Investment Screening Research Articles

The FDI Screening Mechanisms and the Draft EU Foreign Subsidy Regulation – Potential Conflicts of Interests and in Application

Separate legal frameworks form part of the European Commission’s new strategic trade policy aiming at maintaining and contributing to the EU’s “open strategic autonomy”, while preserving an open economy within the Union. Investment screening mechanisms implemented on the grounds of security and public order will apply in parallel to the proposed EU Regulation on foreign subsidies aiming at addressing economic distortions caused by foreign subsidies to ensure a level playing field within the internal market. Even if both are implemented side-by-side, the legal frameworks will overlap. The following text illustrates scenarios where questions of regulatory interplay and overlap may arise and analyses the potential consequences thereof. It identifies specific difficulties in streamlining legal frameworks where legal areas are partly shared and separated between the Member States’ and the Union’s competences. It concludes that an ambition to preserve an open economy within the Union, attract investments and minimise unpredictability in transactions requires that possibly conflicting interests are addressed. It also illustrates the need for foreign and Union investors to consider and try to identify layers of risks and exchange information on ownership, ties and funding by foreign states early on in a transaction.

Investment Screening Mechanism (ISM) in Central and Eastern Europe (CEE): Case Study of Poland

Investment Screening Mechanism (ISM) in Central and Eastern Europe (CEE): Case Study of Poland

Screening of Foreign Investments and the Bilateral Investment Treaties of Bangladesh

Since 1960, about 2852 bilateral investment treaties (BITs) have been signed. Of them, 2298 BITs are in force at present. In the last 61 years, the WTO members failed to conclude a global treaty to regulate FDI in host countries, consequently, the BITs have played a significant role to regulate FDI. As a member of the WTO, Bangladesh has signed 31 BITs so far with various states to allow and increase the inflow of FDI into the country. Bangladeshi foreign investment laws and BITs mainly protect foreign investors. However, neither of them has any specific provision regarding the screening of foreign investments in Bangladesh. Two questions have been addressed in this paper: (a) Do the BITs of Bangladesh allow the host state for screening of foreign investments at the entry stage? (b) Should the screening of FDI be required during the pre-entry stage in Bangladesh? In this paper, a doctrinal research method has been used to critically analyze 15 BITs to explore whether there is any reference for screening of foreign investments in Bangladesh. We find that the existing Bangladesh BITs have provisions to promote and protect foreign investments but have no reference in relation to the screening of foreign investments. Therefore, the author has recommended that the Government of Bangladesh can consider specific provisions for screening of FDI in future BITs.

Recent Changes in the German Investment Screening Mechanism in Light of the EU Screening Regulation

In 2020 and 2021, the German investment screening laws, namely Außenwirtschaftsgesetz (AWG) and Außenwirtschaftsverordnung (AWV) were again subject to considerable reform induced by new legislation at the European level and a reshaped industry policy agenda at the national level. This article critically reviews the most significant changes brought about by one law (Erstes Gesetz zur Änderung des Außenwirtschaftsgesetzes und anderer Gesetze) and three ordinances (Fünfzehnte, Sechzehnte und Siebzente Verordnung zur Änderung der Außenwirtschaftsverordnung) and provides an overview of the reformed screening procedure. Although claims in this direction have been made, neither the reform nor the underlying Screening Regulation (EU) 2019/452 have altered the objective of review – the protection of public order or security – or bar for governmental intervention – actual and sufficiently serious danger. Both these were not ‘overwritten’ by secondary law and continue to be determined by the pertinent jurisprudence of the Court of Justice of the European Union. Notwithstanding this, the reform has considerably widened the ‘sensitive sectors’ in which pertinent investments must be notified to and cleared by the authorities. ‘Gun jumping’ is prohibited and parties moving forward nonetheless risk criminal prosecution. Reform has also standardised the deadlines for governmental intervention and brought about procedural clarity. What the many and frequent changes reveal on a more fundamental level is a progressing politicisation and securitisation of investment screening law.

