Foreign Investor Visas: Policies and Issues
Released: 2010-01-27T00:00:00

Introduction

With the current economic downturn, Members of the 111 th Congress are likely to be faced with many policy options aimed at economic improvement. A focus of past debates has been on the impact immigrants have on jobs and wages. Yet, these discussions frequently take on a different focus when it comes to foreign investors, in part because such visas are targeted at immigrants that are poised to inject capital into the economy and create employment. Foreign investors are often viewed as providing employment opportunities for U.S. citizens rather than displacing native workers. Thus, Congress has in previous years been willing to set aside both temporary and permanent visas for foreign investors with the goal that this visa distribution would net positive economic effects. Yet, extending foreign investor visas provides several potential risks as well, such as visa abuses and security concerns.

With the extension of the immigrant investor visa pilot program—a program aimed at granting permanent immigrant visas for investments into certain limited liability corporations—until September 30, 2012, Members of Congress will have to decide if the current policy towards foreign investors should be maintained, or if a different set of policies should be implemented. The central policy question surrounding foreign investors—and particularly legal permanent resident (LPR) investors—is whether the benefits reaped from allocating visas to foreign investors outweigh the costs of denying visas to other employment-based groups. The subsequent analysis provides a background and contextual framework for the consideration of foreign investor visa policy. After a brief legislative background, this report will provide discussions of immigrant and nonimmigrant investors visas, a comparison of U.S. and Canadian immigrant investor programs, an analysis of the relationship between investment and migration, and finally a review of current issues.

Background

Since the Immigration Act of 1924 the United States has expressly granted visas to foreign nationals for the purpose of conducting commerce within the United States. Although foreign investors had previously been allowed legal status under several Treaties of Friendship, Commerce and Navigation treaties, the creation in 1924 of the nonimmigrant treaty trader visa provided the first statutory recognition of foreign nationals as temporary traders. With the implementation of the Immigration and Nationality Act of 1952 (INA), the statute was expanded to include nonimmigrant treaty investors—a visa for which trade was no longer a requirement. Nonimmigrant visa categories for traders and investors have always required that the principal visa holder stems from a country with which the United States has a treaty. The nonimmigrant visa classes are defined in §101(a)(15) of the INA. These visa classes are commonly referred to by the letter and numeral that denotes their subsection in §101(a)(15) of the INA, and are referred to as E-1 for nonimmigrant treaty traders and E-2 for nonimmigrant treaty investors.

Unlike nonimmigrant investors, who come to the United States as temporary admissions, immigrant investors are admitted into the United States as LPRs. With the Immigration Act of 1990, Congress expanded the statutory immigrant visa categories to include an investor class for foreign investors. The statute developed an employment-based (EB-5) investor visa for LPRs, which allows for up to 10,000 admissions annually and generally requires a minimum $1 million investment. Through the Regional Center Pilot Program, investors may invest in targeted regions and existing enterprises that are financially troubled. This pilot program was extended by the Basic Pilot Program Extension and Expansion Act of 2003 to continue through FY2008.

Foreign investors are generally considered to help boost the United States economy by providing an influx of foreign capital into the United States and through job creation. For investor immigrants, job creation is an explicit criterion, while with the nonimmigrant visa categories economic activity is assumed to spur job growth. Additionally, foreign investors are often associated with entrepreneurship and increased economic activity. Critics, however, believe that such investors may be detrimental since they potentially displace potential entrepreneurs that are United States citizens.

Immigrant Investors

There is currently one immigrant class set aside specifically for foreign investors coming to the United States. Falling under the employment-based class of immigrant visas, the immigrant investor visa is the fifth preference category in this visa class. Thus, the immigrant investor visa is commonly referred to as the EB-5 visa.

Goals

The basic purpose of the LPR investor visa is to benefit the United States economy, primarily through employment creation and an influx of foreign capital into the United States. Although some members of Congress contended during discussions of the creation of the visa that potential immigrants would be "buying their way in," proponents maintained that the program's requirements would secure significant benefits to the U.S. economy. Proponents of the investor provision offered predictions that the former-Immigration and Naturalization Service (INS) would receive approximately 4,000 applications annually. These petitioners' investments, the drafters speculated, could reach an annual total of $4 billion and create 40,000 new jobs. The Senate Judiciary Committee report on the legislation states that the provision "is intended to provide new employment for U.S. workers and to infuse new capital into the country, not to provide immigrant visas to wealthy individuals" (S.Rept. 101-55, p.21).

Requirements

As amended by the Immigration Act of 1990, the Immigration and Nationality Act (INA) provides for an employment-based LPR investor visa program designated for individuals wishing to develop a new commercial enterprise in the United States (INA §203(b)(5)). The statute stipulates that

The enterprise must employ at least 10 U.S. citizens, legal permanent residents (LPRs), or other work-authorized aliens in full time positions. These employees may not include the foreign investor's wife or children. The investor must further invest $1 million into the enterprise, such that the investment goes directly towards job creation and the capital is "at risk." However, if an investor is seeking to invest in a "targeted area" then the required capital investment may be reduced to $500,000. For each fiscal year, 7.1% of the worldwide employment-based visas (roughly 10,000 visas) are set aside for EB-5 investors, of which 3,000 are reserved for entrepreneurs investing in "targeted areas." The business and jobs created must be maintained for a minimum of two years.

