Investment Screening Research Articles

Semiconductors and Modern Industrial Policy

Semiconductors have emerged as a headline in the resurgence of modern industrial policy. This paper explores the political economic history of the sector, the changing nature of the semiconductor supply chain, and the new sources of concern that have motivated the most recent turn to government intervention. It also explores details of that turn to industrial policy by the United States, China, Japan, Europe, South Korea, and Taiwan. Modern industrial policy for semiconductors has included not only subsidies for manufacturing, but also new import tariffs, export controls, foreign investment screening, and antitrust actions.

Can Corporate Site Visits Improve ESG Ratings?

AbstractAs environmental, social, and governance (ESG) becomes an increasingly popular criterion for investment screening, drivers of ESG performance have attracted attention from a wide range of stakeholders. In this study, we test whether corporate site visits can improve ESG ratings using a unique dataset of site visits from Chinese listed firms. We find that corporate site visits can lead to improved ESG performance for listed firms, which is robust even after adding a series of control variables, alternative model specifications, and accounting for endogeneity issues. This effect is attributed to the mediating effects of ESG information disclosure and corporate internal control quality. We also find that the more ESG‐related discussion during site visits the better managers learn to improve ESG performance of their firms. Furthermore, there is evidence that the positive effect of site visits on ESG are more pronounced among firms that are not audited by Big Four accounting firms, not cross‐listed, and when Qualified Foreign Institutional Investors are involved. Overall, this paper contributes to the literature by providing complementary evidence that site visits are an important platform for communicating between investors and corporate management, which can have profound implications on incentivizing managers to deliver better ESG performance. Our findings also offer practical and policy implications to regulators on the promotion and implementation of ESG in listed firms.

Foreign investment screening mechanisms and emergent geographies of (post)globalization

Technologically advanced states and large emerging economies increasingly use foreign investment screening mechanisms (FISM) to block inward foreign investment targeting sectors considered critical. Is the proliferation of FISM auguring an era of deglobalization, a re-assertion of national-state sovereignty over globalized economic ties, and the end of neoliberal orthodoxies of liberalized investment regimes? To answer these questions, the article draws upon geographic political economy and legal geographies. It argues that the multiplication of FISM is a response to a strategic context defined by three macrogeographic trends: (1) contemporary industrial restructuring and the salience of intellectual property-based monopolies; (2) a historic episode of centralization of capital driven by strategic mergers and acquisitions; and (3) evolving landscapes of state capitalism under conditions of intensified geoeconomic competition. Although FISM reproduce the fiction of state power as expressing the will of the sovereign nation to defend itself against foreign interference, market distortion, and technology theft, they consist of legally enshrining state authority to support national champions, and making sure they engage favorably with competitive dynamics of capital centralization, notably by conserving their monopoly over key intangible assets and strategic resources. FISM are best seen as tools that explicitly mobilize state power and coercion to aggressively (re)negotiate globalization.

The New Swedish Investment Screening Legislation: Is It Compatible with EU Law?

The New Swedish Investment Screening Legislation: Is It Compatible with EU Law?

Restrictions on Chinese SOE Investments for Data Security Reasons: The Case of Australia

In the digital age, the proliferation of investments made by Chinese state-owned enterprises (SOEs) has raised concerns among host countries about the risks that the investments could provide the Chinese government access to sensitive data involved in the target businesses, posing threats to their national security. Consequently, countries with sophisticated foreign investment screening (FIS) regimes, such as Australia, have imposed entry restrictions on Chinese SOE foreign direct investment (FDI) on the grounds of data security concerns. This article takes Australia as an example to investigate whether this concern has become a ‘panacea’ to justify any restrictions imposed by host states on Chinese SOE FDI in the digital age. Through in-depth examinations of Australia's reformed FIS regime and its application to Chinese SOE investments, this article demonstrates that data security has increasingly become a preferred justification for imposing restrictions on Chinese SOE investments. It argues that the data security justification is legitimate because of Chinese SOEs’ strong political ties, which have been significantly strengthened in China's ongoing SOE reforms, as well as China's prominent policy emphasis on data protection in recent years. However, measures should be taken to mitigate data security becoming a ‘minefield’ impeding the restoration of Australia–China investment relations.

