The Center Cannot Hold: A Comparison of the FDI Screening Regimes of the United States and European Union in Addressing the West's China Problem

Abstract

Whether or not current U.S.-China strategic competition may be properly named a new Cold War, it is useful to compare the regimes of the United States and the European Union to better understand how domestic FDI screening mechanisms are growing in importance as a foreign policy tool (e.g. national defense strategies). Section II provides a contextual background weighing China’s own restrictive FDI policies against its increased technology and market access acquisitions in the U.S. and Europe. Section III outlines the U.S. FDI screening review by the Committee on Foreign Investment in the United States (CFIUS) with particular focus the broadening of its review powers by the Foreign Investment Risk Review Modernization Act of 2019 (FIRRMA). Section IV outlines the European Union’s Regulation 2019/452 which provides both a framework for FDI screening by Member States on the grounds of “security or public order” and a cooperation mechanism between Member States, as well as Member States and the Commission. Section V considers whether the increased use of FDI screening as a foreign policy tool potentially (1) undermines other multilateral efforts, in areas such as international trade, to address concerns related to the influence of Chinese state-owned enterprises, and (2) is ineffective given the difficulties faced by national authorities to fully appreciate organizational structures related to foreign government-supported investment. Looking to the “geographical pivot of history,” this paper concludes that “multilateralism still matters” and calls for renewed efforts to realize an International Convention on Foreign Investment.