NORWAY - The Norwegian Ministry of Finance has warned the United States government proposed regulations on foreign investment could have the "side-effect of deterring foreigners from investing in the US".

The US Treasury Department has proposed the Committee on Foreign Investment in the United States (CFIUS) be allowed to implement the Foreign Investment and National Security Act 2007.

In a letter responding to those proposals, Norway said it welcomed the US commitment to an "open investment environment".

However, the letter from Martin Skancke, director-general of the asset management department, and Thomas Ekeli, investment director at the Ministry of Finance, also claimed while the proposals seek to clarify important elements of the CFIUS process, Norway hoped in the finalisation of the regulations and guidance, the US Treasury would ensure a "clear and predictable framework" for foreign investors.

Norway' Ministry of Finance, which has overall responsibility for the NOK1.9trn (€244bn) Government Pension Fund - Global, stated while it had no comments on the specific regulations, it wanted to take the opportunity to "convey a broader view and a possible concern with the way the CFIUS process is perceived and handled".

It claimed there are "elements in the law and the regulations that may have the side-effect of deterring foreigners from investing in the US, stemming from a perception of lack of predictability and clear guidance in relation to foreign investors when meeting the political and legal environment of the CFIUS process".

In particular, the letter suggested one element of "unpredictability" in the regulations is the "absence of clear thresholds defining the concept of 'control".

It had previously been assumed investments worth up to 10% of a US company would not constitute a controlling interest, however the Ministry said "it now appears this is not necessarily the case" and instead "many factors" could determine whether an investment will constitute control.

The letter argued while a more complex system could lead to more targeted investigations and perhaps enhanced national security, "on the other hand, the result can also be reduced transparency and predictability for foreign investors".

Norway also warned although the regulations aim to ensure clear lines of responsibility between the executive and legislative branches of US government in investigating cases and implementing the law, "there seems in practice to be a risk of a blurring of these lines of responsibility".

"Political influence and lobbying seem to be de facto important tools in securing a smooth handling of investments in the CFIUS process". It added "if this is indeed the case, this would not necessarily aid the good intention of making the investment climate transparent and predictable," stated the letter.

The Ministry of Finance admitted transparency has become a central issue in the debate about the role and intention of Sovereign Wealth Funds (SWF), as it could alleviate concerns about sovereign investments, but warned "transparency has to run both ways".

Officials said if recipient countries set up screening processes to address legitimate national security concerns they should "exercise transparency with respect to how such screening decisions are made, by whom, and under which criteria," highlighting the recent policy proposals from the Organisation for Economic Cooperation and Development (OECD) for recipient countries of SWF investments.

The letter also pointed out a "lack of transparency in this area can lead to suspicions of financial protectionism, introduce an element of uncertainty to the investment process, undermine investor confidence, and may ultimately reduce the relative attractiveness of non-transparent recipient countries".

In addition, the letter claimed "even a transparent process may reduce the relative attractiveness of a market if sovereign investors have to undergo a lengthy formal process that puts them at a disadvantage as compared to domestic investors or other foreign investors".

The US Treasury is currently receiving comments on the proposed regulations - published on April 23 2008 - until June 9 2008.

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