A country establishing foreign investment laws to protect its national security is nothing new. However, in line with the global rise of foreign direct investment (FDI) protectionism, an ever-growing number of countries are reconsidering what constitutes a threat to their national security or public interest. As a result, an increasing number of governments are establishing FDI screening mechanisms, expanding the range of sectors subject to them, and lowering the thresholds for investments that require prior approval. Investment Monitor’s FDI regulations database offers a general overview of these protectionist policies from country to country as well as the restrictions that have been implemented in relation to Covid-19.
The US’s anti-China policies
The US is one of the leading proponents of protectionist FDI regulations. The Foreign Investment Risk Review Modernization Act (FIRRMA) was signed into law by then-president Donald Trump in August 2018 and became fully effective in February 2020. The act strengthened and modernised the Committee on Foreign Investment in the United States (CFIUS) to handle national security concerns more effectively. Although no explicit reference about China is made in FIRRMA’s provisions, the primary objective of the act is to give the CFIUS greater visibility into Chinese investment in the US.
The EU’s protectionist path
Similarly, the EU had already been outlining protectionist measures pre-pandemic. Regulation (EU) 2019/452, the first set of EU-level rules aimed explicitly at FDI, was first adopted in March 2019, and became fully operational in October 2020. The regulation created a cooperation mechanism for member states and the European Commission to exchange information and, if necessary, raise concerns related to specific investments. While the regulation does not replace FDI screening measures within the member states, it aims to encourage cooperation, information sharing and transparency regarding FDI control. Several EU countries, among them Germany, Austria and France, have already toughened their investment regimes following the adoption of the regulation, while others including the Czech Republic, Denmark and Ireland are preparing draft bills that will soon be enacted into law.