Remarks by Deputy Secretary Neal S. Wolin at the Singapore Exchange

May 20, 2011


As Prepared for Delivery


Good Morning.  Thank you, Professor Adams, for that kind introduction, and to the Lee Kuan Yew School of Public Policy for organizing this event.  It is a pleasure to be here at the Singapore Exchange.


Over the past few days, I have been in Sydney, Kuala Lumpur, and Jakarta.  Yesterday, I arrived in Singapore.  This trip has reinforced my belief in what President Obama has called a “fundamental truth of our time” – that, “in the twenty-first century, the security and prosperity of the American people is linked inextricably to the security and prosperity of Asia.”


Today, the countries of the Pacific Rim, including the United States, generate 54 percent of world output and 44 percent of global trade, collectively forming the world’s largest and most dynamic economic space.  Six of America’s top ten trading partners are in the Pacific Rim.  And over the past decade, the Asia-Pacific economies – those on the Western side of the Pacific – have accounted for 70 percent of the overall increase in global economic output.


In addition to trade flows, there are very large investment flows across the Pacific, including foreign direct investment flows.  Through 2009, the latest year for which we have data, Asian investors accounted for over $360 billion in total direct investment in the United States.  U.S. businesses, in turn, invested over $510 billion in Asian countries.  These figures include $75 billion of U.S. investment in Singapore and over $20 billion invested by Singaporeans in the United States.


These figures highlight both the remarkable rise of the Asian-Pacific economies and the tremendous importance of our economic relationship. 


Yet we must not take this remarkable economic exchange for granted.  Indeed, in the wake of the recent financial crisis – which brought the global economy to the brink of collapse – it’s more important than ever that we work together to promote sustainable growth and prosperity for the future.


I’d like to talk briefly about three areas where we must continue our cooperation: completing the work of financial reform; building a more sustainable and balanced foundation for global growth; and, my focus today, ensuring a continued commitment to open trade and investment. 


First, financial reform.  Last July, the United States enacted comprehensive financial reform.  The Dodd-Frank Act lays the foundation for a stronger financial system – closing regulatory gaps, increasing transparency for consumers, and strengthening prudential requirements across the board.


We are working diligently to implement financial reform in the United States.  But our focus goes beyond our own laws and regulations.  The financial system is global, and reform must be global.  So we are committed – as we have demonstrated through persistent engagement through the G-20, the Financial Stability Board, and the Basel Committee on Banking Supervision – to promoting effective reform internationally.


The details of financial regulation will always vary among sovereign nations.  But as the crisis demonstrated, our financial fates are bound together.  And as our nations work together towards sustained economic recovery, we must work with an equally firm commitment to close regulatory gaps and eliminate opportunities for arbitrage across jurisdictions. 


All responsible participants in the global financial system have an interest – and a responsibility – to bring their financial regulatory regimes up to date, especially in key areas such as the regulation of derivatives markets, as well as strong capital, liquidity and leverage requirements. 


To secure our common financial future against the possibility of future crises, the United States will continue to press for comprehensive, consistent and effective financial reform, here in Asia and around the world.


Second: to ensure robust, sustainable global and regional growth, without the emergence of large current account imbalances, we must establish more durable sources of global demand.  Deficit countries must raise their national saving rates.  Surplus countries must shift towards domestic-demand led growth and reduce their reliance on exports.


In Washington last month, G-20 Finance Ministers reconfirmed their commitment to “pursue the full range of policies required to reduce excessive imbalances and maintain current account imbalances at sustainable levels.” Enhancing exchange rate flexibility is a key part of this process.


In the United States, this rebalancing has already begun.  The personal saving rate has roughly doubled from its average in the seven years prior to the crisis, and we are committed to reducing the federal budget deficit to a sustainable level.  U.S. demand will not be the engine of global growth that it was prior to the crisis. To ensure robust global growth, then, major surplus economies must boost the growth of their own domestic demand.    


