![](media/image1.png){width="0.9902777777777778in"
height="1.0277777777777777in"} *[Trade and Investment]{.underline}*

**Office of the United States Trade Representative www.ustr.gov**

**Benefits of Trade -- November 2006**

**Eight Misunderstandings About U.S. Investment Agreements and Trade**

**1. U.S. investment agreements [do not]{.underline} encourage U.S.
companies to move jobs overseas.**

U.S. investment agreements remove discrimination of American investors
in overseas markets and foreign investors in the United States. These
agreements help increase economic efficiency and real incomes in the
United States, and expand exports of goods and services abroad. As with
other sources of economic activity, cross-border direct investment may
entail job relocation. The loss of any job is painful, often disrupting
families and communities. However, some points are worth bearing in
mind:

![](media/image2.wmf)

-   In the extremely dynamic U.S. economy, job creation exceeds job
    elimination. In general, the U.S. economy creates roughly 17 million
    new jobs per year, while eliminating roughly 15 million jobs. [^1]

-   The attention paid to offshoring greatly exceeds its actual effect
    on job loss: for every 100 U.S. jobs eliminated, about two are due
    to import competition or offshoring (Fig. 1). [^2] New technologies,
    internal competition among domestic companies, change in demographic
    and consumer tastes, and other reasons account for the rest.

-   Even for mass layoffs of more than 50 employees, less than three
    percent of the job losses are due to offshoring or import
    competition.[^3]

-   Put another way, the U.S. economy creates about 54 new jobs for
    every job sent overseas.[^4]

So while some people do lose jobs---usually for reasons other than
offshoring---it is more sensible to help them benefit from an expanding
economy through training and other forms of support than resort to
economic isolationism. After all, even though innovation eliminates many
jobs, we don't seek to limit innovation. Like trade and investment, it's
too important for overall economic growth.

**2. Investing overseas [does not]{.underline} reduce domestic
investment and lower wages of American workers.**

Engaging globally is good for the United States, its companies, and its
workers.

> ![](media/image3.wmf)

-   Each \$10 of foreign capital investment is associated with \$15 in
    additional U.S. domestic investment, and \$10 in additional foreign
    employee compensation is associated with \$18 in additional U.S.
    domestic employee compensation (Fig 2).[^5]

-   U.S. companies with foreign affiliates pay their employees more than
    U.S. companies that do not (Fig. 4).[^6]

-   Earnings from U.S. investment overseas were \$245 billion in 2005,
    up 93 percent since 1999. In that period, half of these profits have
    been returned to the United States.[^7]

![](media/image4.wmf)Investment agreements help create U.S. jobs not
only by facilitating overseas expansion of U.S. companies, but also by
attracting foreign investment into the United States. The
growth-enhancing effects of foreign investment in the United States tend
to exceed those of domestic investment because of greater technological
spillover, providing a powerful spur to innovation and enhanced domestic
investment.[^8]

-   The 5.1 million Americans employed by affiliates of foreign
    companies make up less than 5% of the total U.S. workforce but
    account for more than 19% of all U.S. goods exports.[^9]

-   In addition, employees of foreign-owned companies in the United
    States are paid, on average, 30% more than those of all U.S.-owned
    companies (Fig. 3).[^10]

**3. Most U.S. foreign investment is [not]{.underline} targeted at
developing countries in order to use low-wage labor.**

Most U.S. foreign direct investment (FDI) is in developed countries
(Fig. 4).[^11] In 2004, 81 percent of U.S. outbound FDI stock was in
high-income countries; less than 1 percent was in China. Foreign
investors are more frequently motivated by access to major consumer
markets than by low-wage labor. They also favor political and economic
stability, the rule of law, and good governance. If foreign investors
were primarily interested in finding low-wage labor, then the United
States would not have the largest stock of FDI (by more than \$800
billion in 2005), nor would FDI-supported jobs in the U.S. pay more than
the average U.S. job, as shown in Fig. 3.

![](media/image5.wmf)

In recent years, developing countries have become relatively more
important for flows of new FDI. Over the last three years, about
one-third of global FDI flows went to developing countries. The
competition to attract FDI from many companies puts pressure on
developing countries to reduce corruption and improve their legal
framework.

