Dear Readers,
Foreign direct investment (“FDI”) control is rapidly emerging as a key regulatory vector across the U.S, Europe, and worldwide. In the U.S., FDI control is primarily the responsibility of the Committee on Foreign Investment in the United States (“CFIUS”). In the EU, aside from the adoption of the EU FDI Regulation in 2019, national FDI screening procedures are established in 18 (soon to be 19) Member States. Similarly, the UK implemented its National Security and Investment Act (“NSIA”) in early 2022.
The pieces in this Chronicle deal with the emerging field of FDI control as it evolves in jurisdictions around the world. As is evident from these perceptive articles, practitioners will need to be increasingly mindful of the FDI implications of cross-border transactions, both in terms of the substance of the FDI rules in various jurisdictions and the timing implications of FDI notification and clearance in terms of deal scheduling. Moreover, public authorities will continue to refine their policy priorities and notification regimes as their experience grows over time.
As regards Europe, Peter Camesasca, Horst Henschen, Katherine Kingsbury & Martin Juhasz note that as the European Commission and Member States begin to report on the implementation of their FDI regimes and as more decisional practice emerges, it is possible to reflect with greater clarity on their implications in practice. As the authors note, an overwhelming majority of FDI filings are cleared quickly, and the ‘true’ national security interest is much narrower than the scope of current filing requirements. This may indicate the need for a recalibration of these regimes in the months and years to come.
Turning to the U.S., articles by John R. Ingrassia and Benjamin Curley & Thomas Feddo draw out the implications of changing CFIUS policy. New theories of harm being advanced under both the antitrust and FDI regimes imply new risks, and procedural changes under both regimes means navigating new waters. This arises in particular for recent calls to break up “Big Tech” companies. The arguments for and against such breakup raise various considerations, but less-discussed potential national security risks lurk within the larger debate. In particular, such breakups could leave American intellectual property, data, technology, and know-how up for grabs by strategic competitors. CFIUS was created to protect against this kind of national security risk, but it has its limitations, particularly in terms of resourcing and the inherent opacity of venture capital and private investment. Given these risks, CFIUS and other national security authorities will need to be appropriately resourced and staffed in order to deal with the problem effectively.
These concerns are also reflected by Harry G. Broadman, who notes that global geopolitical shifts have altered the U.S. approach (which historically welcomed FDI as, inter alia, a potential solution to domestic antitrust concerns). We can expect more policy shifts to come, particularly in light of such developments as recent wars in Europe, and the growth of China as a global economic power.
Taking a global point of view, Daniel Culley, Chase Kaniecki, William Segal & William Dawley note that cross-border transactions are beset with more uncertainty and potential for delay than ever before, not only due to growing global competition enforcement but also new review regimes targeting FDI. These regimes empower governments, in some cases, to block or restrict cross-border transactions when these considerations conflict with often imprecisely defined national security, national interest, or other strategic concerns. The article usefully summarizes recent developments in global FDI review regimes and highlights the key issues raised by these regimes. It concludes by discussing the overlapping considerations created by the global merger control and FDI review regime analyses.
Finally, Nicole Kar & Mark Daniel draw out the implications of the UK approach under the NSIA of 2021, which took effect this year. This law radically overhauls the UK’s approach to foreign investment screening. ushering in one of the most expansive investment screening regimes internationally. Importantly, there is now a mandatory notification review process for the most sensitive areas of the economy, and a broad power for the Government to call in non-notified transactions. This timely article sets out some key takeaways from the practical implementation of the NSIA thus far, and highlights some of the continuing areas of legal uncertainty that the authorities could consider clarifying going forward, in light of recent prominent cases.
As should be evident from the foregoing, the issue of FDI control is not going away. As with parallel developments in traditional merger control, these are early days. This set of articles provides invaluable insight into developments so far, and should be invaluable reading for anyone seeking to chart the way ahead.
As always, many thanks to our great panel of authors.
Sincerely,
CPI Team