Actions by G-20 members in this effort are obviously critical.  But there are major non-G-20 economies in this region that have a huge stake in this effort, as well as a considerable influence on whether it is successful.  That is why it is essential that APEC take an active role in this process, and policies to ensure strong and sustained global growth will be at the center of this year’s APEC Finance Ministers discussion, hosted by the United States. 


The imbalanced growth model of recent years is not just undesirable, it's unsustainable.  And we can only succeed if we approach this endeavor with a deep sense of common purpose.  We are committed to working closely with our partners in Asia and beyond.


Let me now turn to a third area that is crucial to future growth: ensuring a continuation of the policies of open trade and investment that have underpinned the U.S.-Asian economic relationship, and supported growth and prosperity for us both over the last half-century. 


The United States has always been a leading advocate of free trade and investment.  And we recognize that as trade and investment grow in volume and complexity, international institutions and agreements must keep pace.  That means continued efforts to reduce barriers to trade and investment, including “next generation” agreements that expand free trade while ensuring a level playing field for companies and workers.


We are currently in negotiations with eight of APEC’s most dynamic economies to launch the Trans-Pacific Partnership, or TPP, which will greatly expand trade and investment and create jobs on both sides of the Pacific. 


And the Administration is currently carrying out discussions with relevant Congressional Committees related to the pending Korea Free Trade Agreement, as well as two other bilateral FTAs.  The agreement with Korea will strengthen a vital strategic alliance and enhance job growth, supporting at least 70,000 American jobs and boosting annual exports of American goods by $11 billion.


As East Asian emerging markets continue to develop, they will provide ever-expanding markets for U.S. exports, a profitable destination for our investment, and an increasingly important source of inward investment into the United States.   


In this light, I’d like to focus today on the United States’ longstanding open investment policy.


Our policy has been the same for decades: we encourage foreign investment.  We recognize that it is vital to economic growth, to job creation, and to productivity.


Our policy is based on a clear understanding of the significant benefits that foreign investment brings to our domestic economy.


U.S. subsidiaries of foreign-owned firms employ 5.6 million U.S. workers, almost five percent of the U.S. private sector workforce.  In 2008, these firms spent $40 billion on research and development in the United States, reinvested $43 billion in their U.S. operations, and produced almost 20 percent of U.S. exports.  It’s clear that foreign investment is an essential component of American prosperity.


As we consider foreign investments in the United States, of course, we have an obligation – like any country – to protect our national security.  I want to emphasize, however, that our national security obligations and our openness to foreign investment are not at odds.  Rather, safeguarding national security fosters a stable environment for economic growth and vitality, which in turn benefits measurably from the free flow of foreign investment.  The most vibrant economy is one that both protects itself and attracts foreign investment simultaneously.  


In the United States, the job of reviewing foreign investments for potential national security concerns falls to the inter-agency Committee on Foreign Investment in the United States, or CFIUS, which is chaired by the U.S. Treasury Department. 


I’d like to outline a few of the principles that make CFIUS transparent, predictable, and non-discriminatory, and how it works to allow investors to complete their deals as swiftly as possible. 


First, and most important: unless a transaction presents a threat to the U.S. national security, we not only permit it, we welcome it.  CFIUS is exclusively focused on protecting our national security.  In reviewing transactions, it only considers potential national security concerns, not broader economic or policy concerns.


In addition, by law, CFIUS may review only mergers, acquisitions and takeovers that could result in foreign control of a U.S. business.  So, for example, wholly passive minority stakes, greenfield investments, and land sales are not subject to CFIUS review.   


CFIUS thus has a very limited scope in its review of transactions.  This focused mandate reflects our belief in the importance of foreign investment as a source of national strength.  In this respect, the United States stands apart from many other countries, both developed and developing, that operate more intrusive and broader investment review processes. 


Second, Treasury and CFIUS are committed to imposing as little burden as possible on prospective investors.  We don’t want to impede transactions that pose no national security risk. 