**4. Investment agreements [do not]{.underline} provide greater
substantive rights to foreigners than to domestic investors in the
United States.**

Our agreements provide foreign investors with substantive rights that
closely correspond to rights already available to any investor under US
law -- no more and no less. For example, the text of our agreements
applicable to a dispute involving an expropriation claim would be one
drawn directly from U.S. Supreme Court decisions.

***More important, the agreements level the playing field for American
investors in foreign markets where they often face an array of
arbitrary, unfair, and corrupt government actions.*** U.S. investment
agreements strengthen transparency, the rule of law, and basic property
rights, helping to combat corruption in our trading partners. And when
all else fails, they provide access to fair and independent
international arbitration to settle disputes with the foreign
government.

**5. Investment agreements [do not]{.underline} jeopardize the right of
U.S. state and local governments to regulate in the public interest.**

Nothing in these agreements interferes with a state or local
government's right to regulate for health, safety, consumer protection,
or any other public welfare reason. An investor cannot enjoin regulatory
action under our investment agreements, nor can arbitral tribunals.

The arbitration procedures of our investment agreements allow claims
against the federal government, but not state or local governments.
***The United States has never lost a [single]{.underline} arbitration
under these agreements nor has it paid a [single]{.underline} penny to
settle a case.*** Moreover, if a panel ever did rule against the United
States, it would have ***no authority** t*o order the government to
modify any law, regulation or practice.

**6. Dispute settlement proceedings under these agreements, known as
"investor-state arbitration," are [not]{.underline} secretive and
non-transparent.**

Investor-state arbitration hearings and documents are public. Amicus
curiae submissions from the public are expressly allowed. Amicus
submissions, transcripts of all hearings, tribunal decisions, and other
documents related to investor-state arbitration under NAFTA are readily
available online from the following State Department website:
<http://www.state.gov/s/l/c3439.htm>

**7. Foreign investors can [not]{.underline} abuse the process by filing
frivolous investor-state claims that threaten state and local
regulations.**

Our agreements include checks to ensure that investors cannot abuse the
arbitration process, such as a special provision (based on US court
rules) that allows tribunals to dismiss frivolous claims at an early
stage of the proceedings or to award attorneys' fees and costs as a
deterrent to such claims.

**8. Arbitral tribunals may [not]{.underline} improperly interpret and
apply the provisions of our international agreements.**

Our agreements include special provisions that allow governments to
review and comment on draft opinions before they are issued in final
form. The agreements also expressly authorize the governments to issue
interpretations of the agreement that are binding on tribunals.

[^1]: Bernanke, Benjamin (2004). Trade and Jobs.
    <http://www.federalreserve.gov/boarddocs/speeches/2004/20040330/default.htm>.

[^2]: Bernanke, Benjamin (2004). Trade and Jobs.
    <http://www.federalreserve.gov/boarddocs/speeches/2004/20040330/default.htm>.

[^3]: Bureau of Labor Statistics (2006). Extended Mass Layoffs in 2005.

[^4]: Bernanke, Benjamin (2004). Trade and Jobs.
    <http://www.federalreserve.gov/boarddocs/speeches/2004/20040330/default.htm>.

[^5]: Desai, Mihir A., C. Fritz Foley, and James R. Hines Jr., (2005).
    Foreign Direct Investment and Domestic Economic Activity, NBER
    working paper 11717, October.

[^6]: Bureau of Economic Analysis (July, 2005). Survey of Current
    Business: U.S. Multinational Companies, and "Insourcing Jobs," House
    of Representatives Joint Economic Committee, 2004

[^7]: Bureau of Economic Analysis (2006). U.S. International
    Transactions Accounts Data
    <http://www.bea.gov/bea/international/bp_web/simple.cfm?anon=71&table_id=18&area_id=1>

[^8]: OECD, 1998, Open Markets Matter: The Benefits of Trade and
    Investment Liberalisation

[^9]: Bureau of Economic Analysis (August, 2006) "U.S. Affiliates of
    Foreign Companies."

[^10]: House of Representatives Joint Economic Committee (2004).
    "Insourcing Jobs."

[^11]: U.S. International Trade Commission, 2006, Trends in U.S. Inbound
    and Outbound Direct Investment