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advantages of increased disclosure in helping to divine intent, it is important to emphasise that Sovereign Wealth Funds form only one component of state economic influence. The opacity level increases when strategic investments derive from state- controlled corporations. It clouds over completely when the acquisition comes from business oligarchs with discernible but informal links with political power in authoritarian regimes. The point here is that restricting Sovereign Wealth Fund acquisitions or limiting voting rights to demonstrate passivity could lead to the expansion of even more opaque investment mechanisms. The governance debate and its implications will be further explored below. First it is necessary to evaluate how the national interest is defined, the impact of Sovereign Wealth Fund investment on that definition and the consequence for capital flows.

C The Protection of the National Interest

Many countries impose restrictions on foreign direct investment in parts of the critical infrastructure because of strategic and cultural factors. These can include restrictions in dual-use technologies or protection of core communication portals, such as media

markets, from undue foreign influence.49

The restrictions can be complete, partial or

entail a review process, which, in turn, may or may not privilege investment (dependent on the salience of wider security concerns). The problem centres on a lack of agreement on what ‘critical’ means and the parameters that governments can use to define ‘national security’ interests. 50 The inevitable consequence is a lack of transparency in investment review processes. This makes the entire process susceptible to political and economic populism. The frameworks and the extent to which inward investment is compromised by injudicious political rhetoric are now evaluated by way of two extended examples.

The United States

Concern over national security issues has become particularly acute in the United States. The imperatives governing the ‘war on terror’ have sharpened the potential conflict between the benefits of global exchange and the impact on national security. The current legal framework dates from the 1988 ‘Exon-Florio’ amendment to the Defense Production Act.51 The amendment authorised presidential right of veto if a foreign investment risked the integrity of national defence. The investigative authority was delegated to the Committee on Foreign Investment in the United States, an inter- agency agency established thirteen years earlier to further inward investment. From the start two competing philosophical worldviews were in conflict.52 As one of those involved in compiling the reports commented recently, “one side [representing Treasury and facilitative trade agencies] never saw a deal they didn’t like, while the

49 See GAO, Foreign Investment: Laws ands Policies Regulating Foreign Investment in 10 Countries (Washington DC, February 2008); OECD, Protection of ‘Critical Infrastructure’ and the Role of Investment Policies Relating to National Security (Paris, May 2008), 6.

50 OECD, Transparency and Predictability for Investment Policies Addressing National Security Concerns: A Survey of Practices (Paris, May 2008).


50 USC app. S 2170.

52 The potential dysfunction was highlighted to two critical reports by the Government Accountability Office; see GAO, Defense Trade: Mitigating National Security Concerns under Exon-Florio Could be Improved (GAO-02-736, Washington DC, 12 September 2002); GAO, Defense Trade: Enhancements to the Implementation of Exon-Florio Could Strengthen the Law’s Effectiveness (GAO-05-686, Washington DC, 28 September 2005).


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