According to regulations, enterprises being proposed need not be backed by a single applicant. Multiple applicants may provide financial backing in the same enterprise, provided that each applicant invests the required minimum sum and each applicant's capital leads to the creation of 10 full-time jobs. The applicant may also combine the investment in a new enterprise with a non-applicant who is authorized to work in the United States. Furthermore, each individual applicant must demonstrate that he or she will be actively engaged in day-to-day managerial control or as a policymaker. Petitions as a passive investor will not qualify. However, since limited partnership is acceptable, regulations do not prevent the investor from living in another location or engaging in additional economic activities.

Regional Center Pilot Program

The Regional Center Pilot Program differs in certain ways from the standard LPR investor visa. Established by §610 of P.L. 102 - 395 (October 6, 1992), the pilot program was established to achieve the economic activity and job creation goals of the LPR investor statute by encouraging investors to invest in economic units known as "Regional Centers." Regional Center designation must be approved by the Department of Homeland Security's (DHS) United States Citizenship and Immigration Service (USCIS), and is intended to provide a coordinated focus of foreign investment towards specific geographic regions. Areas with high unemployment are especially likely to receive approval as a Regional Center, since they are less likely to receive foreign capital through foreign direct investment (FDI) (although the basic requirements apply to all regional petitions). Up to 5,000 immigrant visas may be set aside annually for the pilot program. These immigrants may invest in any of the Regional Centers that currently exist to qualify for their conditional LPR status.

The Basic Pilot Program Extension and Expansion Act of 2003 scheduled the program to sunset in FY2008. However, the Department of Homeland Security Appropriations Act, 2010 ( P.L. 111-83 , §548), extends the authorization of the Regional Center Pilot Program through September 30, 2012. Following the 2003 legislation, USCIS decided to develop a new unit to govern matters concerning LPR investor visas and investments. On January 19, 2005, the Investor and Regional Center Unit (IRCU) was created by the USCIS, thereby establishing a nationwide and coordinated program. USCIS believes that the IRCU will serve the dual purpose of guarding against EB-5 abuse and encouraging investment.

The USCIS approximates that between 75-80% of EB-5 immigrant investors have come through the pilot program since it began, and that limited partnerships constitute the most significant portion of this group.

LPR Investor Visa Numbers

In contrast to the high number of applications for other employment-based LPR visas, the full allotment of almost 10,000 LPR investor visas per fiscal year has never been used. As Table 1 below shows, the number of LPR investor admissions reached 1,361 admissions in FY1997, or 13.6% of the program's visa supply. In subsequent years, the program declined markedly, before increasing up to 1,360 in FY2008. Despite the low numbers of overall investor admissions, the program has seen a marked increase since the implementation of the Regional Center Pilot Program expansion in 2004.

From FY1992 to FY2004, the cumulative total amount invested into the United States by LPR investor visa holders was approximately $1 billion and the cumulative number of LPR investor visas issued was 6,024. Since FY2004, an additional 1,901 immigrant investor visas have been issued. In the earlier years of the program, it attracted a relatively higher rate of derivatives than principals. However, in the last three years the distribution of visas between principals and derivatives has more closely approximated parity. Derivatives have historically accounted for approximately 66% of immigrant investor visa recipients, while principals account for 34%.

According to data from DHS, in the time span of FY1992 through May 2006, authorities had received a cumulative total of 8,505 petitions for immigrant investor visas. Of these petitions, 4,484 petitions had been granted while 3,820 had been denied —an approval rate of 52.7%. Furthermore, in this same time span, officials received 3,235 petitions for the removal of conditional status from the LPRs of immigrant investors. These petitions were granted in 2,155 cases (a 66.6% approval rate), while the remaining 910 petitions for the removal of conditional status were denied.

Although numerous possible explanations for the overall low admission levels of LPR investor visas exist, the notable drop in admissions in FY1998 and FY1999 is due in part to the altered interpretations by the former-INS of the qualifying requirements that took place in 1998. The 21 st Century Department of Justice Appropriations Act (2002) provided remedies for those affected by the former-INS' 1998 decision, and provided some clarification to the requirements to promote an increase in petitions.

A 2005 report from GAO listed a number of contributing factors to the low participation rates, including the rigorous nature of the LPR investor application process and qualifying requirements; the lack of expertise among adjudicators; uncertainty regarding adjudication outcomes; negative media attention on the LPR investor program; lack of clear statutory guidance; and the lack of timely application processing and adjudication. It is unknown how many potential investors opted to obtain a nonimmigrant investor visa or pursued other investment pathways. A recent law journal article on investor visas suggested that the two year conditional status of the visa and the alternate (and less expensive) pathways for LPR status often dissuaded potential investors from pursuing LPR investor visas. Yet, since FY2003, the number of immigrant investor visas issued has increased on an annual basis.

