Subsidies, Market Closure, Cross-Border Investment, and Effects on Competition: The Case of FDI in the Telecommunications Sector

Telecommunications long was a sector where sellers of services operated in protected local markets, where law and government regulation created and enforced barriers to entry, especially by foreign firms. In many nations, in fact, the provision of telecommunications services was reserved for state-owned monopoly suppliers. During the late 1980s and through the 1990s, however, many of these barriers have been removed while formerly state-owned firms have been partially or wholly privatized. This has in turn engendered some cross entry by telecom service providers; firms that once were purely domestic in the scope of their operations thus have become multinational. During the summer of 2000, however, US Senator Ernest Hollings, with co-sponsorship of 29 other US Senators, introduced a bill (S.2793) in the US Congress that would have effectively blocked non-US telecommunications service providers from acquiring US telecom firms if the former were state-owned, or even only partly state-owned. The bill was aimed specifically at the proposed acquisition of US mobile telecommunications service provider Voice Stream by the German firm Deutsche Telekom (DT), but the language of the bill would have served to block virtually any non-US state-owned firm in the telecom sector from buying a US firm. While the bill did not become law, it reflected a long history of efforts in Congress to prevent US firms from being acquired by state-owned non-US firms (e.g., a legislative bill to do this had been introduced by Senator Frank Murkowski during the late 1980s, and while this bill also failed to be passed into law, some provisions from the bill were incorporated into the Exon-Florio legislation that was first enacted as a temporary measure in 1988 but subsequently made part of US permanent law in 1992). The Hollings bill was doubtlessly motivated in part by xenophobia (Senator Hollings is himself of the American generation that fought Germany during World War II). But it was also motivated, as was the Murkowski bill a decade earlier, by fears that subsidies and/or monopoly profits accruing to state-owned firms in their home markets might be used to affect operations in the US market to the detriment of locally-owned competitors. The extreme case of such behavior would be predatory pricing by the state-owned firm aimed at bankrupting its competitors, where temporary losses created by below-cost pricing in the US market would be offset by subsidies or monopoly profits in the home market. The ultimate goal of the predatory firm would be to establish a monopoly in the United States. In fact, the Hollings bill was shelved in part because DT was able to establish that it was neither a recipient of significant subsidies in Germany nor a monopoly service provider in the German market (although the firm once held a statutory monopoly there, the market has been opened to competition and some new entry has occurred). Also figuring in the shelving of the bill was argumentation that competition in the US market for wireless telecom services would be enhanced by the entry of DT. However, fears have persisted about the possibly deleterious effects of subsidies or monopoly profits garnered by a firm in its home market on competition in a geographically separate market in which that firm (or a subsidiary of that firm) is a seller. Indeed, the issues raised by the Hollings bill pertain to numerous sectors in which multinational firms compete. Accordingly, the US Council of Economic Advisors was ordered by the US President following the introduction of the Hollings bill to advise on what might be the effects of such competition.

Economic Issues Raised by Treatment of Takings Under NAFTA Chapter 11

Chapter 11 of the North American Free Trade Agreement (NAFTA) allows most foreign investors from any NAFTA country to seek monetary damages for properties that might be appropriated, or any measure that might be deemed "tantamount to an expropriation" by the governments of any of the other NAFTA parties (Canada, Mexico, and the United States); to obtain such damages, the investor must go through the dispute settlement process provided in chapter 11 part B. A number of investors have used these provisions to argue that diminished value of an investment due to environment regulation is indeed tantamount to an expropriation and hence subject to monetary damages. If this line of argumentation is generally upheld, it would amount to a requirement that governments compensate investors for losses resulting from requirements to implement environmental safeguards (or to cease from activities that cause environmental damage). This article uses the reasoning of Ronald Coase, which is extensively articulated for the benefit of readers not familiar with this reasoning, to argue that in fact that such a requirement can in fact lead to an optimal outcome in terms of tradeoff of cost/benefit of an environmental regulation. However, Coase argued also that a requirement that the "polluter pay" can also lead to an optimal outcome, and for reasons of perceived equity, this latter approach is most often implemented in environmental regulation. The article goes further to argue that for a number of reasons not considered by Coase, the latter approach might, in an imperfect world where conditions for optimality are violated, in fact come closer to achieving an optimal outcome than the former.