The vast majority of foreign investments do not raise national security concerns.  And the vast majority of notified transactions are cleared by CFIUS without any mitigation or conditions.  From 2008-2010, only 16 cases out of 313 covered transactions – or 5 percent –  resulted in the use of mitigation measures.


CFIUS operates essentially on a voluntary basis.  Foreign investors are not required to notify CFIUS of their transactions, but instead decide themselves whether to file if they believe national security considerations might arise. 


Investors should carefully consider whether the transaction raises any national security concerns before completing a deal.  Even though the system is voluntary, CFIUS has the authority to initiate a review of any transaction that may raise national security concerns.  While each case is judged on its unique merits, consummating an acquisition before CFIUS review may exacerbate potential national security concerns and create less favorable conditions for review.  In such cases, CFIUS’ options may include a recommendation to the President to force divestment. 


These cases, however, are rare.  Overall, we have worked hard to make the CFIUS process timely and efficient.   Most transactions complete the CFIUS process within 30 days.  Some transactions proceed to an additional investigative phase of 45 days.  But on the relatively few occasions that a foreign investment raises national security concerns, CFIUS works to resolve such concerns expeditiously.  Often, concerns are adequately addressed outside of the CFIUS process, for example through export control regulations or authorities to protect access to classified information.  


On the whole, it’s a shorter and less cumbersome process than in many other countries. 


Third – and I want to be very clear on this point – CFIUS does not discriminate among the countries of companies seeking to invest in the United States, nor among the sectors in which they’d like to invest.   


CFIUS applies the same rules to each transaction it reviews, without regard to the investor’s country of origin.  And CFIUS does not maintain a “sector list” or apply differential treatment to investments in some sectors, despite some outside views that certain sectors may be “sensitive.”  The United States welcomes investment in our entire economy.


CFIUS’s transaction-by-transaction approach allows for a precise evaluation of potential national security threats and vulnerabilities, and for targeted mitigation in those cases in which a transaction poses national security risks.


As the annual reports posted on our website demonstrate, investments from many countries and across a broad spectrum of business sectors – ranging from energy to biotech and from public transportation to defense and aerospace – have successfully completed the CFIUS process. 


Fourth, and finally, CFIUS has a clear process for reviewing investments by companies controlled by foreign governments, and all but very few of these transactions – as with all CFIUS transactions – complete the process successfully.


In reviewing foreign government-controlled transactions, CFIUS considers only the facts and circumstances relevant to national security – same as in any other case.  While the law contains a presumption that transactions involving foreign government control proceed to second-stage investigation, CFIUS can overcome this presumption if it determines that the transaction will not impair U.S. national security – and this occurs frequently. 


Even when there is an additional investigation period, the standard for CFIUS to conclude action at the end of that period is the same as it is for non-government investments. 


In short, CFIUS is a transparent, efficient, and precisely circumscribed process, designed as such to remain true to the United States’ open investment commitment.  The statute, executive order, regulations, and guidance setting forth the CFIUS process are fully and publicly disclosed.  CFIUS’s core characteristics – its transparency, its efficiency, and its narrow focus on national security – are there for a very specific reason: to continue to encourage the foreign investment that is to vital to our economic health. 


The United States is one of the world’s most attractive destinations for foreign investment.  We enjoy that success because of our commitment to open investment.  And we’re committed to open investment because we understand the tremendous value that foreign investment brings to our economy – and, indeed, to the global economy.


As the recovery continues and as cross-border investment in the United States and around the world grows, we are optimistic about the prospects for the global economy and our own. This optimism is born in no small part from our enduring and increasingly strong relationships with countries of the Pacific Rim, including Singapore.  The great challenges of the day require continued U.S.-Asian cooperation, both through bilateral relationships and through fora such as the TPP, APEC, and the G-20. 


Over the last several decades, the U.S.-Asian economic relationship has become a cornerstone of global growth and stability.  Its evolution in the years ahead will be crucial to our shared prosperity.  And we will continue our commitment to partnership, shared responsibility, and economic openness to bring continued prosperity to the Pacific Rim and beyond.


Thank you.​