The Impact of Foreign Investment Screening Mechanism on Chinese Technology-Related Acquisitions

The Impact of Foreign Investment Screening Mechanism on Chinese Technology-Related Acquisitions

US Critical Mineral Policies and Alliance Strategies in an Age of Geopolitical Rivalry

We examine the geoeconomic strategies of the US regarding critical minerals through the lens of geopolitical rivalry with China. Chinese companies, mostly state-owned enterprises, play a prominent role in the extraction and processing of minerals critical to the energy transition. Drawing on the balance of power theory, we argue that the US, the incumbent hegemon, can employ both domestic policies and alliance-building strategies to counterbalance China’s dominance in critical mineral sectors. Empirically, we first assess the nature of US domestic policies with respect to promoting domestic critical mineral production and restricting foreign investment in the extractive sectors through investment screening measures, and then assess the degree to which the US has relied on Five Eyes alliance partners to achieve common strategic goals. We find evidence that the US uses a multifaceted geoeconomic approach involving domestic policies and alliance strategies to counterbalance China’s dominant position in critical mineral supply chains.

The Commonalities of Socially Responsible Investment With Islamic Finance: A Bibliometric Analysis

This study aims to evaluate the number of overviews on the commonalities of socially responsible investment (SRI) with Islamic finance by providing critical thinking in terms of the investment screening process. The main critical reviews are obtained from the articles, paperwork, and previous related studies from reputable open access journals such as Emerald, SSRN databases, and other indexed-Scopus on the Web of Science. This study finds that the commonalities of socially responsible investment with Islamic finance has seemingly been characterized as a slow-moving but unstoppable works since global movements aspire to prevent a transgression of Earth's boundaries towards financial risks. Intertemporal choice accounts for how reliable constitutes for transitioning and adapting planetary boundaries in investment decisions. The challenge is to bridge the postulated gap on the commonalities of SRI with Islamic finance leading into social and financial return aspects in order to construct long-term predictions and scenarios embodying the Islamic finance concept through environmental, social and governance (ESG) approach.

Rethinking Just Transition in Investment Law Perspective: Incentives against Climate Crisis between Sustainability, Economic Security, and Strategic Industrial Planning

With the expression “Just transition”, the European Commission refers to a new development model to bring in the environmental and digital transition “leaving no one behind”. From an investment law perspective, it implies the adoption of several incentives to support new green economy activities or the reconversion of old ones into green and energy-neutral production models. Starting from an analysis of the EU just transition strategy, the paper focuses on the Italian case, investigating the interconnection between just transition funds and other measures (the Single Special Economic Zone and National Recovery and Resilience Program) to verify their effectiveness in terms of investment retention and attraction and their effects in terms of strategic industrial planning. Concerning retention, the Sider Alloys and Acciaierie d’Italia case studies are analyzed. Concerning attraction, as the incentives may appeal to aggressive activities dangerous to the EU and Member States’ strategic autonomy, the paper offers an overview of the instruments available for screening and preventing creeping economic operations, especially the proposed reform of the investment screening mechanism and the anti-coercion instrument. In conclusion, the paper proposes the adoption of an ex ante impact assessment, including citizen consultation, aimed at verifying investment concrete capacity to contribute to the just transition process.

Balancing security and economics: domestic state-firm relations and investment screening mechanisms in Europe

In an era of intense geopolitical competition, concerns about the impact of foreign investments in strategic sectors of the European economy have led policymakers to review European investment screening mechanisms (ISMs). In doing so, European institutions and member states have to find a balance between security and economics, maintaining a favorable environment for potential investors while simultaneously protecting specific sectors that they deem important for European and national security. We argue that the existing structure of state-firm relations decisively shapes the institutional configuration of European ISMs at the national level. We identify two ideal-typical patterns of state-firm relations: Public governance and private governance ecosystems. We hypothesize that variations in domestic state-firm relations decisively shape the institutional configurations of European ISMs, and, more broadly, how European governments and firms navigate the trade-off between openness and protection of strategic assets.

An Attractiveness Bias? How Women Entrepreneurs’ Physical Appearance Affects Men Investors

Women founders frequently appear to encounter varied and often negatively biased decisions from investors. Our study builds on the theoretical and practical interest in understanding whether and how biases against women entrepreneurs are attributed to men investors’ cognitive and physiological (i.e., hormonal) responses to the women’s physical appearance. Using a cross-sectional research design, we recruited 106 experienced investors and randomly assigned them to one of two versions of a prerecorded pitch to test the effect of a woman entrepreneur’s physical attractiveness. The versions were identical in content and form but were delivered by different actresses, one of whom was considered highly attractive. We asked participants to observe the pitch and answer questions on related topics, including how likely they believed the business described would successfully progress through the screening stage of the investment process. In contrast to our hypothesis, we find that a woman entrepreneur’s attractiveness positively influences men investors’ assessments of her competence. These competence assessments lead to evaluations that the entrepreneur’s proposal would progress through the investment screening stage. We also theorize and find that men investors have a marked increase in cortisol levels when presented with an attractive woman entrepreneur. This increased cortisol leads to evaluations that the entrepreneur’s proposal would progress through the screening stage. Identifying the role physiological mechanisms play in investment evaluations underscores the importance of adopting proactive measures to ensure equitable and fair investment practices alongside fostering introspection within the investment community.

