shore up local firms and to increase investment to help them emerge from the recession. But the crisis may also accentuate protectionism, especially if nationalistic impulses gain the upper hand, perhaps stimulated by fire-sales of domestic assets (as we saw during the Asian financial crisis<sup>14</sup> ).

The principal approach that has been taken to make the regulatory framework more restrictive for foreign investors is to evoke “national interests,” “essential security interests” or similar concepts (often linked to strategic sectors and national champions), to screen foreign investments at the national level. These concepts are typically not defined precisely, thereby giving governments of host countries discretion to limit the applicability of the regulatory framework and opening potentially the door for discriminatory treatment of foreign investors. This approach also focuses on cross-border mergers and acquisitions (M&As)<sup>15</sup> and pays particular attention to sovereign FDI (i.e., FDI undertaken by sovereign wealth funds and state-owned enterprises).

The measures taken by the US are illustrative. On the one hand, the US remains one of the most open countries for FDI, as underlined, for example, in the May 2007 statement on “Open economies” by former President George W. Bush<sup>16</sup> and the establishment of an “Invest in America” office in the Department of Commerce.

At the same time, though, and especially in the aftermath of 9/11, national security concerns have risen in prominence.<sup>17</sup> For the US, this concept involves primarily (but not only) military security, namely the protection of the defense industrial base and critical technologies that provide a military advantage, as well as more broadly the protection of assets that constitute critical infrastructure<sup>18</sup> (the damage to which could harm the

> 14 See James Zhan and Terutomo Ozawa, _Business Restructuring in Asia: Cross-border M&As in the Crisis Period_ (Copenhagen: Copenhagen Business School Press, 2001).

15 M&As account for the bulk of FDI in developed countries and a substantial share of FDI in emerging markets. A 2007 Economist Intelligence Unit survey of 258 senior executives across Asia found that the US (24 percent), China (23 percent) and France (13 percent) are regarded as the countries most likely to block M&As because of strategic or political considerations. See Norton Rose, _Cross-border M&A: the Asian Perspective_ (London: EIU and Norton Rose, 2007), p. 4. It would however be wrong to conclude from these data that M&As are typically resisted: the bulk are normal commercial transactions that receive little attention (unless competition issues are involved).

16 “President Bush’s Statement on Open Economies,” May 10, 2007, available at: http://www.whitehouse.gov/news/releases/2007/05/20070510-3.html.

17 To quote the then U.S. Secretary of the Treasury, Henry M. Paulson: “Foreign investment into the United States, especially by sovereign wealth funds and state-owned enterprises, is also increasingly viewed with suspicion by some U.S. companies, various members of the national security community, and the American public at large....” See his “A strategic economic engagement: strengthening U.S.-Chinese ties,” _Foreign Affairs_ , vol. 87 (September-October 2008), p. 72.

18 “Critical infrastructure” is described as “systems and assets, whether physical or virtual, so vital to the United States that the incapacity and destruction of such systems and assets would have a debilitating impact on security, national economic security, national public health or safety, or any combination of those matters.” In the context of investment, the description refers to “systems and assets, whether physical or virtual, so vital to the United Sates that the incapacity or destruction of such systems and assets would have a debilitating impact on national security.” See Department of Homeland Security, “National infrastructure protection plan” (Washington: Department of Homeland Security, 2006), at <u>www.dhs.gov.</u> According to Edward M. Graham and David M. Marchick ( _US National Security and Foreign Direct_ 8