Foreign Direct Investment in China: Effects on Growth and Economic Performance

By almost all accounts, foreign direct investment (FDI) in China has been one of the major success stories of the past 10 years. Starting from a base of less than $19 billion in 1990, the stock of FDI in China rose to over$300 billion at the end of 1999. Ranked by the stock of inward FDI, China thus has become the leader among all developing nations and second among the APEC nations (only the United States holds a larger stock of inward FDI). China's FDI consists largely of greenfield investment, while inward FDI in the United States by contrast has been generated more by takeover of existing enterprises than by new establishment, a point developed later in this paper. The majority of FDI in China has originated from elsewhere in developing Asia (i.e., not including Japan). Hong Kong, now a largely self-governing "special autonomous region" of China itself, has been the largest source of record. The dominance of Hong Kong, however, is somewhat illusory in that much FDI nominally from Hong Kong in reality is from elsewhere. Some of what is listed as Hong Kong-source FDI in China is, in fact, investment by domestic Chinese that is "round-tripped" through Hong Kong (see footnote 2). Other FDI in China listed as Hong Kong in origin is in reality from various western nations and Taiwan that is placed into China via Hong Kong intermediaries. Alas, no published records exist to indicate exactly how much FDI in China that is nominally from Hong Kong is in fact attributable to other nations. According to official sources, in the period 1992-96, FDI from developing Asian nations dominated total FDI flows into China, but since 1996 a growing portion of these flows has come from other sources (i.e., Europe, North America, and Japan). This latter FDI generally has been of a different character than FDI from developing Asian nations. While the latter has been concentrated in export-processing activities in sectors in which China has revealed comparative advantage, much of the former has been directed more toward the domestic market in sectors in which China has no revealed comparative advantage. Thus one consequence of a rising percentage of FDI from Japan, Europe, and North America has been that overall the activities of foreign-invested enterprises in China have become somewhat more focused on the domestic market, and less on export markets, in the late 1990s relative to the mid-1990s. The consequences are discussed in more detail later in this paper. This includes an econometric test of whether FDI in China has contributed to increased total factor productivity growth in those provinces that have received large amounts of FDI. The tests suggest that the result is positive, and hence that FDI has contributed significantly to economic growth in China beyond that which results from faster capital accumulation.

US National Security and Foreign Direct Investment

Although a vital part of the US economy, foreign direct investment (FDI) in the United States periodically raises public and congressional alarms--as witnessed during Dubai Ports World's recent bid to acquire US port operations and Chinese firm CNOOC's attempt to buy US energy firm Unocal. Drawing fire from Congress are the Exon-Florio provisions of US law, which enable the president to block a foreign acquisition that threatens national security. This important new book finds that many proposed reforms risk harming the US economy without enhancing national security. The authors propose ways to strengthen the current interagency review of deals, including an improved process for reporting to Congress.

"No" to Foreign Telecoms Equals "No" to the New Economy!

Within a few weeks, the United States will make a pivotal decision--whether to prohibit foreign telecommunications firms that are partly owned by foreign governments from competing in the US market. The decisive case is Deutsche Telecom's bid to acquire the US mobile telephone operator VoiceStream (and VoiceStream's own new acquisition, PowerTel).

Freedom of Speech of the Public School Teacher

Courts, until recent years, when deciding whether teachers surrender their right of free speech by accepting employment in the public schools, have almost universally held that the rights of teachers as individuals are subordinate to the rights of school boards as public employers. In applying the principle of stare decisis, courts had continuously relied upon cases reasoned along the lines of early American decisions in which the courts considered the exemplar responsibility of the teacher as the only material issue. Because of this judicial outlook, teachers have had great difficulty defending against dismissal or other disciplinary action by their employing school boards after having expressed themselves to the displeasure of their superiors. Although the amount of litigation dealing with this problem has been rather sparse until the last decade, development in this area is rapidly progressing since the courts have begun adopting a more liberal attitude with regard to the rights of the individual

Does Foreign Direct Investment Promote Development?

What is the impact of foreign direct investment (FDI) on development? The answer is important for the lives of millions--if not billions--of workers, families, and communities in the developing world. The answer is crucial for policymakers in developing and developed countries, and in multilateral agencies. This volume gathers together the cutting edge of new research on FDI and host country economic performance and presents the most sophisticated critiques of current and past inquiries. It probes the limits of what can be determined from available evidence and from innovative investigative techniques. In addition, the book presents new results, concludes with an analysis of the implications for contemporary policy debates, and proposeds new avenues for future research.

John R. Graham and the Bangor Railway and Electric Company

The story of the Bangor Hydro-Electric Company is more than an account of a successful enterprise. In its growth and development is reflected the history of a vigorous and changing world. It is the story of the State of Maine at the threshold of the Twentieth Century, at a time when the slow march towards industrial consolidation had become a rush. Furthermore it is a story of the men who pioneered and visualized this changing world. And among the pioneers in the Electrical Industry in the early part of the Century, John R. Graham played a most active role. He played this role, moreover, when he was no longer a young man. Approaching middle age, the founder of a lucrative and still flourishing shoe manufacturing business, Graham turned to the young world of rapid transit and electrical power -- a world in which he was to achieve outstanding accomplishment. Edward M. Graham This work provides a great overview and biography of John R. Graham, an innovator of and eventual president of the Bangor Railway and Electric Company, which would become the Bangor Hydro-Electric Company. Edward M. Graham, son of John, later became president of the company as well. Edward presented these words at the 1950 Maine Luncheon of the Newcomen Society of New England, held at the Penobscot Valley Country Club in Bangor, Maine, on September 28, 1950.https://digicom.bpl.lib.me.us/bangorhydro_news/1060/thumbnail.jp