On October 26, 2022, the German government permitted (with conditions) an investment by Chinese state-owned COSCO Shipping Group (“COSCO”) in one of Hamburg’s four shipping container terminals. Pursuant to foreign direct investment (“FDI”) laws, the German Ministry for Economic Affairs and Climate Action (Bundesministerium für Wirtschaft und Klimaschutz, “BMWK”) had been notified of the proposed acquisition by COSCO of a 35% minority interest in the port terminal, a strategic location on the German coastline. The BMWK ordered that COSCO’s acquisition of voting rights must remain below 25%. The details of the decision remain confidential, but the BMWK justified its partial prohibition on the grounds that the acquisition of 35% as notified would constitute a “threat to public order and security”. According to the BMWK’s press release, the partial prohibition decision prevents COSCO from acquiring a ‘strategic’ shareholding, and reduces the acquisition to a mere financial participation. As a safeguard in this respect, the decision contains provisions prohibiting COSCO from acquiring any additional influence, for example, through a grant of rights that would be atypical for a holder of a less than 25% interest. Furthermore, under the German FDI regime, any follow-on acquisition of additional voting rights by COSCO would be subject to a new notification requirement.
Belgium and Ireland to introduce new FDI screening powers – European Parliament calls for broader reforms
The European Commission (“Commission”) has repeatedly urged EU Member States to set up foreign direct investment (“FDI”) screening mechanisms. To date, 18 out of 27 Member States have adopted FDI screening powers, providing for the review of M&A transactions and other investments on national security and public policy grounds. Recently, Belgium and Ireland have each announced draft proposals which, once implemented, will enlarge the group of Member States reviewing transactions on FDI grounds.
Against this background of increasing FDI screening for local and global M&A transactions, some voices call for broader reforms. The European Parliament has launched an initiative aimed to address a future EU international investment policy and recently adopted a resolution with far-reaching proposals for FDI screening in Europe.
We provide an update on these developments in this blog post and consider the current outlook for FDI screening.
FDI regulators show their teeth – Close scrutiny and firm intervention in response to Russia’s war against Ukraine
Russia’s continued invasion of Ukraine is broadly impacting foreign direct investment (“FDI”) screening. A range of governments have announced they will apply close scrutiny to investments from Russia and its allied countries in general, and not only to investors that are subject to sanctions or other restrictive measures. The European Commission (“Commission”) has published guidance on the screening of investments from Russia and Belarus.
The German government has already intervened, appointing a fiduciary for an operator of critical gas infrastructure. Canada issued a policy statement targeting Russian investors and Italy permanently broadened its FDI regime. Our blog provides a summary of these developments below.
Foreign Direct Investment Regulation: EU M&A after one year of the FDI Regulation
In M&A and other transactions, conditions associated with foreign direct investment (“FDI”) filings are becoming more common place, and investors are adjusting to the diligence, disclosure and time associated with obtaining FDI clearances. In the EU, the introduction of wider-ranging FDI laws has been rapid, and freshly empowered national regulators in the Member States are already demonstrating their willingness to use the tools at their disposal where they believe that is necessary. For investors, the deal execution risks are sobering in circumstances where a failure to obtain mandatory clearance may render a transaction void (in addition to other possible sanctions). Transaction costs are also rising as longstop dates lengthen to accommodate sometimes unpredictable FDI review periods, especially for deals in the most sensitive sectors.
Marking one year since the full implementation of the EU FDI screening regulation (the “EU FDI Regulation” or the “Regulation”), this blogpost considers the first annual report on FDI (the “Report”) published by the European Commission on 23 November 2021 and reflects on M&A in the current EU FDI landscape.
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Technology Sector under Closer Scrutiny – German Government Significantly Extends the Scope of Foreign Direct Investment Review in Germany
On 27 April 2021 the German government adopted the 17th amendment (“Amendment”) to the Foreign Trade and Payments Ordinance (“AWV”) aligning the German Foreign Direct Investments (“FDI”) regime with the EU Screening Regulation. The Amendment significantly extends the number of sectors and target activities that require mandatory notification in Germany and brings significant procedural changes and clarifications. The revised Ordinance entered into force on 1 May 2021 and will apply to all transactions signed thereafter.