According to the GAO study, of the LPR visas issued to investors, 653 had qualified for removal of the conditional status of LPR visa (not including dependents). GAO estimates that these LPR investors invested approximately $1 billion cumulatively into their collective enterprises and 99% kept their enterprise in the same state where it was established. The types of enterprises these investors established were often hotels/motels, manufacturing, real estate, or domestic sales, with these four categories accounting for 61% of the businesses established by LPR-qualified investors. Furthermore, an estimated 41% of the businesses by LPR-qualified investors were set up in California. The subsequent states with the highest percentages of established enterprises were Maryland, Arizona, Florida and Virginia with 11%, 8%, 7%, and 7% respectively (for examples of current investment projects see Appendix B ).

As Figure 1 shows, persons obtaining LPR investor visas to the United States between FY1998 and FY2007 has fluctuated in number. While 824 persons obtained such LPRs in FY1998, the total for FY2003 was 64. From FY2003 through FY2008, the total number grew by 2,125% to a total of 1,360. Thus, despite a notable recent upward trend in growth, the issuance of LPR investor visas has not yet recovered to the levels of the mid-to-late 1990s. Additionally, during the time period depicted in Figure 1 , 38.9% of the 3,754 visas issued were for individuals adjusting status. The remaining 61.1% were issued to new arrivals. The majority of these new arrivals occurred in FY2006-FY2008.

Nonimmigrant Investor Visas

When coming to the United States as a temporary investor, there are two classes of nonimmigrant visas which a foreign national can use to enter: the E-1 for treaty traders and the E-2 for treaty investors. An E-1 treaty trader visa allows a foreign national to enter the United States for the purpose of conducting "substantial trade" between the United States and the country of which the person is a citizen. An E-2 treaty investor can be any person who comes to the United States to develop and direct the operations of an enterprise in which he or she has invested, or is in the process of investing, a "substantial amount of capital." Both these E-class visas require that a treaty exist between the United States and the principal foreign national's country of citizenship.

In the majority of cases, a commerce or navigation treaty serves as the basis for the E-class visa extension (though other bilateral treaties and diplomatic agreements can also serve as a foundation). A number of countries offer both the E-1 and E-2 visas as a result of reciprocal agreements made with the United States, although many countries only offer one. Currently there are 75 countries who offer the treaty class visas. Of these countries, 28 offer only the E-2 treaty investor visa while 4 countries offer only the E-1 treaty trader visa (see Appendix A ). In the cases where a country offers both types of visas, an applicant who qualifies for both types of visa may choose based upon his or her own preference. Such decisions, however, would depend upon the specific nature of the business as the E category visas carry different qualifying criteria for renewal.

Although each category has some unique requirements, other requirements cut across all categories of nonimmigrant investor visas. An applicant for any of the nonimmigrant investor categories must satisfy the following criteria:

the principal visa recipient must be a national of a country with which the United States has a treaty. the principal visa recipient must be in some form of executive or supervisory role in order to qualify as a treaty trader or investor the skills the principal visa recipient possesses must be essential and unique to the enterprise under consideration the visa holder must show an intent to depart the United States at the end of the visa's duration of status if investing in an existing enterprise, the applicant must show that the employer of the treaty trader or investor must be at least 50% owned by nationals of the treaty country.

A person granted an E-class visa is eligible to stay in the United States for a period of two years. Although an applicant is obligated to show intent of departing the United States at the end of the visa duration, the E-class visas may be renewed for an indefinite number of two year periods provided that the individual still qualifies. Spouses and child dependents are granted the same visa status and renewal as the principal visa holder so long as the child is under the age of 21, after which the child must apply and qualify for his or her own visa.

Generally with the E-class visas, the individual may not engage in other employment than that which is stipulated, although incidental activities are generally allowed. If any E-class individual wishes to change employer, he or she is under obligation to contact the Department of State (DOS) and apply for adjustment of status.

E-1 Treaty Trader63

The E-1 formally traces back to the 1924 Immigration Act, although merchants working under treaty terms were recognized visa holders prior to this act. Under current law, the E-1 visa is to be issued to an individual who engages in substantial trade between the United States and his or her country of nationality. According to immigration regulations, trade is defined as "the exchange, purchase or sale of goods and/or services. Goods are tangible commodities or merchandise having intrinsic value. Services are economic activities whose outputs are other than tangible goods." This expanded definition of trade into the service sector allows for a fairly broad understanding of what trade may entail.

The term "substantial trade" has never been explicitly defined in terms of monetary value. Rather, the term is meant to indicate that there is an amount of trade necessary to ensure a continuing flow of international trade items. For smaller businesses, regulatory qualification for treaty trader status may be derived from demonstrating that the trading activities would generate an income sufficient to support the trader and his or her family. The qualifications for sufficient volume or transaction have not been explicitly set in the regulations, but a minimum qualification is that more than 50% of the business's trade must flow between the United States and the treaty country from which the E-1 visa holder stems.

