Foreign Investment Screening Research Articles

Hybrid and Cyber Security Threats and the EU’s Financial System

ABSTRACT Increasing cyber and hybrid risks will test the European Union’s system of fragmentation on issues of security, but centralization on financial and other economic issues. This asymmetry was not an obstacle in a world in which security threats were more contained or of a different nature. But the world is changing. In this article, we document the rise in cyber attacks in the EU. Meanwhile, hybrid threats are real, though difficult to quantify. We then explore preparations to increase the resilience of the financial system in terms of regulation, testing, and governance. We find that at the individual institutional level, significant measures have been taken, even though there are diverging views on whether individual companies are sufficiently prepared. More worryingly, preparations appear less advanced at the system-wide level. We recommend that EU finance ministers increase resilience through regular preparedness exercises and greater consideration of system-wide regulatory issues. A broader political discussion on the integration of the EU security architecture applicable to the financial system should also be advanced. This includes reopening the framework on foreign-investment screening in order to have screening of foreign investment in critical financial infrastructure at the EU level.

Screening of foreign investment in the context of Turkmenistan’s FDI (Foreign Direct Investment) regime

Since the fall of the USSR, Turkmenistan has made some progress in the development of its national economy and its ability to attract foreign investment. Although Turkmenistan is considered an attractive destination due to its rich natural resources, the country’s FDI regime, including its admission procedures, lacks transparency and predictability. From the perspective of foreign investors, the host state’s FDI regime plays a crucial role. Without considering a host state’s FDI regime, foreign investors may be at risk of losing their investment due to lack of transparency or an unpredictable legal environment. Requirements related to the admission of foreign investment may differ between countries. Unlike most countries, which usually limit the scope of admission requirements (national security concerns), Turkmenistan’s FDI regime imposes stricter requirements on foreign investors during the entry process. It is understandable that Turkmenistan may expect to maximize the benefit of foreign investment while minimizing its negative effects on the national economy. However, a lack of clear and transparent admission requirements leaves a large amount of discretion with various administrative bodies. This makes admission requirements unpredictable and dissuades foreign investors from investing in the host country. This article scrutinizes the admission requirements related to foreign investment in the entry stage in the Turkmenistan FDI regime.

New Regulation of Direct Foreign Investment Screening in the European Union and Interests of Russia

The article deals with adoption of a new framework regulation of direct foreign investment (DFI) of the European Union in condition of shaping a polycentric system of international relations and re-balancing of global players’ forces, which is accompanied by weakening the positions of the EU on global market and strengthening China as a new superpower. In this situation the EU tries to reinforce economic security and raise competitiveness of economy by protecting the sphere of critical infrastructure and high technologies against external control. The authors provide a brief analysis of geopolitical, economic and political factors, which determined specific features of new EU investment legislation. The scale and structure of Chinese DFI in EU economy were estimated and specificity of the process of mutual outsourcing of EU and China political values was identified. According to the analysis, China that increases its presence in the EU, apart from big finance possibilities uses differentiation of priorities in foreign and home policy of member-states and internal European contradictions and fragmentation of EU legislation. By using the text of the framework Regulation 2019/452 key elements and procedures were described and contradictions in the mechanism of investment selection being designed were found. It is proved that these contradictions, including numerous different agreements and institutional units involved in the process, keeping national priorities in making final decisions in the absence of necessary for DFI screening function system elements and others hinder the creation of the efficiently functioning supranational system of European DFI control. A conclusion was drawn that introduction of the Regulation can have a negative effect on the inflow of Russian investment to Europe. At the same time Russia cannot affect designing of this screening mechanism, as its role is limited by the frameworks of European policy of partial communication isolation. In the long-term the toughness of using investment regulation in the EU will depend on the outline of the US – EU – Russia confrontation.

