BENSWHITEBOARD

A Strategic Approach to Foreign Investment and U.S. National Security

By: Raanan I. Horowitz, President & CEO, Elbit Systems of America, LLC

The United States is being pulled in opposing directions by competing imperatives to encourage foreign investment and to protect national security. President Trump’s proclamation at the World Economic Forum that “America is open for business” signals an awareness of the continued importance of foreign investment for economic growth and innovation. At the same time, the government is actively reforming national security review of foreign investments, with significant legislation pending in Congress.

We must find an appropriate balance between these goals. That balance will allow the United States to leverage innovation and technological developments of trusted allies and partners, while properly screening and mitigating adverse foreign activity. The United States’ industrial base policy can support both national security and foreign investment. The policy must focus on promoting investments and exchange of technology with key trusted allies and partners, while strategically prioritizing the way we approach the security concerns associated with foreign investments.

Balancing Foreign Investment Incentives and National Security Imperatives

A balanced approach is consistent with key tenets of the National Security Strategy (NSS) and the National Defense Strategy (NDS), which explain the importance of alliances and partnerships in protecting our national interests and creating opportunities for reciprocal benefits for the United States. Currently, the dialogue is heavily focused on the risk side of the calculus, and the potential vulnerabilities associated with investment that our adversaries may exploit. The opportunity side of the discussion – that is, trusted alliances and partnerships – must play an equally important role.

Different risks emerge from over-correction by focusing solely on vulnerabilities. If the U.S. market is effectively closed off to foreign involvement or investment in certain sectors, the defense industrial base may develop critical gaps, and foreign expertise and know-how may enter the private sector without the benefit of any transparency.

The United States can balance legitimate national security concerns and remain open to innovation-boosting investment. National security review procedures should acknowledge the differences between potential adversaries that require greater scrutiny and trusted allies that frequently collaborate with the United States. Thoughtful reforms can accomplish the U.S. national security and defense objectives while supporting secure, innovative technology delivery to the U.S. warfighter.

Strengthening the United States Through Allies and Partners in the Industrial Base

Israeli innovation has played an important role in elements of the F-35 Joint Strike Fighter, which incorporates helmet-mounted display system technology brought to the United States through Elbit Systems of America, where I have been proud to work for several decades. This technology allows pilots to see through the skin of the plane, using advanced sensor and display technology to reduce pilot workload and provide instant target recognition and designation.

Although recent reforms to the security protocols associated with allied technology development are steps in the right direction, the government can do more to facilitate access to such technology while preventing adversaries from exploiting gaps in the review process. By subjecting all foreign investment and participation to the high levels of scrutiny that may be appropriate for adversaries, the government risks losing its access to allied technology and know-how, weakening the U.S. innovation, technology, and industrial base and inhibiting development of needed warfighting capabilities.

A Roadmap for Reform

An effective regulatory approach requires thoughtful prioritization and tempered skepticism of investments. This approach should predictably and carefully account for the relationship between the United States and the country making the investment. CFIUS and other agencies already do this to some extent, but current procedures create uncertainty and generate unproductive transaction costs. We have an opportunity to add structure to the process, increase certainty, and decrease costs for investors from trusted allies and partners. The United States should support the National Security Innovation Base (NSIB) by proactively mitigating risk without creating disincentives for investment. Investment policies should therefore be crafted with both competitors and allies in mind.

Reform should include two central elements. First, U.S. government oversight and visibility into investments should be enhanced, but enacted in coordination with more nuanced risk tabulation and tailored mitigation policies. Second, investment oversight should clearly and predictably distinguish between countries, allowing the government to leverage the contributions and interests of trusted allies and partners while applying heavier scrutiny to more troubling investment from adversaries.

The agencies charged with government oversight can leverage their visibility into investments and supply chain to gauge risk in a more nuanced fashion and tie mitigation to the particular investment. Openness to foreign investment and contribution from trusted allies can create reciprocal benefits for U.S. firms selling abroad, further supporting innovation and growth in the United States.

Reform should also include more robust prioritization among countries. The most exclusive group is codified in U.S. law as the National Technology and Industrial Base, which comprises Canada, Australia, and the United Kingdom. However, outside of this group, there is little coherent differentiation among other countries with respect to industrial base matters. Statutory authorities should allow the national security agencies to prioritize countries for industrial collaboration, as they do in other contexts like the designation of “major non-NATO allies” for military cooperation.

In defining these “major allies for the technology and industrial base,” it is important to focus on industrial base partners, not just treaty allies. Partner nations offer vastly different investment potential and related ability to support the NSIB. This reform is principally about strengthening the U.S. technological and industrial base in areas of critical technological development such as artificial intelligence, hypersonics, microelectronics, and quantum computing and sensing. Investment policies should allow for streamlined procedures for trusted industrial base allies and partners, thus incentivizing select countries to partner with the United States, encouraging investment and participation in the NSIB, and increasing technological collaboration between the United States and key allies and partners.

Conclusion

It is time for a thoughtful evaluation of how we manage foreign investment. While the current discussion is rightly concerned with mitigating technological and industrial risk resulting from the behavior of potential adversaries, that risk can be thoughtfully managed and mitigated while incentivizing investment from the United States’ key partners. Together, these policies can accomplish the goals of the NSS and NDS, and ensure that the United States has access to best-in-class technology while protecting that technology from exploitation.

 

The views and opinions expressed in this article are those of the author and do not necessarily reflect the official policy or position of BENS or any agency of the U.S. government.

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