E-2 Treaty Investor

The E-2 investor visa is a visa category that stems from the 1952 Immigration and Nationality Act (INA). The qualifying applicant for such a visa is coming to the United States in order to "develop or direct the operations of an enterprise in which he has invested, or is in the process of investing a substantial amount of capital." Unlike the E-1 visa, the business need not be engaged in trade of any kind. However, the same rules concerning ownership are still applicable. In cases of ownership of an enterprise, the regulations require that the E-2 visa holder control at least a 50% interest in an enterprise. The burden of proof for E-2 qualification lies with the applicant in the same manner as with the other E-class visas.

There is no explicit monetary amount for what constitutes a "significant amount of capital." The DOS has operated under a regulatory proportionality principle that dictates that the amount an individual invests must be enough to ensure the successful establishment and growth of an enterprise, and there must be some level of investment risk assumed by the treaty investor. Because of this proportionality regulation, an investment in a small to medium-sized enterprise is acceptable. For smaller sized investments, the DOS generally requires that the investment amount be a higher percentage of the enterprise value. For higher valued enterprises the investment percentage becomes less relevant, provided that the monetary amount is deemed substantial.

As further grounds for regulatory qualification for an E-2 investor visa, investments in marginal enterprises are not eligible for acceptance. Consequently, the DOS applies a two-pronged test for marginality. On the one hand, the enterprise in which the applicant seeks to make an investment must be capable of providing more than a minimal living for the investor and his or her family. However, the rules are capable of recognizing that some businesses need time to establish themselves and become viable. Consequently, as a second prong of the test, the investor's enterprise must be deemed capable of making a significant economic impact within five years of starting normal business activity. If neither of these prongs is successfully passed, the enterprise is deemed marginal and the application is rejected.

An additional category of E-class nonimmigrant visa—the E-3 visa for Australian nationals—does exist, but it is set aside for use by specialized workers, and not for investors or traders.

Nonimmigrant Investor Visa Numbers

E-class visas are largely distributed to foreign nationals from the regions of Asia and Europe. This result is not surprising since the majority of treaty countries are in these two regions. Furthermore, one could reasonably expect that the financial requirements embedded in nonimmigrant investor visa categories would result in a high correlation between the nationality of qualifying applicants and country membership in the Organization for Economic Cooperation and Development (OECD)—an organization of capital abundant countries.

As Figure 2 shows, the Asian region was issued the highest number of E-class visas in FY2009, with a total of 14,843 visas issued. These Asian issuances constitute more than any other region, and represent 45.5% of the worldwide total. Within the Asian region, the biggest user of the E-class visa is Japan, whose nationals accounted for 9,533 of the visa issuances in FY2009, a figure representing 29.2% of the 32,655 worldwide E-class visas issued that fiscal year. Europe's 10,943 E-Class visas accounted for 33.5% of the worldwide total, while the North American share of 3,897 visas represented 11.9%. Oceania's issuance accounted for 2,387 visas, or 7.3% of the total. South America and Africa each accounted for less than 1.7% of the worldwide total, and combined their nationals represented approximately 1.8% of the worldwide E-class visa issuances for FY2009.

The admissions data on nonimmigrant investors offers more detailed insights into the origins of the visa holders. Table 2 provides cumulative totals of E-class visa admissions into the United States in FY2008 by region of origin, with a detailed breakdown of the Asian region. The figures listed in Table 2 show that the Asian region accounted for approximately 47.7% of the nonimmigrant investor visa admissions into the United States. In FY2008, Japan accounted for the majority of nonimmigrant investor admissions with 85,175 admissions. South Korea's 13,801 nonimmigrant investors admitted account for 6.0% of the United States total for FY2008. It is worth noting that the fast growing markets of China and India (the world's two largest population centers) combined for slightly less than 900 admissions. The second largest region of origin for nonimmigrant investor admissions was Europe, with slightly more investors admitted than Japan. And while Europe's 87,787 admissions accounted for 38.1% of the total U.S. nonimmigrant investor admissions in FY2008, the 276 admissions of nationals from African countries accounted for approximately one-tenth of 1% of this same total.

The Department of Homeland Security (DHS) offers statistics on the admissions of nonimmigrants and their destination state. Table 3 indicates the destination states of nonimmigrant treaty trader and investor visa admissions into the United States for FY2008. The state with the highest number of nonimmigrant investors as their destination in FY2008 was California with 46,835 admissions, accounting for 20.3% of the admissions total. Following California, the next three biggest recipients of nonimmigrant investors were New York, Florida, and Texas with 27,252, 24,668, and 22,126 admissions each, respectively. In the respective order, these state admissions accounted for 11.8%, 10.7% and 9.6% of the admissions total in FY2008. The only other states with a combined total of more than 10,000 nonimmigrant treaty trader and investor visa admissions were Michigan and New Jersey. Michigan was the destination state of 12,331 nonimmigrant investors admitted, while New Jersey attracted 11,748 admissions. These totals accounted for 5.3% and 5.1% of the United States admissions total, respectively. The remaining states represented the destination states for approximately 37.2% of nonimmigrant traders and investors.

