In this 11th edition of The Foreign Investment Regulation Review, expert practitioners in 25 jurisdictions set out the key elements of foreign investment review and the latest developments in enforcement in their countries. We are delighted this year to include chapters on Australia, Norway and Turkey. This preface incorporates and builds upon the detailed update pertaining to foreign investment developments that we provided in the preface to the 10th edition of this publication.
Unlike systems of merger control, foreign investment regimes often defy simple summary of the thresholds for their application. Typically, the powers of government to review transactions are broad or even substantially unlimited, sometimes focusing on investment in key strategic industries while reserving a general review power for other sectors. In this context, we hope that the jurisdictional summaries at the start of the book – now with more user-friendly navigation in the online version – is a useful tool.
Geopolitical tension continues to increase in prominence as a factor that affects all aspects of international commercial activity. Continuing trade tensions between China and the United States, together with other members of the Five Eyes security sharing network, coupled with concerns about the status of Taiwan, the massive supply chain disruptions emanating from the covid-19 pandemic, the broad continuing consequences of Russia's invasion of Ukraine, and the surge of interest in artificial intelligence and other technologies requiring huge levels of computing power, among many other factors, have all contributed to an increased focus on the regulation of foreign investment.
In consequence, the prevailing trends of enforcement over the past 12 months are the increased scope of foreign investment regulation across countries and the increased intensity of interventions – with a steadily growing number of transactions being subject to remedies ranging from specific corrective orders to outright prohibitions. The concept of national security, which forms the heart of many foreign investment reviews, has generally been broadened far beyond defence and military markets to include many areas where national sovereignty over industrial capability is considered to be essential. These broader sectors include semiconductors and other computer componentry and technology, artificial intelligence, advanced materials, telecommunications, cybersecurity technology, civil nuclear power generation, the mining of critical minerals, other energy production and storage technology, and key transport infrastructure. In addition, essential supply chains, significant environmental investments and certain investments pertaining to sensitive cultural sectors also may become focal points for national interest considerations and related foreign investment reviews.
Examples of these trends are plentiful. In September 2022, US President Biden directed the Committee on Foreign Investment in the United States to take into account a broader US national security policy with a focus on economic security as a key driver of national security, thereby considering US technological leadership in specific areas as part of its review. The Canadian government announced a new policy in October 2022 for national security reviews under the Investment Canada Act, significantly limiting the scope for foreign state-owned enterprises (and private investors with close ties to foreign governments) to invest in Canada's critical minerals sectors and critical minerals supply chains.
In addition, in November 2022, Canada launched its new Indo-Pacific Strategy, which is directed at enhancing security while expanding trade and certain types of investment together with supply chain resilience in the Indo-Pacific region. Developments such as Canada's Indo-Pacific Strategy and the formation of AUKUS (a trilateral pact between Australia, the United Kingdom and the United States) in September 2021, both in relation to the Pacific region, underscore the growing breadth of national security and its potential effects on the expanded scope of foreign investment reviews. That includes a broader array of markets that may be subject to parallel competition reviews. Significant continuing geopolitical considerations pertaining to but not exclusively relating to China and North Korea underlie these evolving developments.
One very recent development is the Canadian government's announcement on 1 September 2023 pertaining to a wide range of new national security measures directed at precluding Chinese government influences on the operations of a bank that is incorporated and based in Canada.
Operation of the United Kingdom's National Security and Investment Act 2021 is now in full swing, with the UK government prohibiting five transactions since 2022, all of which involved investors with links to China or Russia. Interventions in the United Kingdom have not, however, been limited to Chinese or Russian investors, with a further 10 transactions being subject to remedies, including those where the acquirer was linked to allied Western states. Belgium, Italy and the Netherlands have introduced new foreign direct investment and national security screening legislation, while Germany has broadened its definition of the critical infrastructure that is subject to more intense review under its law to include liquefied natural gas terminals and submarine cable landing points. Germany and Italy have both ramped up their enforcement efforts and intervened in several transactions involving Chinese or Taiwanese acquirers.
