Foreign Investment

Analyzing National Security Concerns Gao ID: NSIAD-90-94 March 29, 1990

Pursuant to a congressional request, GAO examined national security concerns relating to increased foreign investment in the United States, focusing on how the federal government: (1) defined and identified national-security-related industry sectors and technologies; (2) learned of proposed foreign investments; and (3) analyzed specific investments.

GAO found that: (1) there was no precise definition for identifying specific technologies and firms that were critical to U.S. defense; (2) the Department of Defense (DOD) could identify its direct contractors, but not the firms supplying those contractors or foreign investments in those firms; (3) no government agency systematically tracked foreign investments on a sectoral basis; (4) the President delegated his authority to review foreign investments to the Interagency Committee on Foreign Investment in the United States; (5) such serious consequences as divestiture orders increased the likelihood that the Committee would receive advance knowledge of a wide range of proposed investments; (6) the Committee's investigative authority was limited to mergers, acquisitions, and takeovers of ongoing businesses; (7) the Committee generally had adequate information to analyze specific investments, although it had difficulty addressing concerns about foreign investors' intentions regarding technology transfer, continued supply to DOD or its contractors, or use of commercial advantages; and (8) the Committee did not address more general questions regarding ways to evaluate the importance of a firm's commercial strength to its defense role, the factors that caused U.S. firms to discontinue operations in sectors that foreign investors appeared to highly value, ways to track the direction of technology transfers, and possible government responses to competitive factors.

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