The Acquisitions of the Chinese State-Owned Enterprises under the National Merger Control Regimes of the EU Member States: Searching for a Coherent Approach

With the rapidly unfolding China’s Belt and Road Initiative (BRI ) and the ongoing reform of the State-owned enterprises (SOEs), the number of overseas acquisitions by the Chinese SOEs in various industrial and services sectors is gradually on the rise. These transactions have raised a number of questions in terms of the assessment of the economic concentrations’ potential impact on competition and challenged the traditional assessment tools employed by the merger control regimes. The paper examines the evolving experience of Chinese SOEs’ acquisitions in the European Union (EU), which are subject to ex ante assessment under both EU and national merger control regimes. The analysis of the merger assessment practice of the EU Commission culminating in the recent conditional approval of the ChemChina/Syngenta merger indicates that the traditional assessment tools, when applied to the acquisitions by Chinese SOEs, may no longer be adequate to grasp the essence of their corporate governance and decision-making. The review of the merger control practice of the national competition authorities (NCAs) also demonstrates the absence of a coherent assessment approach to the cases involving Chinese SOEs, which may lead to the inconsistent enforcement and strengthening of the foreign investment screening on grounds other than market competition.

A Synergy of Failures: Environmental Protection and Chinese Capital in Southeast Europe

Chinese economic presence in Europe is primarily discussed as a security threat with its impact on sustainability remaining a rather marginal issue. This article investigates the repercussions of Chinese capital’s surge in Europe for environmental protection and analyses the reasons behind its poor performance. We examine five key Chinese projects in Southeast Europe, a sub-region that includes countries with different forms of association with European institutions and with varying levels of development and state capacity. We find that the negative environmental impact of these projects cannot be attributed to the commonly held perception of the Chinese as inherently “bad” investors and of host states as “weak” and dependent. Rather, we identify a synergy of failures between investors, host states and regional institutions that results in poor regulation and compliance. This finding calls for the inclusion of sustainability in foreign investment screening mechanisms and the abandonment of contradictory developmental priorities in the region.

The European Union's framework for FDI screening: Towards an ever more growing competence over energy policy?

The European Commission recently released a proposal for a Regulation establishing a framework for screening of foreign investment into the European Union. The proposal aims at introducing a harmonized regulatory framework for the screening of foreign direct investments by Member States on grounds of security or public order, amongst others in the energy sector. The proposal seems to be catered towards deference for Member States, but considering the large amount of EU funding involved, as well as the applicability of EU legislation, in practice many projects will fall under the new screening competence of the Commission. Even though the Commission, according to the proposal, may only give an opinion, it appears to turn the energy competence ever more towards Brussels. This paper aims at determining how the screening mechanism should be seen in light of EU competences in the area of investment and energy. Is this an example of “mission creep” on the part of the Commission? Does this infringe Article 194 TFEU which guarantees the Member States' “right to determine the conditions for exploiting its energy resources, its choice between different energy sources and the general structure of its energy supply”? Or is this justified and needed action on the basis of the Article 170 TFEU on trans-European networks in the area of energy infrastructure?

Financial Protectionism, M&A Activity, and Shareholder Wealth

We study the economic consequences of the Foreign Investment and National Security Act (FINSA). FINSA is a protectionist foreign investment screening law that grants U.S. regulators broad new powers to revise or reject foreign acquisitions of U.S. firms. After FINSA, takeovers and equity values decline for firms in 61 industries – comprising one-third of the Compustat universe – that regulators deem relevant to national security. A wide variety of robustness tests corroborate. This study documents an important tradeoff between U.S. national security and shareholder wealth: Securities regulation designed to address national security threats deters demand for U.S. equities and lowers firm value.

Foreign Direct Investment in Australia Following the Australia–US Free Trade Agreement

AbstractA model of inward foreign direct investment for Australia is estimated. Foreign direct investment is found to be positively related to economic and productivity growth and negatively related to foreign portfolio investment, trade openness, the exchange rate and the foreign real interest rate. Foreign direct investment is found to be a substitute for both portfolio investment and trade in goods and services. The exchange rate and the US bond rate affect foreign direct investment through the relative attractiveness of domestic assets. Actual foreign direct investment outperforms a model‐derived forecast in recent years, consistent with the liberalisation of foreign investment screening rules following the Australia–US Free Trade Agreement.

Screening Foreign Direct Investment in LDCs: Empirical findings of the Colombian case (1967-1975)

This article presents an empirical study of foreign investment board and of its real decision-making process. The analysis, based on more than 200 interviews of government officials and company executives and on a study of 25 foreign investment proposals reveals the existence of a large gap between screening regulations and administrative facilities; a series of propositions are offered to explain this gap. The article concludes by giving an assessment of the Colombian foreign investment screening process and by suggesting implications for the MNC negotiation strategy.