Japan has strengthened restrictions on foreign investments in broadcasting businesses, while its new screening framework for security-critical infrastructure came onstream in 2023. Somewhat bucking the trend, China, on the other hand, has liberalised its restrictions in a bid to attract foreign investment into advanced manufacturing industries and modern service industries. In particular, the newly introduced flexibility covers areas of renewable energy technologies and products, medical consumables, recycling and energy saving technologies, products and related services.
Related developments have not been limited to regimes to monitor inbound investments. In August 2023, the US government, through an Executive Order of President Biden, gave notice of an intention to introduce restrictions on US companies making outbound investments in relation to certain businesses in China. This Executive Order marks a new departure for US investment control policy. The European Union is also actively discussing the introduction of a new initiative to create a targeted set of outbound investment controls. Japan and China already, to a certain extent, apply outbound investment controls for their companies.
A different, but closely related, development has been the introduction of protections against the distortive effects of foreign subsidies on domestic markets. The EU Foreign Subsidies Regulation is now in operation and grants the European Commission the ability to investigate and enforce against subsidies from non-EU governments in a range of scenarios. A critical part of this new regime is a new filing and approval requirement for transactions that meet the applicable thresholds. The US antitrust agencies have also proposed changes to the requirements of their Hart-Scott-Rodino Act merger filing form to require merging parties to provide information about subsidies from 'foreign entities of concern' that can distort the competitive process or otherwise undermine competition following an acquisition.
It is therefore evident that a detailed understanding of the filing and approval requirements – as well as how to navigate the potential pitfalls – in a potentially large list of foreign investment review regimes has become a critical aspect of international deal planning. There is also a growing potential for developments in one area of review to affect the assessment in the other.
These developments also have been recognised by bar associations and policy institutes internationally. In November 2022, the Organisation for Economic Co-operation and Development (OECD) held the first joint session of the OECD Competition Committee and the OECD Foreign Investment Committee to discuss developments in parallel pertaining to the interface of competition reviews in parallel with foreign investment reviews. Delegations from government bodies across the globe, together with representatives from the business community, participated in that joint session. In addition, in August 2023, the American Bar Association Antitrust Section constituted for the first time a new Committee on Foreign Investment and National Security. The new Committee will focus on the increasing interface of competition reviews and foreign investment reviews, having regard to the evolving breadth of national security issues, especially in relation to the technology sector and the supply of certain essential products. The Committee's mandate is not limited to the United States but rather extends to the evolving interface across the globe. The net effect of these developments is that transaction planners now have to contend, in an increasing number of cases, with significant additional geopolitical, security and national interest considerations together with related regulation going beyond traditional competition law reviews.
In the context of these significant evolving developments, we hope that this publication will prove to be a valuable guide for parties and their legal counsel considering a transaction that may trigger a foreign investment review. This publication provides relevant information about and insights into the framework of laws and regulations governing foreign investment in each of the featured jurisdictions, including the timing and mechanics of any required foreign investment approvals and other jurisdiction-specific practices. The focus is on practical and strategic considerations, including the key steps for foreign investors planning a major acquisition or otherwise seeking to do business in a particular jurisdiction.
This publication examines the emerging issues described above and the recent trends that have continued to evolve, together with their implications. Parties and their legal counsel would be well advised to ensure that they thoroughly understand these issues and, if necessary, engage with regulatory counsel early in the planning process so that deal risk can be properly assessed and managed.
We are thankful to each of the chapter authors and their firms for the time and expertise they have contributed to this publication. We also thank Law Business Research Ltd for its ongoing support in advancing such an important and relevant initiative.
Please note that the views expressed in this book are those of the authors and not those of their firms, any specific clients, or the editors or publisher.
Calvin Goldman, KC
The Law Office of Calvin Goldman, KC
Toronto
Alex PotterFreshfields Bruckhaus Deringer LLPLondonSeptember 2023