Investment not only drives jobs and
innovation, but it also increasingly drives trade.
The global sales of the foreign affiliates of MNCs now equal roughly two times the dollar
amount of world exports according to UNCTADs World Investment Report 2010. This makes
foreign direct investment increasingly important in terms of the delivery of goods and services to
international markets. Roughly one-third of world commerce takes place as intra-firm trade. And
the bulk of technology that is transferred flows within the framework of the integrated
international production system. FDI and the activities of MNCs have become central to the
world economy at large, and particularly important to developing countries.
FDI flows also are the vital currents that can help restore global economic growth. We have
already seen trade flows come back after the recent global recession. And the WTO estimates
that trade will be up by nearly 10 percent in 2010 over the prior year. FDI, however, may not
rebound at the same pace: UNCTAD is predicting only a modest and uneven recovery in global
FDI this year of $1.2 trillion, after registering a little over $1.0 trillion in 2009, from $1.7 trillion
in 2008. Global FDI flows fell very sharply in large part because of a substantial drop in crossborder merger and acquisition activity, due largely to more difficult financing conditions arising
from the financial crisis. However, FDI flows have historically been less volatile than portfolio
investment. As a relatively stable form of international capital flows that spurs growth and
diversifies risk around the world, FDI can help foster global economic recovery.
Investment also drives development. In March 2002, more than 50 heads of state and 200 finance
ministers took part in the International Conference on Financing for Development in Monterrey,
Mexico. The Monterrey Consensus identified sound policies to attract international investment
flows and adequate levels of productive investment as key factors in sustainable development.
Since then, nations have broadly recognized that foreign investment is critical to economic
growth in developing nations. While valuable and important, official development assistance
cannot match the power, velocity and impact of private investment, which is an essential factor
for countries to compete in the knowledge economy.
As Secretary Clinton put it, "Aid chases need; investment chases opportunity." It is promising
that last year alone, two-thirds of sub-Saharan African nations implemented reforms to improve
their business climates, a factor that will be critical to the regions ability to continue attracting

and retaining international investment. Rwanda was the top reformer globally in 2008-09 in the
World Banks Doing Business Report. As Rwanda substantially improved its investment climate
in recent years, its investment stock has climbed from $55 million in 2000 to $412 million in
2009.
We are well into an age when many of our most daunting challenges are global, and greater
levels of foreign investment will be necessary to overcome many of them: achieving global food
security; mitigating climate change; defeating violent extremism; and, improving conditions for
the one-third of the worlds population that lives in circumstances that offer little opportunity to
create a better tomorrow for themselves or future generations.
Notwithstanding this consensus, in recent years, concerns have increasingly arisen about the
potential for investment protectionism. Even before the financial crisis struck in 2008,
researchers David Marchick and Matthew Slaughter had pointed out that a number of
governments, representing countries who account for a significant share of total global
investment flows, had already considered, or were considering, measures that would restrict
certain types of FDI or expand government oversight of cross-border investment. Most of these
measures were justified on the grounds of protecting national security interests and sectors
deemed to be strategically important.
Key Investment Principles
As foreign investment is contributing more substantially to our economic prosperity, policies
designed to foster, protect and fully benefit from it require greater focus. These include
improvements to the investment climate that will attract greater flows, stronger intellectual
property rights protection, and better investor aftercare and dispute prevention. A rapidly
changing global investment landscape brings many new opportunities as well as challenges.
Some of these changes require further examination and may prompt new policy approaches. At
the same time many basic principles remain valid. Those that have proven so successful in the
effective functioning of open markets will continue to be vital to success in fostering greater
economic growth and development. Both UNCTAD and OECD, the two key international
organizations focused on investment policy, strongly advocate the benefits of opening economic
sectors to foreign investment, fair and equitable treatment for foreign investors, reforms that
result in predictable regulatory and legal environments for investors, and the value of InvestorState arbitration to resolve disputes between governments and foreign investors. It is easier to
attract foreign investment when foreign and domestic firms can compete on an equal basis and
when there are full intellectual property rights protections.
A recent World Bank study of patenting as it relates to economic growth in 92 countries over the
period of 1960-2000 found that a 20 percent increase in the annual number of patents granted,
wherever the technologies originated, was associated with an increase of 3.8 percent in output.
This is an unusually powerful finding: the issuance of patents, which in turn is likely fostered by
stronger IPR regimes, stimulates economic output. Another study, conducted in 2004 by
researchers at the University of Nottingham, found that strong IPR protections stimulated growth
in countries with high per capita incomes, and yielded even greater gains in countries with low