Механизмы интернационализации Зеленой сделки

The European Union (EU) aspires to become a global climate power. Climate neutrality became the guiding principle, the goal, and the pillar of the EU’s external policy after the Green Deal endorsement. The Green Deal is internationalized through a system of external policy instruments, including financial, trade and investment mechanisms, carbon border adjustment and emission trading, agreements with other countries, development support, and promotion of the EU’s regulation and standards through cooperation in international institutions. The normative documents and proposals on the key initiatives have been put forward, and the formats and plans for implementation are being discussed and defined. In this context, it is important to analyze the EU’s initiatives for internationalization of green transformation goals and to identify risks and opportunities related to their implementation. This article reviews the array of external policy instruments and initiatives deployed by the EU: the new trade policy of “open strategic autonomy” and the initiative on trade and sustainable development in the World Trade Organization (WTO); the framework for the screening of foreign direct investments and the taxonomy of environmentally sustainable investment and economic activity; new approaches to energy security and the building of global energy markets, including norms and standards for hydrogen markets; and the new neighbourhood policy, including the new strategy for Central Asia and the Neighbourhood, Development and International Cooperation Instrument. Given the initial stage of the initiative’s implementation, the study focuses on the adopted documents and planned actions. The author assesses the potential impact of climate policy internationalization instruments on EU-Russia economic cooperation and on EU leadership in shaping global climate governance. The author asserts that a number of instruments bear risks for the Russian Federation’s economic projects and proposes recommendations for abating them. With regard to global governance, the EU’s commitment to integrate climate goals into the global agenda may serve as a bridge for inclusive governance. At the same time, the EU’s determination to impose its priorities through carrot and stick incentives, including through economic measures, on partners not sharing the EU’s approach may be destructive. The author concludes that the EU’s capacity to build constructive engagement with partners will be a test of the EU’s real leadership. Given that the Green Deal’s external dimension is intended not only to promote EU priorities and values, but also to advance the global public good, controversies arise with regard to the instruments, not the goals. Thus, it is in the interests of Russia, as well as other partners directly affected, not to oppose the export of the EU’s climate policy, but to cooperate to mitigate unintended consequences of its deployment and to shape inclusive global governance.

Buying-up Europe No More? How the European Union has Responded to the Challenges of Chinese Foreign Direct Investment

towards Chinese outward foreign direct investment (OFDI) has evolved over the past decade. I contend that the EU was quite receptive to Chinese OFDI at the beginning of the decade, due to both ideological leanings and the economic context of a post-crisis Europe. I then illustrate how the EU slowly adopted a more guarded and critical approach towards Chinese OFDI. This paper will focus specifically on four key issues surrounding Chinese OFDI policy: national security, technology transfers and IP theft, state support for Chinese firms, and market access, ultimately arguing that bilateral investment treaty (BIT) negotiations and the new EU investment screening mechanism are the main policy levers being used to address these concerns. For the sake of this paper, I will use the OECD’s definition of OFDI.

Foreign Direct Investment Screening and National Security: Reducing Regulatory Hurdles to Investors Through Induced Reciprocity

Abstract An increasing number of States has adopted new or revised existing laws that establish foreign direct investment (FDI) screening mechanisms on grounds of national security. Comparing FDI screening in Germany and China as a case study, this article identifies three regulatory hurdles to investors related to such mechanisms, namely unpredictability, procedural uncertainty, and the lack of transparency in practice. Adopting the theory of induced reciprocity, this article argues that these regulatory hurdles could be reduced if symmetry constraint on national FDI screening schemes can be established between sovereign States in an international agreement. To achieve induced reciprocity between the European Union and China regarding FDI screening on grounds of national security, the EU-China Comprehensive Agreement on Investment could incorporate certain fundamental principles and regulatory objectives of EU Regulation 2019/452 Establishing a Framework for the Screening of Foreign Direct Investments into the Union as a starting point and a way forward.

Managing the Risk of Self-Judging Security Exceptions Through Insurance: How Recent Mergers and Acquisitions Practice Copes with Investment Screening

Abstract In light of the limited possibility to seek legal recourse against screening of foreign investments on grounds of national security, can insurance provide an alternative avenue to compensate affected investors? The answer is: Yes, but with caveats. For investors, even if insurance does not provide an equivalent to full reparation, it can serve as a useful mitigant of the risk that contemplated investment transactions cannot be consummated as anticipated due to screening measures. For host States, insurance provides a useful mechanism by which they can facilitate compensation of investors without having to disclose information contrary to their essential security interests and thus a means by which host States can remain attractive to foreign direct investment in spite of investment screening.

Behind the screen: Understanding national support for a foreign investment screening mechanism in the European Union

What determines national preferences for institutionalizing foreign direct investment (FDI) screening? Over the past decade, advanced economies worldwide have tightened their national investment screening mechanisms (ISMs). In March 2019, the European Union (EU) adopted its first common FDI screening framework. This article explores variations in Member State preferences for the creation and nature of a pan-European screening framework. Based on extensive interviews with high-level EU and country officials involved in the negotiation process, and using a unique measure of national support for the EU-wide ISM created through the first-ever elite survey on this subject matter, we find that countries with higher technological levels were more supportive of FDI screening due to concerns over unreciprocated technological transfer. We also show the effects of Chinese FDI on country-level support for FDI screening sector-dependent. We found no evidence that total Chinese FDI predicts preferences for ISM. Instead, countries with high levels of Chinese FDI in strategic sectors are more likely to support the ISM, while those with high levels of Chinese investment in low-tech sectors tend to oppose screening. Our overall findings suggest that EU investment screening, and national-level screening in general, might become more restrictive in the future, especially in light of the COVID-19 pandemic.Supplementary informationThe online version contains supplementary material available at 10.1007/s11558-021-09436-y.

