Foreign Investment

Japan, France, Germany, and the United Kingdom have the authority to block investments for national security reasons, as does the United States. In recent years, however, these five countries have rarely invoked this authority. Some of these countries have established processes for reviewing foreign investment for national security concerns. U.S. defense industry officials said that they had not pursued defense-related direct investment in Japan, France, Germany, or the United Kingdom because of economic factors, such as the size of the defense markets in these nations, as well as informal barriers, such as domestic company ownership structures. Most countries offer investment incentives, but U.S. defense industry officials did not cite them as a major inducement to invest. U.S. defense industry officials said that they were pursuing access to overseas defense markets through strategies other than foreign direct investment. For example, U.S. defense firms either licensed technology to Japanese companies or made direct sales to Japan. In the three European countries, U.S. companies formed partnerships to compete for projects.

GAO found that: (1) Japan, France, Germany, and the United Kingdom each have the authority to block investments for national security reasons, as does the United States; (2) however, all five countries have infrequently used this authority in recent years; (3) some of these countries have established processes for reviewing foreign investment for national security concerns; (4) Japan and France review certain foreign direct investments for national security and other concerns; (5) Germany and the United Kingdom have no general screening authority that explicitly considers national security issues related to foreign investment, but the United Kingdom can consider harm to public interest in its antitrust review process; (6) U.S. defense company officials GAO interviewed said they had not pursued defense-related direct investment in Japan, France, Germany, or the United Kingdom because of basic economic factors such as the size of the defense markets in these countries, as well as informal barriers, such as domestic company ownership structures; (7) the officials said that such factors could be more important considerations in some countries than the legal framework; (8) most countries offer investment incentives, but U.S. defense company officials did not cite these as a major reason for investing; (9) U.S. defense company officials said they were pursuing access to overseas defense markets through strategies other than foreign direct investment; (10) for example, U.S. defense companies either licensed technology to Japanese companies or made direct sales to Japan; and (11) in the three European countries, U.S. companies formed partnerships to compete for particular projects.