Historically, more investors have applied to enter the United States as nonimmigrants than immigrants, possibly because the less stringent requirements for the nonimmigrant investor visa make it easier to obtain. However, relative to other nonimmigrant categories, the admission levels of investor nonimmigrants are low. With the ease of movement, technological advances, and ease of trade restrictions, many investors may be choosing to invest in the United States from abroad and enter the United States on B-1 temporary business visas or visa waivers.

U.S. and Canadian Comparisons

Although there are many countries with investor visa programs—including the United Kingdom, Australia, and New Zealand—the Canadian investor program has the strongest parallels to those of the United States. These parallels are in part due to the fact that the U.S. immigrant investor program was modeled after its Canadian counterpart. The Canadian program allows investors who have a net worth of at least $800,000 (Cdn) to make a $400,000 (Cdn) investment through Citizenship and Immigration Canada (CIC). The Canadian government additionally offers an entrepreneurial visa for foreign nationals with a net worth of $300,000 (Cdn). These nationals are required to invest and participate in the management of a certain sized business, and they must produce at least one new full-time job for a non-family member. Between 1986 and 2002, the Canadian investor visa program attracted more than $6.6 billion (Cdn) in investments. From FY1992 through FY2004, United States LPR investor immigrants had invested an estimated $1 billion in U.S. businesses.

According to published accounts, the Canadian investor visa was developed initially to attract investors from the British colony of Hong Kong. The visa was created in 1986 in response to the significant numbers of investors seeking to migrate from Hong Kong in anticipation of the transfer of the colony from British to Chinese control. For these investors, the visa offered an opportunity to establish legal permanent residence in a country that was perceived to be more embracing of individual property rights and open markets. These immigrant investors from Hong Kong, along with other immigrant investors, have cumulatively invested over $3 billion in the Canadian economy.

As Figure 3 demonstrates, the annual number of immigrant investor visas issued over the past decade has remained multiple times higher than that of its United States counterpart. The margin between these two programs was closest in 1997, when the Canadian issuance of 5,595 immigrant investor visas was approximately 400% higher than the U.S. total of 1,361 immigrant investor visas issued. Although these ratios have fluctuated, the sizable Canadian advantage in this measure has remained. In terms of the absolute levels, the Canadian immigrant visa level for 2008 represented a 13-year high, while the U.S. level for the same time period roughly equaled its 13-year high. Both countries have shown an upward trend in immigrant investor visas since 2003.

What is unclear from the data is whether the competition between the U.S. and Canadian program (as well as investor programs in other countries) constitutes a zero-sum game. There are no data available showing the motive for migration among investors, or if they perceive the United States and Canada as interchangeable investment locations. If the investors are motivated purely by the economic returns, then economic theory suggests that equalizing the program financial requirements should result in more equal rates of petitions. Furthermore, a lowering of the financial requirements should increase the supply for both countries. However, if the immigrant investors are motivated to migrate by non-financial considerations, then equalizing the United States program requirements with its Canadian counterpart is likely to have little impact on the current trends.

Analysis of the Relationship Between Investments and Migration

Classical economic theory has posited that trade liberalization (including the reduction of investment restrictions) establishes a conditional inverse theoretical relationship between foreign direct investment (FDI) and migration. In other words, as trade increases, migration pressures decrease. The theory posits that an increased level of FDI should reduce migratory pressures through growth in the targeted economy. As economic growth produces a higher demand for labor, workers in that economy feel less pressure to seek employment in foreign economies, provided that the new jobs complement the workforce's skills. For example, if economic growth creates demand for skilled labor, then an unskilled labor force should not experience any reduced migration pressures. Thus, while FDI increases host-country growth, there is not necessarily a direct reduction in host-country migration pressures.

The investor visas offered by the United States operate on the principal that FDI into the United States should spur economic growth in the United States. According to the classical theory, if these investments are properly targeted towards the U.S. labor force's skill sets, it should reduce the migration pressures on U.S. workers. Such economic growth from FDI should further spur greater demand for trade. In FDI between capital abundant countries such as the OECD member states (between whom a marked majority of FDI flows), the empirical evidence has largely supported this notion. Furthermore, it has provided an increased per capita income in these states, as well as boosted the general standard of living.

What is less clear from the empirical research is the degree to which potential migration provides any additional incentive for investment activity in the United States. The classical trade theory asserts that trade and migration are substitutes, and that trade liberalization should reduce migratory pressures. These basic propositions are generally agreed to hold in the long term. Consequently, in the long term classical trade theory suggests there should be little migration of investors from countries with liberalized trade arrangements with the United States. Instead, these investors would achieve their investments through conventional FDI. Furthermore, the theory suggests that investors would be more likely to migrate from countries with restrictive trade policies (a policy more highly correlated with less economically developed countries).