Investment Screening before, during, and after COVID-19

In the wake of the COVID-19 pandemic, several states introduced and expanded regulatory frameworks for screening (and potentially blocking) inward foreign direct investment. This shift accelerated a preexisting trend in the global political economy, as states have been widening their understanding of “national security” risks arising from foreign investment. The result is that such screening mechanisms are evolving from a niche subject to a broader regulatory tool that touches an expanding share of global economic activity. The tensions inherent in this shift—including how firms will respond, how states can evaluate systemic (rather than transactional) risk, and the potential and limits of international cooperation in investment screening—have not yet been resolved.

Regulation of Screening of Foreign Direct Investments in the European Union

This paper examines the framework and cooperation mechanisms set up by Regulation (EU) 2019/452 of the European Parliament and of the Council of 19 March 2019 establishing a framework for the screening of foreign direct investments into the Union. The Regulation merely gives a framework for the coordination of national legislation, and member states can still decide if they want to set up screening mechanisms and to screen foreign direct investments. The pandemic has accelerated these processes, and more and more European Union member states enacted legislation relating to the screening of foreign direct investments in strategic branches of the economy. The Commission has also issued a Guidance at the end of March 2020, in which it warns about the risk that the Coronavirus related economic shock might have on strategic industries, especially on healthcare related industries. At the same time, recognizing the importance of foreign direct investments for the economy, it pointed out in the Guidance the necessity to find a balance between the need for foreign capital and the protection of European Union strategic industries using appropriate screening tools.

China’s Take on National Security and Its Implications for the Evolution of International Economic Law

This article explores the concept of national security in China’s legal system and the potential impact for the future of international economic law. By mapping the legal evolution of the concept, this article argues that its expansion reflects China’s changing role in global politics and the global economy. When ‘national security with Chinese characteristics’ is unpacked, we can find multidimensional concerns about a stable and prosperous China. While China displays no intention to challenge the current international economic legal order, this article argues that China has created the foundation to develop a mechanism to project its concept of national security through the Belt and Road Initiative. In this alternative order parallel to the current one established with the US dominance, economic development is considered as an integral part of peace and security. national security, China, investment screening, new international economic order, geoeconomics

Foreign direct investment rules in selected European countries – an overview

Purpose To provide an overview of the national foreign direct investment (“FDI”) screening mechanisms in place across Europe including in France, Germany, Italy, the Netherlands, Spain and the UK. Design/methodology/approach This article summarizes the key elements of the national FDI screening regimes of some of the leading European economies. This includes setting out the relevant investment thresholds, protected sectors, lengths of review periods, standstill obligations and potential sanctions in each jurisdiction. Findings Many of Europe’s leading economies are following the wider global trend towards stricter reviews of foreign investment ahead of the EU Screening Regulation coming into force in October 2020. However, the approach taken to FDI screening can vary significantly at a country level in terms of both process and substance and the applicable laws are evolving rapidly, not least as a response to concerns related to the impact of COVID-19. Practical implications Investors looking to make acquisitions in Europe will need to consider whether national FDI screening will apply to their proposed investments. Depending on the jurisdiction, FDI screening can introduce lengthy review periods and require detailed information gathering as well as uncertainty as to the final outcome. Potential investors also need to consider the risk of sanctions, including criminal sanctions, for non-compliance with the screening regimes. Originality/value This article offers a summary and comparison of national FDI screening regimes across Europe.

