Primer on International Investment: Agreements and Enforcement

International Investment Spurs Economic Growth and Job Creation Here at Home

It Makes the U.S. Economy Stronger, More Competitive, and More Innovative

As governors and local officials readily acknowledge, the vast majority of Americans welcome foreign investment into the United States. Investment from abroad has created millions of American jobs and supports an annual payroll of more than $500 billion. U.S. subsidiaries of foreign-headquartered employ 24 million Americans directly or indirectly, according to the Organization for International Investment.

But the benefits go much further. Investors from abroad are big buyers in every one of the 50 states. U.S. subsidiaries of foreign multinationals purchase $1.8 trillion in intermediate inputs from American companies of all sizes — representing almost 80 cents of every dollar they spend on materials and components. U.S. affiliates annually also spend more than $50 billion on research and development annually.

However, as the following data show, the benefits of U.S. companies’ investments abroad are often overlooked.

Benefits of International Investment

U.S. companies invest in foreign markets to serve those markets — not as a substitute for domestic production. More than 90% of the production of foreign affiliates of U.S. multinationals is sold abroad. Further, a 10% increase in foreign investment triggers a 2.6% increase in domestic capital investment.

Most U.S. investment abroad goes to developed countries with high wages and labor standards. Far from a , U.S. companies have directed 75% of their investments abroad to Europe, Canada, Japan, and other high-income nations.

International investment is a powerful driver of U.S. exports. U.S. multinational corporations generated half of all merchandise exports in 2013, with their foreign units purchasing one-fifth of the total.

International investment drives U.S. economic growth. U.S. multinationals’ investments abroad serve as the gateway to the global economy for American small and medium sized business as they purchase 90% of their intermediate inputs from other U.S. companies. Meanwhile, U.S. subsidiaries of foreign multinationals invest nearly $100 billion annually in their U.S. operations.

Companies that invest abroad are great employers for American workers. Not only do U.S. multinational companies employ more than 26.5 million Americans, the compensation they offer is nearly 20% higher than the U.S. private sector average.

U.S. multinational companies are overwhelmingly focused on the United States. While 95% of the world’s customers live outside the United States, more than 70% of these firms’ employment, value-added, and capital expenditures are in the United States.

Earnings from foreign investments help U.S. companies innovate here at home. Sales by foreign affiliates of U.S. multinationals approached $7 trillion in 2013. These revenues help underwrite their research and development activities, 84% of which continue to be performed in the United States.

Investing abroad makes American companies resilient. Even as the sharpest recession in a generation caused the U.S. economy to shed eight million jobs between 2007 and 2009, U.S. multinational corporations added a net 289,000 American jobs. That trend continued in 2010.

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The United States Must Retain Investor-State Dispute Settlement in International Trade and Investment Agreements

In recent years, left-wing activist groups and progressive legislators such as Sen. Elizabeth Warren (D-MA) have worked tirelessly to remove a provision in U.S. trade and investment agreements known as Investor-State Dispute Settlement (ISDS). Her attempts to strip investment protection and ISDS as a U.S. negotiating objective failed on a bipartisan vote of 39-60 in the face of unified Republican opposition.

The United States safeguards investment in our trade agreements NAFTA Chapter 11 (e.g., NAFTA’s Chapter 11) because it is Fights in our national interest. Investment Discrimination obligations and the ability to enforce them Ensures ensure American investment is not subject to Fair Treatment discrimination, is treated fairly, and is Guarantees compensated in the unlikely event of Payment for expropriation. Expropriation

Inevitably, investment disputes arise from time to time. That’s why these agreements have long provided for neutral, effective arbiters to enforce the basic rights of American investors under a process known as ISDS.

Further, it is important to note that the United States has NEVER lost an Disputes U.S. ISDS case. This is because the United Brought Losses States treats foreign investors fairly. However, ISDS has been invaluable to Against U.S. Under ISDS U.S. companies and their millions of and shareholders who otherwise have been Concluded subjected to discriminatory treatment overseas simply on the basis of their 13 0 nationality.

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Myths and Facts on ISDS

Myth: ISDS incentivizes

Fact: There’s no evidence this is the case. The vast majority of U.S. investment abroad goes to countries in Europe and countries such as Japan, Korea, , or where ISDS is not available. In fact, only 17% of U.S. foreign direct investments are made in countries where ISDS is available.

Myth: ISDS is just for big business.

Fact: Most ISDS cases are not brought by big companies. The Organization for Economic Cooperation and Development (OECD) has found that only 8% of all ISDS claims were brought by multinational corporations. Rather, the companies that bring ISDS cases tend to be small businesses seeking protection against discrimination and other unfair practices.

Myth: Arbitration under ISDS is conducted in secret tribunals.

Fact: There is nothing secret about investor-state arbitration. Proceedings are open and documents are available to the public under rules established in U.S. investment treaties. Interested parties such as environmental organizations and public interest groups can and do file amicus submissions.

Myth: ISDS gives investors the whip hand.

Fact: Under ISDS, investors usually lose. One-third of disputes end in a settlement, and governments win twice as often as investors in cases that go to arbitration. Even when an investor prevails, the compensation awarded tends to be a small fraction of the amount originally sought.

Myth: ISDS allows corporations to overturn laws and .

Fact: Arbitrators in ISDS disputes have no power to overturn laws or regulations. On the contrary, they are charged with upholding the same kind of rule of law protections that appear in the U.S. Constitution. In the event a government breaches its obligations under an investment treaty, the only recourse arbitrators can provide is to require compensation.

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