Critics of the classical economic models contend that despite elegant predictions, the models produced by the theory frequently do not capture the costs of international finance. Such critics argue that foreign investments often occur at the expense of local businesses, and result in exploitive practices of local labor. These criticisms are particularly common when critiquing the economic relationship between capital abundant countries and less economically developed countries (LEDC). According to the argument, more powerful countries can leverage their power to construct investment relationships that shift a disproportionate amount of profits to the capital abundant countries. Simultaneously, a greater share of the costs are shouldered by the less powerful country. Classical economists generally respond by noting that these investments are still producing growth in the LEDCs, making the countries better off than without the investments. However, LEDCs remain a source of contention between the classical economic theorists and their critics.

Less Economically Developed Countries

Some scholars have expressed doubt about the posited trade/migration substitutability, suggesting that the relationship in the short or medium term could look different from the long term. One of the arguments put forward is that trade and migration are complementary for countries with different levels of development. Under such a scenario, economic growth in a sending country would provide potential migrants with the economic means to overcome relatively high migration costs. Other observers point to such factors as imperfect credit markets and currency fluctuations as significant "push" factors for potential migrants. These latter factors, however, are generally more highly correlated with LEDCs. Therefore, both the complementary and substitutability theories of trade and migration suggest that higher demand for investor out-migration should currently lie in the populations of LEDCs. However, as noted earlier, investor visas issued to regions with LEDCs are relatively few.

What makes the visa program distinct from conventional FDI is that it involves trade through the import of human capital. Consequently, these visas have potential for creating a so-called "brain drain" migration out of less-developed sending-countries. LEDCs are by definition limited in their capital levels, and economic theory would suggest that exporting capital from a capital scarce country would inhibit its growth and development. Classical theorists would argue that the United States would be better served by sending FDI into LEDCs, thereby promoting economic growth in LEDCs and a subsequent higher demand for U.S. goods. Such investment, the theory dictates, would promote job growth both in the United States and abroad. Instead, targeting investors from capital abundant countries for sector specific investments would serve a more complementary role for the global market. By attracting capital abundant country investors, the United States' economic growth and productivity could be stimulated without adversely affecting the consumption and trade potential of the investor's country of origin.

Temporary and Permanent Investors

Some recent scholarly work has drawn a distinction between the decision-making factors of potential temporary and permanent migrants. Amongst temporary migrants, it is the employment prospects and wage differentials that are significant variables in deciding whether to migrate. Differences in both gains and price levels should affect the cost/benefit calculation of the potential migrants, as these variables will affect potential levels of consumption and savings. For permanent migrants, however, the prospects for professional and social mobility are the main motivating factors.

The distribution of visas among Asian countries shows marked country-specific tendencies among investor visa petitioners. Specifically, the polarization among petitioners towards either immigrant (permanent) or nonimmigrant (temporary) visas suggests that a significant proportion of applicants are substituting immigrant visas for nonimmigrant visas, or vice versa. For example, while Japan accounted for 36.9% of all the foreign nationals arriving on nonimmigrant treaty trader and investor visas in FY2008 ( Table 2 ), its nationals represented only 1% of all the LPR investor visas issued since FY1992. Conversely, nationals of Taiwan accounted for roughly 40% of immigrant investors issued since FY1992, but only 1.5% of nonimmigrant arrivals in FY2008. In the context of the aforementioned theory, these opposite behaviors suggest that Japanese investors are seeking to capitalize on wage differentials, while Taiwanese, Chinese, and (to some extent) South Korean investors are pursuing professional and social mobility.

Although some considerations weigh more heavily on the decisions of immigrant and nonimmigrant investors, no single explanation accounts for the behavior of investor visa petitioners. Japan, for example, has some trade restrictions with the United States through voluntary export restraint agreements limiting auto and steel exports to the United States, suggesting from the theoretical standpoint that Japanese investors would choose to temporarily migrate. The Japanese governments have also complained that the post-9/11 customs regulations and practices of the United States inhibit U.S./Japanese trade. Despite the suggestion by these factors that Japanese investors are temporarily substituting trade with migration, it is also plausible that Japan's weak economic performance has reduced the professional mobility opportunities—a motivation associated with permanent migration. From 1991-2000, Japan's real (adjusted for inflation) average GDP growth rate was 1.4%, and it fell to 0.9% from 2001 to 2003. Yet, regardless of motivation, Japanese investors are predominantly choosing to temporarily migrate to the United States.

The fact that China, Taiwan and South Korea have had strong economic performance in the last decade and relatively higher levels of immigrant investors to the United States, suggests that these investors are migrating for more than financial purposes. These investors may be more strongly motivated by the family and/or social network connections to previously migrated investors and other LPRs in the United States. These theoretically derived motives, however, must be further tested empirically before any conclusive behavioral statements can be made.