Investment Screening in the Netherlands

Despite imperfections, the Dutch framework for investment screening could function as a model for more proportionate and clearer investment screening rules. From a procedural perspective, the Dutch framework illustrates that it is possible to establish objective thresholds in order to more specifically target certain companies or categories of companies. Substantively, the Dutch framework shows that the general test of ‘security’ can be narrowed down to more specific substantive criteria. Providing clearer procedural thresholds and substantive tests under investment screening regulations, both in the Netherlands and elsewhere, will help ensure that investments are only restricted or prohibited where genuinely necessary and proportionate in order to safeguard national security interests. The Commission and national authorities throughout the Union should therefore endeavour to establish clearer procedural thresholds and frameworks of assessment to ensure that only transactions that can reasonably pose a threat to security or public order are made subject to filing obligations and are assessed on the basis of more clearly defined substantive criteria. investment screening, FDI screening, security screening, investment law, national security, proportionality, Chinese investments, Regulation 2019/452, investeringstoets, veiligheidstoets, ongewenste zeggenschap

When Integration by Stealth Meets Public Security: The EU Foreign Direct Investment Screening Regulation

The EU FDI Screening Regulation (the Regulation) is an interesting application of the ‘integration by stealth’ theory to the sphere of investment screening. The Regulation leads to integration in the sense that, for the first time, the Commission is granted a role in the process of investment screening within the EU. However, Commission involvement comes at the cost of simultaneously strengthening the hands of the Member State screening authorities, leading to a suboptimal policy outcome whereby neither the Commission nor the Member States may have at their disposal the necessary tools to screen investments quickly and thoroughly, as is required to maintain an open investment environment. The shortcomings of the Regulation are likely to trigger calls for further reform. To develop this argument, this article (1) legally examines the main features of the Regulation and (2) explores the interplay of the Regulation with EU free movement rules. The article explains how the Regulation is likely to contribute to an uptake in national screening decisions, but not to a concomitant increase in enforcement opportunities for the Commission or the Court of Justice of the EU. This creates an enforcement gap, which may put pressure on the existing free movement framework and may risk encouraging Member States to develop a national as opposed to a common EU conception of public security and order. European Union law, European integration, foreign direct investment screening, free movement of capital, freedom of establishment, investment liberalization, functionalism, neo-functionalism, Court of Justice of the European Union, common commercial policy, rule of law, judicial protection, enforcement

The EU’s Foreign Direct Investment Screening Framework: Current Status and Future Implications

The EU’s Foreign Direct Investment Screening Framework: Current Status and Future Implications

The Big Screen: Mapping the Diffusion of Foreign Investment Screening Mechanisms

In the decade following the 2008 financial crisis, many advanced industrialized economies engaged in a competition to attract Foreign Direct Investment (FDI), whose flows had plummeted following the global shock. At the same time, however, they also implemented or tightened Investment Screening Mechanisms (ISMs), which empower governments to restrict foreign takeovers, especially in strategic sectors. ISMs are an understudied phenomenon in the International Political Economy literature. This research note describes patterns in the evolution of foreign investment screening policies and suggests a research agenda for analyzing these patterns. After defining ISMs and establishing the puzzle of rising investment screening in conjunction with rising efforts to attract FDI, we present a newly coded dataset on ISMs in OECD countries from 2007-2021, examining the evolution of seven key features of investment screening over time. Next, we set an agenda for future research by suggesting three explanations for their recent evolution in the shadow of rising Chinese investment: the role of bottom-up backlashes to economic globalization; elite-driven foreign policy arguments about the increasingly blurred lines between national and economic security in the information economy; and geopolitical transformations that have challenged key features of the post-war liberal order.

COVID-19 Crisis and Screening of Foreign Direct Investments in EU Privatized Companies

This article examines how golden shares constitute an effective investment screening mechanism for the protection of EU strategic privatized companies from dubious and hostile foreign direct investments during the COVID-19 crisis. This investment screening is essential in order to secure that a foreign direct investment would not jeopardize the services of general interest offered by these privatized companies during the COVID-19 crisis. On the one hand, lawful golden shares could be used as an effective screening mechanism. On the other hand, unlawful golden shares infringing EU freedom of establishment could continue to screen and to apply to foreign investors from non-EU countries planning to invest in the capital of an EU privatized company.

Kontrola stranih direktnih investicija u pravu EU u uslovima krize izazvane pandemijom

The European Union is generally open to inward foreign direct investments (FDI). However, over recent years there is a rising trend in screening of inward FDI from third countries in the Member States. As a result, the Regulation (EU) 2019/452 on screening of foreign direct investments was enacted. In this paper the author, firstly, explains the reasons for a change in treatment of inward FDI from third countries within the Member States and the EU itself. The second part of the paper contains an analysis of the legal framework for FDI in the EU, in order to determine the possibility of their restrictions through national legislations. Special attention is given to the FDI-Screening Regulation and its minimum standards for national screening mechanisms. Finally, the author examines how the COVID-19 pandemic affects the treatment of FDI in the EU and concludes that the current crisis has contributed to further expanding the scope and importance of their screening and control.

Is Australia's Foreign Investment Screening Policy Consistent with International Investment Law?

Is Australia's Foreign Investment Screening Policy Consistent with International Investment Law?