Institute for International Economics – USA

The Institute for International Economics is a private, nonprofit, nonpartisan research institution devoted to the study of international economic policy. Since 1981 the Institute has provided timely, objective analysis and concrete solutions to key international economic problems.

The Institute attempts to anticipate emerging issues and to be ready with practical ideas to inform and shape public debate.

Its audience includes government officials and legislators, business and labor leaders, management and staff at international organizations, university-based scholars and their students, other research institutions and nongovernmental organizations, the media, and the public at large. It addresses these groups both in the United States and around the world.

The Institute publishes the following article in The Washington Post, on February 28, 2006:

Avoiding Another Dubai, by C. Fred Bergsten, of the Institute for International Economics – Nearly all objective observers of the uproar over “selling American ports to the Arabs” agree on three key elements of the situation.

First, the purchase of port management operations by Dubai Ports World from a British-owned company will have no operational impact on the national security of the United States. Port owners and managers are not responsible for port security. There are risks at our ports, but they stem from the fact that the American agencies responsible for our security—US Customs and Border Protection and the Coast Guard—examine only about 5 percent of incoming cargo, along with a modest portion of shipments at the point of export.

Mid-level officials at 12 agencies of the US government, including the Department of Homeland Security and the Pentagon, reviewed the Dubai investment in considerable depth, apparently with full cooperation from the company. They unanimously concluded that there was no reason to refer it to their own superiors, let alone the president. The substance of the government’s vetting process, conducted through the Committee on Foreign Investment in the United States (CFIUS), worked precisely as intended by the legislation under which it operates.

Second, that process contains a major flaw: its failure to inform Congress of pending transactions in a way that would enable lawmakers to express meaningful objections in an orderly manner. The CFIUS process is opaque and secretive, requiring after-the-fact notification of the Hill for only the very few deals that have already been acted on through the president’s personal intervention. Congress can therefore express its concerns only by leaping into individual cases with great fanfare, as in the current case and, even more so, when it in effect vetoed the bid for Unocal by the China National Offshore Oil Corp. last year even before that deal was considered by the CFIUS.

Third, it would be a grave mistake to enact new legislation that permitted Congress to exercise case-by-case review of individual applications for foreign investments in the United States. Such congressional micromanagement exists in other specialized policy areas such as arms exports to foreign countries. But applying it to commercial transactions would generate such uncertainties and potential delays for foreign investors that it would have a huge chilling effect on their proclivity to buy American assets. The United States needs to attract almost $1 trillion of foreign financing annually to fund its huge and growing trade and current account deficits. It would be the height of national folly to erect any such deterrent to one of the most desirable channels for such flows.

Drawing on my experience as the second chairman of the CFIUS after it was created in 1975, and on an in-depth study of the CFIUS process to be published shortly by the Institute for International Economics, I offer two suggestions. To help deal with the immediate problem, the administration should obtain and make public immediately a letter of assurance from the government of the United Arab Emirates (UAE) committing itself to avoid any involvement in the business operations of Dubai Ports World and to take all steps necessary to guard against security problems. Both the government and the company have proclaimed that Dubai Ports would act solely as a commercial entity, and the company has pledged its full participation in all US security programs, so it should be routine to obtain such a letter. Any violation of these commitments, by the UAE government or the company itself, would subject the company to cancellation of its approval to operate in the United States and thus force its immediate divestiture, presumably at a fire-sale price. We obtained a similar statement from the French government in 1979 to resolve concerns about the acquisition of American Motors by Renault, which was then partially government-owned.

The more fundamental problem of inadequate CFIUS transparency should be resolved by a structural change in the governmental review process. The CFIUS should henceforth provide to the leadership of the relevant committees of Congress, on a confidential basis to preserve legitimate business interests, quarterly (or even monthly) reports and briefings on pending as well as completed applications for approval of specific investments. The responsible members could then register any concerns they might have directly with the relevant government agencies for consideration during the CFIUS review itself.

Similar procedures are followed in a wide range of policy areas, especially with respect to sensitive intelligence issues. They have also been used for other economic issues; for example, the Treasury Department, which chairs the CFIUS, used to conduct frequent interventions in the foreign exchange markets, and informed the members of Congress responsible in that area. The administration could simply adopt this reform on its own, or Congress, if it wants to be seen as taking action on the current issue, could amend the governing legislation.

The debate over the Dubai investment could result in real damage to US economic and security interests. Foreign investment in this country might be deterred by imposition of an overly intrusive approval process; our economy would then lose the multiple benefits of such investment, and it would become even more costly to finance our external deficits. Major foreign policy costs could ensue from another rejection based solely on the nationality of the investor. The very real issues raised by this case and, more important, the government’s procedures for handling such transactions on an ongoing basis, should be resolved through much more moderate and balanced measures.

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The Institute’s staff of about 50 includes more than two dozen researchers, who are conducting about 30 studies at any given time. Its agenda emphasizes global macroeconomic topics, international money and finance, trade and related social issues, investment, and the international implications of new technologies. Current priority is attached to China, globalization and the backlash against it, outsourcing, reform of the international financial architecture, and new trade negotiations at the multilateral, regional, and bilateral levels. Institute staff and research cover all key regions—especially Asia, Europe, the Middle East, and Latin America as well as the United States itself.

Institute studies have helped provide the intellectual foundation for many of the major international financial initiatives of the past two decades: reform of the IMF, adoption of international banking standards, exchange rate systems in the G-7 and emerging-market economies, policies toward the dollar and the euro as well as the Chinese renminbi and other Asian currencies, and responses to debt and currency crises. The Institute has made important contributions to key trade policy decisions, including fast-track legislation and related Trade Adjustment Assistance reforms, the Doha and Uruguay Rounds and the development of the WTO, NAFTA and other US free trade agreements, APEC and East Asian regionalism, a series of United States–Japan negotiations, reform of sanctions policy, liberalization of US export controls and export credits, and specific measures such as PNTR for China in 2000 and the abolition of special protection for steel in 2004. Other influential analyses have addressed economic reform in Europe, Latin America and Japan, globalization and policy responses to it, outsourcing, energy policy, electronic commerce, corruption, foreign direct investment both into and out of the United States, global warming and international environmental policy, and key sectors such as agriculture, financial services, steel, telecommunications, and textiles.

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In late 2001, the Institute helped create the Center for Global Development to address poverty and development issues in the poor countries. The Center conducts research and sponsors research-based advocacy efforts on these topics. The Center is an independent institution with its own board of directors and president. It was housed at the Institute during its startup period and continues to work closely with the Institute, including through joint staff appointments and joint projects.

The Institute’s annual budget is about $8 million. Support is provided by a wide range of charitable foundations, private corporations, and individuals and from earnings on the Institute’s publications and capital fund. The Institute moved into its own award-winning building, which includes full conference and videoconferencing facilities, at 1750 Massachusetts Avenue, NW, Washington, DC, in the summer of 2001.

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