On implementing the Foreign Investment and National Security Act of 2007

On 23 April 2008, the U.S. Treasury Department published a proposal for regulations of the Committee on Foreign Investment in the United States to implement the Foreign Investment and National Security Act of 2007. Comments may be given until 9 June 2008.

The Norwegian Ministry of Finance welcomes the opportunity to give its comments to this proposal. We have no comments to the specific regulations as such, but take this opportunity to convey a broader view and a possible concern with the way the CFIUS-process is perceived and handled. We hope that the U.S. Treasury in its finalization of the regulations, the publication of guidelines thereto, and the actual handling of the CFIUS-process reassures foreign investors that there are clear lines of responsibilities between the Executive and the Legislative Branch, and that the framework for foreign investments in the U.S. is clear and predictable.

The Norwegian economy is very open and our prosperity and welfare depends on trade and economic interaction with other countries. The Norwegian economy benefits from investments made by foreign investors. Foreign investors own nearly 40 per cent of the equities listed on the Oslo Stock Exchange, and the Norwegian petroleum industry has for more than 40 years been developed through a combination of Norwegian and foreign capital and competence. Recently, the emergence and growth of the Norwegian Government Pension Fund - Global, which is a tool to support sound management of petroleum revenues, and where all assets are invested abroad, contributes to our awareness of the importance of open markets for investments. The fact that the U.S. is by far the largest recipient of the Fund’s investments is testament to the attractiveness of U.S. financial markets.

We therefore welcome the U.S. commitment to an open investment environment, as highlighted at the OECD ministerial council meeting in early June where the following policy principles were endorsed:

• Recipient countries should not erect protectionist barriers to foreign investment.
• Recipient countries should not discriminate among investors in like circumstances. Any additional investment restrictions in recipient countries should only be considered when policies of general application to both foreign and domestic investors are inadequate to address legitimate national security concerns.
• Where such national security concerns do arise, investment safeguards by recipient countries should be:
  - transparent and predictable,
  - proportional to clearly-identified national security risks, and
  - subject to accountability in their application.

The proposed regulations seek to clarify important elements of the CFIUS process. But there are also elements in the law and the regulations that may have the side-effect of deterring foreigners from investing in the U.S., stemming from a perception of lack of predictability and clear guidance in relation to foreign investors when meeting the political and legal environment of the CFIUS process.

One element that may contribute to the apparent unpredictability of the regulations is the absence of clear thresholds defining the concept of “control” in the legislation. There has been a perception that investments up to 10 pct. will not constitute control. However, it now appears that this is not necessarily the case, and that many factors may determine whether an investment will constitute control. A system where many different factors are considered before making an overall assessment may lead to more targeted investigations and may perhaps enhance national security. On the other hand, the result can also be reduced transparency and predictability for foreign investors.

We understand that the intention of the proposed legislation and the regulations is to ensure clear lines of responsibility between the Executive and the Legislative Branch, and that the Legislative Branch should not be involved during the investigation of specific cases, but rather through supervision to follow how the Executive Branch implements the law. However, there seems in practice to be a risk of a blurring of these lines of responsibility, in the sense that political influence and lobbying seem to be de facto important tools in securing a smooth handling of investments in the CFIUS process. If this is indeed the case, this would not necessarily aid the good intention of making the investment climate transparent and predictable.

In the international debate on Sovereign Wealth Funds, transparency has become a central issue to alleviate concerns about sovereign investments. But transparency has to run both ways. Recipient countries setting up screening processes to address legitimate national security concerns should exercise transparency with respect to how such screening decisions are made, by whom, and under which criteria. Lack of transparency in this area can lead to suspicions of financial protectionism, introduce an element of uncertainty to the investment process, undermine investor confidence, and may ultimately reduce the relative attractiveness of non-transparent recipient countries. And even a transparent process may reduce the relative attractiveness of a market if sovereign investors have to undergo a lengthy formal process that puts them at a disadvantage as compared to domestic investors or other foreign investors.

Yours sincerely,

Martin Skancke
Director General

Thomas Ekeli
    Investment Director