Foreign Direct Investment

To foster public debate on foreign investment issues through improved government information, Congress passed legislation requiring the Department of Commerce to issue annual reports on the history, scope, trends, and market concentration of foreign direct investment. Commerce issued its first report in September 1990. To improve analysis of the effects of foreign direct investment on the U.S. economy, the legislation also allows statistical data to be shared among federal agencies. This report (1) analyzes Commerce's annual report on foreign direct investment and makes recommendations for changes in the report due the following year and (2) reviews government efforts to improve the quality of foreign direct investment data, including the status and process for reconciling data exchanged among federal agencies.

GAO found that Commerce's annual report: (1) shifts between focusing on total foreign investment and FDI without providing adequate explanations of each type of investment; (2) provides an incomplete analysis of the costs and benefits associated with FDI; (3) emphasizes the benefits derived from FDI inflows and minimizes the need to reduce budget deficits, which has been a major factor behind foreign investment inflows; (4) does not address or fully explore certain FDI public policy concerns relating to three of the five industry sectors it discussed; (5) extensively uses preliminary 1988 Bureau of Economic Analysis (BEA) data relating to electronic and automotive sectors, rather than using more current data from existing studies prepared by other Commerce offices, government agencies, or private-sector groups; (6) does not compare foreign-controlled business enterprises with other U.S. enterprises with respect to data items specified by 1990 FDI legislation; and (7) does not include a required analysis of the number and market share of foreign-owned businesses engaged in the production Department of Defense-specified critical technologies. GAO also found that the data link between BEA and the Census Bureau: (1) will provide additional information on foreign affiliated firms' operations in the United States; (2) will enable Commerce to evaluate foreign affiliated firms' operations on the basis of more than just their primary industry activities; and (3) has certain limitations, since Commerce collects some data types at the enterprise level rather than the establishment level.

Recommendations

Our recommendations from this work are listed below with a Contact for more information. Status will change from "In process" to "Open," "Closed - implemented," or "Closed - not implemented" based on our follow up work.

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