Multiplier Effects

Classical economic theory holds that investments provide for multiplier effects throughout the economy by increasing demand for other goods and services. For example, an increase in demand for corn may increase the demand for storage facilities, which results in an increase in construction contracts. The U.S. Department of Commerce has quantified these effects through the Regional Input-Output Modeling System (RIMS II). The RIMS II multipliers have become a significant factor in assessing indirect economic activity and employment effects for Regional Center Pilot Program petitions. Using the regional multipliers for various industries, foreign investment funds are frequently shown to yield increases in demand across an economy that are several times higher than the direct input by an investor. Thus, despite the relatively low number of investors entering the United States, the impact of each investment by a foreign investor is a multiplied factor greater than the direct investment, depending upon which industry and region is being invested in. Furthermore, studies showing the direct economic investments of foreign investors may not fully capture the economic impact of these investors upon a region.

Administrative Efforts

In recent years, significant efforts have been made by administrative agencies to both promote investment by foreigners in the United States economy, and to close perceived loopholes for visa exploitation. At the center of these efforts has been the USCIS' changes to the Regional Center Pilot Program, which addressed fraud concerns and the development of a Regional Center unit for coordination and targeting of foreign investments.

Fraudulent Investments

During the late 1990's, the LPR investor visa was suffering from high levels of fraudulent applications. There has been concern that potential immigrants could use schemes of pooling their funds and transferring the money to demonstrate the existence of sufficient capital. Furthermore, applicants could potentially use promissory notes that would allow for their repayment after a six year time period. Since the LPR was only conditional for two years, some observers feared that these investors could pull out of their respective investments after being granted their LPR, have the promissory notes forgiven, and the enterprise would collapse. As a result, the USCIS has engaged in a policy of not accepting promissory notes, although the regulations state that petitions with promissory notes may be considered for approval. Additionally, the creation of the Investor and Regional Center Unit (IRCU) within USCIS has allowed greater scrutiny of applications through increased resources and coordination of petitions processing. Petitioners now must provide extensive documentation that traces the source of their funds to show that the capital was legally obtained.

IRCU Expansion

Prior to the creation of IRCU, the former-INS had been criticized for becoming more restrictive in application reviews for Regional Center designation, including allowing some applications to remain pending for more than three years. In 2005, concerns were raised by both Members and advocates that the IRCU still did not process applications quickly enough, and that staff members had competing obligations within IRCU. Proponents of the Regional Center Pilot Program believe it has attracted a significant amount of capital and that addressing these criticisms would further increase the levels of foreign investments through the LPR investor visa. USCIS has responded to these criticisms by expanding the number of Regional Centers available for LPR investor investments.

Working with foreign financing from the immigrant investor program has become highly attractive for many domestic investors. A number of current investment projects are using LPR investor financing because it is less costly for the domestic investors. For domestic investors, employing LPR investor funds becomes a significantly cheaper option than a bank loan, since there is no requirement to pay interest on the financing. Additionally, because the enterprises are less saddled with financing debt they are more quickly able to turn a profit. The LPR investor visa petitioners are still able to qualify for conditional LPR status under these investment structures through the multiplier rules for employment and capital that the USCIS employs. Thus, limited partnerships of domestic investors with LPR investor visas has become a popular option for financial stabilization and enterprise start-up in Regional Centers as diverse as Philadelphia and South Dakota.

New Orleans

In the efforts to rebuild the sections of New Orleans damaged by Hurricane Katrina, developers and officials alike have taken an interest in attracting foreign capital. USCIS officials are working closely with New Orleans officials to establish New Orleans as another Regional Center for LPR investor visa investments. Officials at USCIS are hopeful that the program success that the Philadelphia targeted center is experiencing can be replicated in New Orleans. Since being designated a Regional Center, Philadelphia has attracted over 100 LPR investors and most of their investments are being used to help finance the renovation and transformation of the 1,100 acre shipyard (for further discussion, see Appendix B ).

Current Legislation and Potential Issuesfor Congress

In the 111 th Congress, authorizing language in the Department of Homeland Security Appropriations Act, 2010 ( P.L. 111-83 , §548), extends the authorization of the Regional Center Pilot Program through September 30, 2012. The Senate-passed version of the act had included language to permanently reauthorize the EB-5 Regional Center Pilot Program, but this language was not included in the conference agreement. On July 22, 2009, the Senate Judiciary Committee held a hearing to assess the Regional Center Pilot Program, with some members expressing support for the program's permanent authorization. Some legislation has also proposed modifying the qualifying criteria as a targeted area to lower the threshold for investment amounts in some geographic regions as a means of enticing more applications by potential immigrant investors. There are currently no other programs for targeting investments by immigrant investors to the United States.

Additional investor visa issues that could surface may relate to temporary investors. In terms of nonimmigrant visas, the Danish government has been lobbying the United States to grant E-2 treaty investor visas to Danish nationals. Originally, this provision was granted to the Danes on May 2, 2001 as part of a protocol to the treaty granting nationals of Denmark E-1 nonimmigrant trader visa eligibility. The protocol was never ratified, however, due to congressional objections over the inclusion of immigration provisions in a trade agreement. Subsequently, Representative Sensenbrenner introduced H.R. 3647 in the 109 th Congress, which was passed in the House on November 16, 2005, and would have allowed nationals of Denmark to enter and operate in the United States as investors under E-2 treaty investor nonimmigrant visas. Currently, Danish nationals are only allowed E-1 treaty trader visas. Denmark is one of four countries whose nationals are eligible for E-1 treaty trader visas, but not E-2 treaty investor visas (see Appendix A ).