per capita incomes, by encouraging imports and FDI from advanced countries.
Policies that discriminate against investors, or mandate technology transfer, or impose other
performance requirements, on the other hand, make capital skittish and hamper development.
Theodore Morans research showed that affiliates of foreign multinational firms tend to be more
technology- and capital-intensive as well as faster growing in terms of output and employment
when host countries do not constrain affiliate operations through requirements such as localinput sourcing and mandatory technology transfer. Likewise, countries that seek to evade their
international obligations by ignoring arbitral investment tribunals or by backing away from
commitments to international investment arbitration not only undermine their own investment
climates but harm the prospects for foreign investment into developing nations more broadly. All
countries whether capital exporters, recipient nations, or both have a strong interest in
preventing such serious backsliding, which research has shown to be detrimental over time.
To return to sustainable global economic growth, we must keep our countries open for business
and sustain a commitment to principles of fair competition in our own markets and global
markets. We in the U.S. are strong believers in the importance of foreign investment to our own
country. Since the early stages of our Republic, under the leadership of Alexander Hamilton, we
have believed in the importance of foreign investment into our own economy and in the
importance of a legal and regulatory environment that provides confidence to foreign investors.
We continue to believe in that.
Through its network in nearly 80 countries worldwide, the U.S. Governments Invest in
America program promotes and supports inbound FDI to the U.S. This program facilitates
investment inquiries, acts as ombudsman for the international investor community, advises on
policy related to U.S. competitiveness in the attraction of FDI and provides foreign investor
education. Individual U.S. states, cities, towns, and regions also actively promote themselves to
foreign businesses as a destination for FDI. Our governors and mayors are especially eager to
attract foreign investment to their localities and many of them travel widely to describe the
virtues and attractions of their states and cities.
We in the State Department, as well as our colleagues at the Department of Commerce, fully
support them and welcome the opportunity to facilitate contacts and cooperation to attract
investment to our shores. The knowledgeable and talented American work force, our laws that
provide for a stable and predictable business environment and the highly competitive nature of
our economic culture are all positive factors for investors.
We note that many other countries also are eager to attract foreign investment. Amid the
financial crisis, the G-20 took on a leadership role for the world community by calling for a
commitment by the worlds largest markets not to erect new barriers to investment and trade. All
countries need to resist protectionism and economic nationalism. We need to pursue policies that
enhance confidence among investors. The path to recovery is not yet assured, and we need to
remain vigilant against protectionist temptations. But nations have largely met the G-20 call.
That the global economy is growing again this year is in large part due to the G-20s leadership
and the partnerships to strengthen the system that include large emerging and industrialized

nations.
Changing Investment Patterns
Yet there are many other challenges resulting from the changing investment landscape. There is
little doubt, for instance, that the growing importance of emerging economies in the global
economy has a major impact on the contours of international investment. Since World War II,
the largest flows have occurred between developed economies, with the single largest bilateral
investment relationship existing between the U.S. and Europe. Investment relationships between
developed and developing economies had largely been characterized by outflows from
developed economies to developing countries.
This pattern has changed and will continue to change. A number of the large emerging
economies particularly Brazil, Russia, India, China and South Africa but others as well are
now increasingly important overseas investors. In 2009, FDI flows from emerging and
developing economies into other markets approached one-quarter of a trillion dollars. These
countries held overseas investment stock of nearly $2.7 trillion more than three times their total
a decade earlier. This means that these countries now have a greater stake in the global system of
rules and practices that govern investment. It also means that there is likely to be a growing
convergence around similar sets of principles and practices.
It is fitting that we come to Xiamen to discuss these changes given the important and growing
role that China and other advanced emerging economies are playing in the global investment
picture.
Since I traveled with Henry Kissinger to China as a young White House economic adviser in the
early 1970s, the investment relationship between China and the United States has burgeoned.
U.S. investment stock in China has grown from $49 million in 1982 to more than $49 billion in
2009. OECD studies show Chinas outward investment increasing significantly; in the United
States alone, Chinese investment stock roughly doubled from $385 million in 2002 to nearly
$800 million in 2009. The Peterson Institute of International Economics recently noted that
Chinas OFDI has reached commercially and geo-economically significant levels and begun to
challenge international investment norms and affect international relations.
China is not alone in bringing new dynamism to investment patterns. As many of the large
emerging economies, notably Brazil, Russia, India, China and South Africa, become more
significant outward investors, they share strong interests in protecting their own foreign
investment. Many are reconsidering some of their own long-standing restrictions on investment
and changing policies that have left important sectors closed to foreign investment.
Developing countries, emerging economies and countries in transition have come increasingly to
see FDI as a source of economic development and modernization, income growth and
employment. They recognize that FDI triggers technology spillovers, assists human capital
formation, contributes to international trade integration, helps create a more competitive business
environment and enhances enterprise development. All of these contribute to higher economic
growth -- which is a potent tool for alleviating poverty and fostering political stability in

developing countries. As world leaders gather to discuss progress on the Millennium

