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Few recent developments in the realm of multinational finance have found as raw a nerve as the flow of foreign capital into the domestic American economy. In the recent past, foreign investments here have increased at a much faster rate than U.S. investments abroad. Foreign investment in the United States stood at 15% of total U.S. investment abroad in 1972; by 1974, that ratio had increased to 18%. Moreover, the mix of foreign investment has shifted from such non-manufacturing industries as insurance, petroleum, and retail trade to manufacturing, which now accounts for nearly half of all foreign investments in the United States and whose share of foreign investment here now stands at 10% more than it did ten years ago. The aggregate book value of foreign direct investment in American manufacturing sectors is now about $10 billion, which amount, considering that it is leveraged up with U.S.-source debt financing on a 3:2 or 2:1 ratio, represents a considerable stake, probably accounting for 4% or more of total U.S. manufacturing assets.

Small wonder, then, that we are witnessing a renaissance of the xenophobia which marked American political perspectives during the early 1900's. In addition to the proposed legislation reviewed in this article, nearly three dozen bills, all overtly tailored to curb or eliminate foreign investment in the United States, had been introduced in the Congress by May, 1975.

The purpose of this analysis is to explore the extent, if any, to which a state may restrict foreign investment in domestic corporations without transgressing the equal protection guarantees of the fourteenth amendment. Whether distinctions between domestic corporations owned by U.S. citizens and those owned by alien interests may be upheld where they emanate from Congress is a question dealt with elsewhere in this edition. It must also be noted, that any legislative attempt by a state to regulate in this area will raise questions of federal preemption under art. VI, §2 of the Federal Constitution. Except where it is impossible to avoid these issues, this discussion will be concerned solely with the effect of the equal protection clause on state legislation in this area.