Foreign Investments and Energy Transition in the Netherlands

Affordability, competitiveness, security of supply, and sustainability are among the goals set for the field of the energy transition for 2030 through 2050. In order to meet these goals, the energy sector of the European Union (EU) will require a continuous inflow of capital, particularly Foreign Direct Investment (FDI). Unfortunately, FDI has raised severe national security concerns in EU Member States, leading to the need to adopt and subsequently revisit the FDI screening framework on the EU level. On a domestic level, several EU Member States, such as the Netherlands, have either strengthened or are considering strengthening their screening mechanisms. States have been screening FDI on national security grounds for decades, but the scope of new mechanisms has dramatically expanded to cover more sectors, transactions, and types of investors. In particular, FDIs that affect energy infrastructure, supply of energy, raw materials, dual-use items, and critical technologies necessary for the energy transition should be subjected to more rigid scrutiny. These regulatory and policy developments might hinder the flow of investments into the energy sector and the advancement of new technologies and thus have implications for the prospects and speed of the energy transition in Europe. This Article will discuss the overarching question of how states can organize their investment screening mechanisms in a way that balances their national security interests against the need for free flow of FDI to stimulate development of technologies that accelerate the energy transition. This includes a case study of the FDI policy of the Netherlands, one of the major destinations of global FDI. This Article initially distills the principles necessary to balancing competing security and economic interests of host states in the investment law context. Based on such principles, it further examines the extent to which existing regulatory mechanisms in the Netherlands are adequate in addressing security concerns posed by FDI while continuing to attract investments in the energy sector and related technologies. Specifically, this Article aims to identify trends in investment screening in the Netherlands, reflect on their coherence with overarching EU investment policy objectives and the multilateral guidance on a good policy design, and discuss the potential implications of recent regulatory developments for the future of the energy transition in Europe. More broadly, this Article contextualizes the case of the Netherlands within the global movement of tightening control over FDI and explores the relationship between the investment policy of a State, on the one hand, and its objectives to combat climate change and safeguard energy security, on the other.

Applying the Coase theorem to optimize levels of environmental investment screening

The current paper applies the Coase theorem (Coase, 1960) to environmental investment screening. The Coase theorem is a legal and economic theory focused on explaining how parties when facing a situation involving externalities can reach economic efficiency without government intervention. Through secondary research, the paper examines practices in environmental investment screening, trends in the costs of screening, and trends in the costs of pollution. My findings are in four folds: (1) environmental screening incurs cost, (2) exclusion of environmental screening incurs costs, (3) environmental screening costs are declining, and (4) the cost per unit of pollution is increasing. Applying these findings to the Coase theorem, we conceptually identify an equilibrium point for the optimal level of environmental screening. I further show that the equilibrium point is shifting towards a higher level of environmental screening. The paper thus provides an efficiency-based argument for higher levels of environmental investment screening.

Strategic Autonomy, REPowerEU And The Internal Energy Market: Untying The Gordian Knot

The “open” strategic autonomy discourse now serves altogether as a new narrative and overarching principle of EU energy policy. This article conceptualizes EU strategic energy autonomy (SEA) as the Union’s ability to choose autonomously its own path towards a decarbonized “energy mix”. Realizing EU SEA demands a more holistic energy policy to tackle external dependence on foreign suppliers of energy commodities, technologies, and raw materials critical to the green transition. In this context, joint external action is important; but coordinated internal action is even more so, as the nature and magnitude of external constraints also depend on internal choices among the Member States concerning transition pathways. The article focuses on the internal dimension of EU energy policy. The REPowerEU plan and related emergency measures adopted under Article 122 TFEU to guarantee solidarity in tackling the impending energy crisis only brought a partial answer and once again raised the question of the EU competence to act on energy security issues. It is argued that the shared competence and related limitations foreseen in the TFEU should not prevent the EU from implementing a long-term holistic policy to pursue a resilient decarbonization policy throughout the energy value chains. The EU may well become more relevant than in the past when it comes to the energy security of Member States. New regulatory tools may be needed to support the integrity of the cornerstone of EU energy policy to date – the internal energy market – in the pursuit of an “open” SEA. The potential contribution to safeguarding “open” SEA from EU foreign direct investment screening, the forthcoming carbon border adjustment mechanism, and the new EUforeign subsidy regulation are discussed in this context.