Development Goals (MDGs) in New York later this month, let us not forget the important
contributions that FDI can make to helping the world achieve the MDGs and other important
development goals.
Moreover, FDI may help improve environmental and social conditions in the host country by
transferring cleaner/greener technologies and leading to more socially responsible corporate
policies. Here in China, for example, the question arises about whether Chinas environment is
being sacrificed as a result of the countrys boom in inward investment. Researchers Judith Dean
and Mary Lovely analyzed the latest data on air and water pollution from Chinas State
Environmental Protection Agency and found that the pollution intensity of Chinese exports
actually fell dramatically between 1995 and 2004, both because foreign investors introduced
cleaner production techniques and because these investors have induced a shift to cleaner
products. So deeper global engagement is reducing the environmental cost of Chinese income
growth. Rather than facilitating the migration of dirty industries to the developing world, FDI
flows to China are making the production of Chinese exports cleaner over time.
There is a growing understanding that corporate social responsibility is increasingly insisted on
by consumers in industrialized and developing countries alike. They demand transparency,
accountability and quality products to meet their health, safety and environmental expectations.
Consumers, using the Internet, are increasingly focused not just on the actual products they buy,
but also on the conditions under which these products are made. In order to compete, and win the
allegiance of consumers, companies have to adhere to global standards of corporate social
responsibility, such as the OECD Guidelines on Multinational Enterprises.
Challenges to Global Investment Flows
The emergence of new players also highlights the prominent role of state-owned enterprises and
sovereign wealth funds, their public financing, and its impact on the competitive landscape. The
principle increasingly known as competitive neutrality suggests one way that governments can
address these challenges. Governments can create frameworks to ensure competitive neutrality
between large state-owned enterprises and private firms to preserve competition and avoid
crowding out of, or discrimination against, private initiative. To ensure competitive neutrality,
several techniques or policy measures can be employed: reshaping management incentives
within state-owned enterprises; effectively applying competition law to avoid creating an uneven
playing field; intensive evaluation of the taxation, financing and regulatory provisions that exist
for state-owned enterprises; and implementing corporate governance reforms within these
enterprises.
As nations attract foreign investment from a more diverse array of sources, investor credibility is
growing in importance. Longstanding guidelines for model corporate conduct are being updated
to reflect the current challenges. For example, the OECD Guidelines on Multinational
Enterprises are being updated this year. Discussions are currently underway with respect to
possible guidelines regarding conflict minerals. The OECDs Anti-Bribery Convention and the
recently adopted Recommendation for Further Combating Bribery of Foreign Public Officials in
International Business Transactions are particularly significant tools for promoting responsible

investor conduct, propriety, integrity and transparency worldwide. We seek partnerships with
many nations to implement them. Non-OECD member countries are free to accede to this
Convention; several have done so and we encourage other major trading nations to join them.
The changing patterns of FDI flows also pose other challenges where the solutions may be less
clear. With the importance of innovation to the success of firms competing in national and global
markets, questions are arising about national policies to promote innovation by domestically
based firms using discriminatory or exclusionary methods and government procurement tests
that adversely impact foreign-owned firms.
For the United States, protection of our intellectual property is a core national economic interest.
Methods to promote innovation around the world that are based on proven practices of tax
credits and similar techniques can be and have been quite successful. But discrimination or
exclusion against the products of foreign companies on the basis of where technology was
developed or who holds the patent, or similar measures, are harmful to many foreign firms and in
the final analysis makes them less inclined to engage in real collaboration on cutting edge
innovation. Moreover, as emerging countries develop their own innovative technologies, they
should be insistent on fair treatment of their companies that have produced those technologies
and of the products they sell.
Another challenging issue relates to competition for natural resources. Firms owned by
governments, or acting on the basis of government policies, are playing a greater role in global
natural resources investment and trade. When they invest in new and alternative supplies, they
often expand global resource supplies for all nations. Where they concentrate on
securing existing sources of supplies, they are perceived to potentially limit access of other
nations and therefore raise concerns. Theodore Morans recent analysis of resource-oriented
investments suggests a differentiated picture: that foreign investments in small, independent
resource producers will likely lead to expansion of supplies and increasing competitiveness of
industries while investments in major producers which put foreign governments in a position to
control or constrain production are more concerning.
Then there are security-related issues. Technological innovation, new sources of capital and
other factors affecting the nature of security threats are evolving rapidly. We all share the need to
protect legitimate security interests. In the U.S. we have very clear laws and procedures to do
that. These are fully consistent with our open investment policy for the vast majority of
investment that does not adversely affect our security and our eagerness to attract such overseas
investment.
The OECDs Guidelines for Recipient Country Investment Policies Relating to National
Security, adopted in May 2009, provide excellent guidance for how governments can approach
some of these national security concerns. The Committee on Foreign Investment in the United
States (CFIUS), which reviews notified foreign investment transactions for national security
concerns alone, demonstrates a very strong alignment with these guidelines. Thomson Financial
estimates that there are an average of 2,000 merger and acquisitions involving foreign acquirers
in the United States annually. According to the 2009 CFIUS Report to Congress, an average of
135 transactions came before CFIUS annually from 2006 to 2008. Substantially fewer (65) were