The Amendment follows a series of prior legislative changes. In light of the COVID-19 pandemic, the German government previously adopted the 15th AWV-Amendment in June 2020, which introduced far reaching filing obligations in the healthcare sector. Subsequently, the first amendment of the Foreign Trade and Payments Act introduced standstill obligations backed by fines and criminal charges in July 2020. Together with the 16th AWV-Amendment in October 2020 the German FDI regime was also aligned with the requirements of the EU Screening Regulation.
Our blog provides an overview of the German FDI regime and highlights the key changes introduced by the Amendment.
Continue Reading Technology Sector under Closer Scrutiny – German Government Significantly Extends the Scope of Foreign Direct Investment Review in Germany
Significant Revamp of German FDI Regime – German Government Presents New Rules on FDI Screening
On 22 January 2021 the German Ministry for Economic Affairs and Energy (“BMWi”) published a draft for the 17th amendment (“Draft Amendment”) of the Foreign Trade and Payments Ordinance (“AWV”). While the Draft Amendment remains subject to comments and further consultation, it already provides early guidance on sectors that may come under close Foreign Direct Investments (“FDI”) scrutiny in future. Among other changes, the Draft Amendment defines a number of additional sensitive activities triggering mandatory and suspensive filing requirements.
The new rules can be expected to have significant impact on transactions in particular in the technology sector and will lead to a significant increase in mandatory FDI filings in Germany.
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Germany: The wind of change – Substantial competition law amendments
On 19 January 2021, the 10th amendment of the German Act against Restraints of Competition (“ARC”), the so-called ARC Digitisation Act (the “ARC-DA”) entered into force. The ARC-DA brings far-reaching amendments to German competition law, containing inter alia
- the introduction of a new framework to intervene in the digital sector and a revision of the rules on abuse of dominance including enhanced rules for access to data;
- significant increases of merger control notification thresholds applicable across industries; and
- a number of further substantial amendments including a codification of the FCO’s leniency program, the implementation of the European Commission’s ECN+ Directive introducing new powers of the Federal Cartel Office (“FCO”) in the context of inspections, and changes concerning cartel damage claims.
In this blog-post we focus on three core developments: (i) novel powers for intervention in digital markets, (ii) the additional basis for data access claims and (iii) the core amendments to the merger control regime.
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Foreign Direct Investment – German Government Prohibits Acquisition By A Chinese Buyer
On 2 December 2020, the German government prohibited the acquisition of German company IMST GmbH, Kamp-Lintfort (“IMST”) by a Chinese investor. This is the second high profile prohibition decision issued by the German government this year on the grounds of Foreign Direct Investment (“FDI”) rules. Read in conjunction with the upcoming legislative tightening of the existing Foreign Trade and Payments Ordinance (Außenwirtschaftsverordnung, the German FDI law), expected to come into force during Q1 / 2021, and other measures like the ‘golden share’ taken in Curevac (a company heavily invested in Covid-19 research), the IMST decision demonstrates the mounting willingness by Germany to step in and protect what it perceives to be its national interests.
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New era of FDI in the European Union – EU FDI Regulation now in full force and effect
On October 11, 2020, the EU FDI Screening Regulation (EU) 2019/452 – the “Regulation”) entered fully into force.
The Regulation, which was approved and adopted in March 2019, establishes a framework for the screening of foreign direct investments (“FDI”) by EU Member States in which decision-making powers rest at the Member State level. Significantly, from October 11, an element of EU-level cooperation in FDI is introduced and in particular will bring into effect (i) regular information sharing among Member States and the European Commission about transactions subject to national FDI screening, and (ii) a mechanism through which other Member States and the European Commission can coordinate and comment on FDI that has an “EU-dimension”.
In this blogpost, we look at the overall status of national measures in FDI at this juncture and describe in overview the EU-level cooperation and information sharing mechanisms.
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European Commission publishes White Paper on the Review of Foreign Subsidies – [New/More] Intervention Powers ahead?
On 17 June 2020 the European Commission (“Commission”) published a White Paper on new enforcement powers regarding foreign subsidies. This initiative pursues two objectives, first it sets out a general policy approach for foreign subsidies, and second, it provides a number of proposals to address a perceived regulatory gap. More specifically, the White Paper suggests new tools to manage what the Commission regards as unfair competition and other distortions of competition within the internal market caused by foreign subsidies.
The White Paper proposes these new review powers of the Commission and/or other competent authorities in addition to already existing tools such as antitrust and merger control, State aid and FDI screening. As such, the Commission outlines a complementary toolbox aimed to facilitate transparency regarding foreign subsidies and maintain a level playing field within the EU internal market.
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