Facing the Challenges of Sovereign Investment

L-R: USCIB Secretary John Merow (Sullivan & Cromwell), Ruth Morrison (Brooklyn International Trade Development Center), Deputy U.S. Trade Representative John Veroneau.
L-R: USCIB Secretary John Merow (Sullivan & Cromwell), Ruth Morrison (Brooklyn International Trade Development Center), Deputy U.S. Trade Representative John Veroneau.

The recent surge in U.S. investment by overseas sovereign wealth funds should spur efforts to develop best practices for such funds, while ensuring that major markets continue to welcome this much-needed source of capital, Deputy U.S. Trade Representative John Veroneau told a USCIB audience in New York on February 26.

“It is essential that governments and sovereign investors take complementary steps to mitigate calls for measures that could have the effect of limiting the benefits of commercial investments by such investors,” Ambassador Veroneau stated in remarks delivered at The Bank of New York Mellon’s Wall Street headquarters.

Established sovereign wealth funds from Abu Dhabi, Norway and Singapore have been joined on the world stage by new actors from the Middle East, China, Russia and elsewhere.  Often flush with rising oil and other export revenues, sovereign investors have taken significant equity stakes in a number of major financial institutions and other companies at a time when the credit squeeze in many markets is drying up other sources of investment.  This has led some observers to question the motivations of sovereign investors and call for new scrutiny of their actions.

Amb. Veroneau conceded that, given the growing economic significance of sovereign wealth funds and other sovereign investors, “a closer look at the objectives and consequences of their investments is warranted.”  But he said such examination should bear in mind the importance of cross-border investments from all sources for job-creation, economic growth and productivity.

USCIB President Peter Robinson (right) welcomes Amb. Veroneau and presents him with a new International Chamber of Commerce statement urging governments worldwide to maintain open investment regimes.
USCIB President Peter Robinson (right) welcomes Amb. Veroneau and presents him with a new International Chamber of Commerce statement urging governments worldwide to maintain open investment regimes.

Existing U.S. law governing the potential national security implications of foreign direct investments should apply equally to sovereign and non-sovereign funds from abroad, said Amb. Veroneau.  He also called on managers of sovereign wealth funds to be equally mindful of the “unique questions and concerns” that governments have about sovereign investors.

To help allay fears that sovereign investment might be used for political or other non-commercial purposes, the Treasury Department last year called upon the International Monetary Fund, with the support of the World Bank, to develop best practices for sovereign wealth funds, building on existing best practices for foreign exchange reserve management, noted Amb. Veroneau.

“Such ‘best practices’ would serve to demonstrate that sovereign wealth funds can continue to be responsible, constructive participants in cross-border investing,” he stated, observing that the United States had also called upon the Organization for Economic Cooperation and Development to identify best practices for countries receiving foreign government-controlled investment, as a safeguard against the adoption of protectionist measures.

USCIB President Peter M. Robinson too the opportunity to deliver a new position paper by the International Chamber of Commerce, part of USCIB’s global network, on safeguarding freedom of investment worldwide.  In its statement, ICC observed that, over the years, the global economy had witnessed a sharp diminution in the barriers to foreign investment as governments embraced foreign capital to spur economic growth and jobs.  These positive contributions of foreign investment, said ICC, “must be safeguarded by a strong commitment by governments, in words and in deeds, to freedom of investment and the avoidance of protectionist measures.”

Staff contact: Shaun Donnelly

Remarks by Amb. John Veroneau, “The Challenges of Sovereign Investment”

ICC Recommendations to Safeguard Freedom of Investmen

More on USCIB’s Trade and Investment Committee

Staff Contact:   Shaun Donnelly

VP, Investment and Financial Services
Tel: 202.682.1221

Shaun Donnelly oversees USCIB’s work on foreign investment policy, treatment of multinational enterprises, financial services and anti-corruption. A career diplomat who has held several senior executive branch posts and joined USCIB in 2011, Donnelly leads business efforts to open markets abroad for American investment and financial services, and to promote high standards of protection for cross-border investment, both in the United States and overseas.
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