Toward best practices for trade-security measures

Abstract The global economy is increasingly being weaponized. Citing security concerns from traditional defence to economic competitiveness, health emergency, and climate crisis, states are turning to sanctions, tariffs, export controls, investment screening, and subsidies. But while economic statecraft is becoming common, rules remain scarce. Questions about notice, duration, proportionality, harm minimization, compensation, retaliation, and/or rebalancing lack clear answers and seem almost theoretical. Once, we might have hoped the World Trade Organization (WTO) would play a role in developing such rules. But in the absence of an Appellate Body and in the face of state rejections of review, WTO’s deliberative processes have ground to a halt. This essay argues for a new approach, focused less on adjudicating security disputes than on developing best practices for invoking and using trade security measures. It explains why a new approach is necessary, detailing both how the WTO’s deliberative engine broke down and why dispute settlement is ill-suited to develop guidance now needed. It suggests where and how best practices might be developed, before considering an agenda for such a best practice process. In the end, the hope is a process that can develop expectations—expectations that might make a world of economic statecraft a bit less dangerous.

When the Dragon comes Home to Roost: Chinese Investments in the EU, National Security, and Investor–State Arbitration

Abstract The gradual rise of China as an economic, normative, and lending power has resulted in more protectionist measures in areas of the world that traditionally championed economic liberalization. Currently, 21 out of 27 European Union (EU) Member States have national laws or measures in place for the screening or review of foreign investments. However, such restrictive national measures can result in investment treaty-based arbitration under the existing bilateral investment treaties concluded by 26 EU Member States with China, as evidenced by the recent arbitration initiated by Huawei against Sweden. Therefore, this article assesses whether EU Member States are likely to see a spike in investor–State arbitral claims initiated by Chinese investors as a result of the former’s investment screening measures. To achieve this aim, the article first looks at the bilateral investment treaties (BIT)-level variables that can influence the initiation of arbitration against EU Member States, such as the presence and type of investor–State arbitration (ISA) clauses, the types of investments being made, the coverage of the pre- and/or post-establishment phases, or the inclusion of ‘non-precluded measures’ clauses. This is then followed by a look at other variables, such as the decreasing number of Chinese foreign direct investment into EU countries, the treatment of Chinese investors in recent high-profile cases, and the importance of security alliances. The article concludes that those EU States are at a higher risk of being respondents in arbitrations initiated by Chinese investors whose BITs with China include modern ISA clauses, cover the pre-establishment phase, and lack non-precluded measures clauses. However, EU States should wait for the outcome of the Huawei v Sweden arbitration before deciding whether the amendment or termination of the existing BITs with China is needed.

Tilted Balance to Security or Economy? A Comparative Study of National Security Review Mechanisms in the Netherlands and the United States

The Netherlands and the United States (US) stand as strong allies, united by a robust commitment to democratic norms and market principles that anchor a more open, fair, and market-led global economy. Their prosperity has been founded on free trade and investments. However, with the evolving dynamics in global geoeconomics and geopolitics in recent years, both nations have introduced or enhanced their national security review mechanisms. Given their shared attributes, this article compares the review mechanisms of the two countries and explores whether the new Dutch national security review system will mirror the regime of the US or introduce distinct innovations. It also explores the reasons behind each nation’s different preferences regarding the balance between economy and security. Foreign Direct Investment, National Security, Economic Security, Investment Screening, the Netherlands, the United States, Comparative Research

Sweden ∙ Nine Months with Foreign Direct Investment Screening

Sweden ∙ Nine Months with Foreign Direct Investment Screening

독일의 외국인투자 심사강화에 대한 분석과 시사점

독일의 외국인투자 심사강화에 대한 분석과 시사점

Report on the First CELIS NOW Conference ‘The Age of Open Strategic Autonomy’

On 11–13 May 2023, the CELIS Institute’s Early-Career Scholars’ and Practitioners’ Network on the Law and Practice of Economic Warfare (CELIS NOW) organized its first conference on ‘The Age of Open Strategic Autonomy’ in Berlin, Germany. This new network is designed to provide its members with a unique opportunity to exchange ideas and engage with the growing community of scholars and practitioners interested in investment and trade law in this changing geo-economic world. The CELIS Institute is an independent non-profit, non-partisan research enterprise dedicated to promoting better regulation of foreign investments in the context of security, public order, and competitiveness. CELIS NOW was established by Jonas Fechter (University of Münster) and Janosch Wiesenthal (University of Passau) in 2022, in order to create a forum for early-career lawyers in the field of trade and investment law. Since then, CELIS NOW has grown in size. At this first conference, about 40 lawyers who are professionally engaged with geo-economic trends gathered in Berlin to exchange ideas related to the emerging doctrine of Open Strategic Autonomy. The conference was generously supported by BLOMSTEIN and Freshfields Bruckhaus Deringer. This report summarizes the conference proceedings. Open Strategic Autonomy, Economic Warfare, Economic Security, Geo-Economics, Investment Law, Trade Law, Investment Screening, Foreign Subsidies, Anti-Coercion Instrument