Foreign Direct Investment:

Assessment of Commerce's Annual Report and Data Improvement Efforts

NSIAD-92-107: Published: Mar 18, 1992. Publicly Released: Mar 18, 1992.

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Pursuant to a legislative requirement, GAO reviewed: (1) the Secretary of Commerce's annual report on foreign direct investment (FDI); and (2) government efforts to improve the quality of FDI data, including the status and process for reconciliation of data exchanged among various federal agencies.

GAO found that Commerce's annual report: (1) shifts between focusing on total foreign investment and FDI without providing adequate explanations of each type of investment; (2) provides an incomplete analysis of the costs and benefits associated with FDI; (3) emphasizes the benefits derived from FDI inflows and minimizes the need to reduce budget deficits, which has been a major factor behind foreign investment inflows; (4) does not address or fully explore certain FDI public policy concerns relating to three of the five industry sectors it discussed; (5) extensively uses preliminary 1988 Bureau of Economic Analysis (BEA) data relating to electronic and automotive sectors, rather than using more current data from existing studies prepared by other Commerce offices, government agencies, or private-sector groups; (6) does not compare foreign-controlled business enterprises with other U.S. enterprises with respect to data items specified by 1990 FDI legislation; and (7) does not include a required analysis of the number and market share of foreign-owned businesses engaged in the production Department of Defense-specified critical technologies. GAO also found that the data link between BEA and the Census Bureau: (1) will provide additional information on foreign affiliated firms' operations in the United States; (2) will enable Commerce to evaluate foreign affiliated firms' operations on the basis of more than just their primary industry activities; and (3) has certain limitations, since Commerce collects some data types at the enterprise level rather than the establishment level.

Recommendations for Executive Action

  1. Status: Closed - Implemented

    Comments: In GAO's September 1995 report on Commerce's June 1993 and January 1995 reports, GAO determined that Commerce had adequately addressed the recommendations in its June 1993 report.

    Recommendation: To provide a more complete discussion of foreign direct investment in the United States, the Secretary of Commerce should ensure that all subsequent annual reports on FDI provide an analysis that clearly distinguishes between costs and benefits derived from FDI in the United States and those derived from all foreign investment in the United States.

    Agency Affected: Department of Commerce

  2. Status: Closed - Implemented

    Comments: Commerce expects to comply with this recommendation in its annual reports on foreign investment. GAO has received the 1993 annual report and is evaluating its content. GAO review of Commerce's June 1993 report found that its eight topical chapters reflect a greater effort to integrate Commerce's data with that obtained from other government studies and private source data. In addition, chapter 9 discusses the availability and characteristics of FDI data developed by BEA, Census, BLS, and other federal government sources. Finally, appendix B presents a survey of analytical literature on FDI in the United States that includes the summary observations of numerous studies relevant to about 30 topics as well as a bibliography of some 180 studies (including several GAO reports). This appeared responsive to the GAO recommendation.

    Recommendation: To provide a more complete discussion of foreign direct investment in the United States, the Secretary of Commerce should ensure that all subsequent annual reports on FDI make greater use of available government studies and private source data.

    Agency Affected: Department of Commerce

  3. Status: Closed - Implemented

    Comments: Commerce expects to comply with this recommendation in its annual reports on foreign investment. GAO has received the 1993 annual report and is evaluating its content. The June 1993 report did provide more focused analysis of several publicly debated questions regarding the effects of FDI in the United States. In particular, chapter 4 discussed the performance and attributes of foreign government-owned affiliates and foreign banks in the United States. Further, chapters 6 through 8 provided analyses relative to FDI involvement in development and transfer of U.S. technology, trade in merchandise and services, and payment of U.S. income taxes, transfer pricing and income shifting. The report appeared responsive to the recommendation.

    Recommendation: To provide a more complete discussion of foreign direct investment in the United States, the Secretary of Commerce should ensure that all subsequent annual reports on FDI provide more focused analyses of publicly debated questions regarding the effects of FDI on the U.S. economy.

    Agency Affected: Department of Commerce

 

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