reviewed in 2009.
Questions also are arising about the combined impact of thousands of bilateral investment
treaties on countries capacity to understand fully the scope of their commitments and to manage
their risks. A number of countries are reviewing their approaches to investment agreements
altogether based on factors such as: their desire to balance protecting investors and preserving
the appropriate level of flexibility to regulate in the public interest; and, the inclusion of specific
provisions to advance other policy interests, such as the protection of labor and environmental
interests. For example, the U.S., Canada, and Mexico have reviewed and modified their practices
based on experiences gained since the advent of NAFTA. And the EU is reconsidering its
approach to investment rules based on the Lisbon Treaty. Japan also has changed its approach in
recent years. South Africa, Brazil, and other major emerging economies are also reflecting on the
changing investment landscape, their evolving interests, and how it might affect their approach
to such agreements.
Multilateral Response to Challenges and Opportunities
The growing importance of investment and these new opportunities and challenges suggest the
need for greater analysis of the changing landscape, continuing reflection on our changing
interests, greater engagement in our bilateral relations, and a revaluation of how to improve our
multilateral engagement. The work of UNCTAD and OECD has played a unique and important
role in combining a forum for intergovernmental dialogue on policy best practices, with analysis
of emerging issues, and advice to governments seeking to undertake policy reforms to improve
their ability to attract and reap the economic benefit from international investment, and we
strongly support their work. We should constantly look for better ways of utilizing these
institutions and strengthening cooperation between them and with other international groups.
OECD and UNCTAD bring great strengths and complementary perspectives. The OECD, whose
members account for 90 percent of global investment flows, has, since its creation, had an active
agenda on international rules and best practices for investment, which is pursued through its
Investment Committee. UNCTAD is a universal body and its Investment & Enterprise Division
is sensitive to the development dimensions of international investment. Its Investment
Commission and expert groups seek to build broad intergovernmental consensus on core
challenges related to investment and development facing the international community.
Together UNCTAD and OECD do the research and analysis that provides the backbone
necessary for sound policymaking on investment. UNCTAD recently issued its World
Investment Report 2010, the latest in a highly regarded series of annual reports that track global
trends in investment flows and stocks as well as international investment agreements, and studies
the impact of foreign investment on developing nations. Like UNCTAD, the OECD produces
high quality reports, such as the International Direct Investment Statistics Yearbook. They
conduct analytical work on bilateral investment treaties which will be critical to evaluating the
impact of a diverse array of over 2,500 agreements.
One of the most valuable contributions these two organizations make is their policy advice on
investment to national governments. The OECDs investment policy reviews and advice has

helped those countries aspiring to membership, or to adherence to relevant OECD instruments,

as well as other emerging economies and developing countries. It also has played an important
role in assisting their efforts to improve their investment climates. The OECDs Policy
Framework for Investment continues to provide a valuable diagnostic tool for governments in
this regard. The Freedom of Investment Roundtables provide an important forum for member
and non-member countries to discuss developments relevant to their pledges to avoid
protectionism and expand international investment flows as we seek to recover from the
economic crisis. It also discusses emerging issues with respect to international investment and
the policies necessary to address them.
UNCTAD also provides complementary advisory and technical assistance to support developing
countries policy reforms, negotiation of international investment agreements, and investment
promotion capabilities. UNCTAD has assisted developing countries in tackling the practical
challenges related to investment. It also has helped to spearhead a promising effort among Latin
American countries to establish an advisory center that could help them to avoid investment
disputes and better manage them when they do occur, potentially benefiting both the recipient
countries as well as the investors. The United States has high regard for and actively participates
in UNCTADs Investment Policy Reviews of developing countries, which focus attention at the
highest levels of developing nations governments on the steps needed to succeed in competing
for investment.
2009 saw a new level of collaboration emerge between UNCTAD and OECD as the G20 called
for them to jointly monitor and produce quarterly reports on measures relevant to their pledge to
avoid protectionism. Identifying and evaluating investment-related measures is critical to
governments efforts to hold one another accountable. Those countries that have been most
successful in attracting investment have a special role to play in supporting and guiding these
institutions efforts and in sharing their own national experiences with those nations who aspire
to match their success.
UNCTAD should be congratulated on its excellent work at this Forum to focus high-level
attention on how much of our shared prosperity depends on foreign investment, by attracting
senior officials from governments and a broad set of stakeholders. The United States hopes that
the serious issues identified by our discussion today will encourage both UNCTAD and OECD
to deepen their collaboration, and also to organize a single international meeting of this caliber to
continue our high-level discussions next year.