Appendix A. E-Class Visa Privileges by Year of Attainment

Appendix B. Immigrant Investor Pilot Program Projects

There are currently numerous targeted economic regions set up for the Regional Center Pilot Program for the EB-5 visa category. These targeted areas have focused on different types of investments in order to achieve economic benefits for the given region. Below are descriptions of a couple of the projects that are currently in place under the Regional Center Pilot Program and the results these projects are producing.

South Dakota International Business Institute

The South Dakota International Business Institute (SDIBI), Dairy Economic Development Region (DEDR) is the only regional targeting center currently run by a state government. Approved in June 2005, this Regional Center was the result of a state-wide effort to find an improved method of attracting foreign capital to South Dakota. From the state's perspective, the EB-5 pilot investor program offered a more promising solution than the E-2 nonimmigrant visa, since officials could offer investors the benefit of LPR status. Additionally, the job-creation criterion of the EB-5 visa aligned well with the state's focus on job creation from foreign investments (as opposed to isolated capital injections). In its application for Regional Center designation, the state said it would focus its efforts on attracting dairy farm investors. USCIS agreed to the designation on the condition that South Dakota would allow for limited partnerships of foreign investors with domestic farmers. As a result, South Dakota currently has enterprises fully owned and operated by foreign investors, as well as limited partnerships.

Since the regional designation took effect, South Dakota has attracted 60 foreign investors to its dairy industry (with an additional 10 applications still pending). These foreign investors have injected approximately $30 million into the South Dakota economy, with an additional $6 million in matching funds coming from local farmers. Furthermore, this combined $36 million in invested funds has resulted in almost $90 million in bank financing for the various dairy investment projects. As a direct consequence of these foreign investments, 240 additional jobs have been created and 20,000 additional cows have been brought to South Dakota. Using the RIMS II multipliers for investment and employment, the foreign investments from EB-5 immigrants have resulted in a total of 638 additional jobs and over $360 million in additional funds to the regionally targeted economy.

According to SDIBI/DEDR Director Joop Bollen, the pilot program has afforded South Dakota "a tremendous opportunity," not only because of the direct investments and multiplier effects, but because of the other investments made by the foreign investors. According to Director Bollen, the attraction of foreign investors has had significant spillover effects into the restaurant and meat packing industries. As a result, SDIBI/DEDR hopes to focus on attracting additional investments for its meat packing plants. As such, Director Bollen stated that it was of paramount concern to the SDIBI/DEDR that USCIS have sufficient resources to quickly adjudicate EB-5 immigrant visa petitions. If the adjudication process is too long, Director Bollen stated, then the opportunity cost may make a South Dakota dairy investment unappealing to foreign investors.

CanAm Enterprises

CanAm Enterprises is a private financial advising group which serves to structure, promote and administer the Philadelphia Industrial Development Center (PIDC) Regional Center. The group works in conjunction with the City of Philadelphia through the PIDC to facilitate the city development (mainly in the city's shipyard area) and provide investor credibility. This public/private partnership was developed to aid the transition of Philadelphia from a manufacture-based to a service based economy. The main strategy has been to use collateralized loans to attract investments in industries that provide long-term full time employment. By doing so the city hopes that investors will wish to invest in other projects and sectors of the city's economy.

When the Philadelphia Naval Base was closed as part of the base closures of the 1970s, the base was handed over to the PIDC for transformation to civilian use. Despite the city's efforts the shipyard was unable to remain competitive in the ship construction industry. However, with the passage of requirements following the Exxon Valdez oil spill (and the ongoing regulations from the Jones-Shafroth Act), the civilian shipbuilding industry in the United States became economically viable again. The federal government and the city of Philadelphia combined to invest over $400 million into the Philadelphia shipyard. Additionally Norwegian shipbuilding companies were brought in as investors in the shipyard and provided valuable training and human capital to the shipyard. Since production restarted, EB-5 investors have become increasingly important for providing funds to remove production bottlenecks. A recent example includes the use of EB-5 funds for the development of a more advanced painting technology for the ships.

Philadelphia is one of the Regional Centers that has been most successful in attracting foreign investors through the EB-5 visa. There are approximately 60 EB-5 visa investors in Philadelphia who have invested a total of $75 million into the city. Additionally, there are around 30 petitions that are under review for other investment projects. The lead official at CanAm Enterprises told CRS that while they believe the funds have been important to the city, the human capital the investors bring is equally important. This official stated that the investors being brought to the United States represented highly competent entrepreneurs, who not only made investments in the city beyond their initial investment, but also facilitated greater economic activity through exchanges with their existing foreign networks.