As the world emerges from the Covid-19 pandemic throughout the course of 2021, business and trade will still be very active. Here are the five key legal and regulatory trends that we see as likely to impact cross-border trade and investment.

1. Export controls and vaccine nationalism – the new protectionism

In the world of export controls, 2020 was all about the scramble for personal protective equipment, while it is already clear that 2021 will be all about access to the Covid-19 vaccines essential for countries’ efforts to sustainably open their economies. The EU’s move to implement a transparency and authorisation mechanism for vaccines in response to supply shortages creates a headache for pharmaceutical companies. Another risk is that export controls are expanded to cover raw ingredients for vaccines or that other countries follow the EU’s lead, with the potential impact of slowing both vaccination rates and the economic recovery itself.

2. Foreign investment review regimes create new hurdles for cross-border investment

In 2020, 16 of the world’s 20 largest economies tightened or created new investment screening rules, a trend that we have seen coming for some time, but which was accelerated by the Covid-19 outbreak. Some of the temporary restrictions made in light of the pandemic’s immediate economic hit are likely to gradually go away as the shock dissipates, but concerns around subsidised and politically driven mergers and acquisitions will remain and drive restrictions moving forward. In light of the broadened concept of national security and awareness of growing vulnerabilities, investment restrictions are something we will see more of, particularly around data and security in supply.

The scale of change raises fundamental questions about the direction of economic nationalism, globalisation, free markets and protectionism. They also change the global dealmaking rulebook in ways that will only truly be felt in 2021, when cross-border transaction volumes pick up as countries emerge from the pandemic.

An inflexible or poorly designed foreign subsidy regime would undoubtedly have a chilling impact on FDI into the EU.

3. New laws on foreign subsidies – exporting the EU’s state aid regime?

The European Commission is planning to legislate new tools to address the potentially negative effects on the Single Market of subsidies provided by governments outside the EU. With proposals planned for the second half of 2021, this development has huge implications for foreign direct investment (FDI) by potentially giving extra-territorial reach to the EU’s state aid regime. It remains to be seen whether legislation can navigate the complexity of the EU’s existing commitments under international agreements, or indeed whether better enforcement of existing World Trade Organisation rules or investment-screening regimes might be more effective and less intrusive.

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The bottom line: an inflexible or poorly designed foreign subsidy regime would undoubtedly have a chilling impact on FDI into the EU. Industry and business associations should monitor developments closely.

4. A steady hand – the impact of the Biden administration

One of the key goals of the Biden administration’s trade policy will be to reassert the US as a leader in global trade, rather than continuing down the protectionist path that has been unwinding the global trade framework that was in place thanks to many years of US and multilateral efforts. We expect that the Biden administration will bring stability and certainty, as well as a pragmatic, rules-based approach to enforcement. These are the hallmarks of any effective trade policy, enabling all players at local, national and international level to be able to plan strategically and operate effectively.

While it is unlikely that the new president will completely change course in the US trade war with China, we expect he will take a more measured approach. On tariffs, Joe Biden has consistently emphasised the importance of working with allies and of showing respect for other countries. Trade relations with allies will be messy (as normal), but not combustible. Regarding sanctions, the Biden administration has indicated an interest in returning to the negotiating table with Iran to resurrect some version of the country’s nuclear deal. However, resurrecting the deal is much easier said than done, and it will be an uncertain and bumpy road ahead with challenges for companies to navigate.

5. Putting trade policy to work for social and environmental goals

New bilateral investment and free trade agreements are increasingly featuring non-economic dimensions. The EU-China Comprehensive Agreement on Investment includes commitments related to sustainable development; climate change and forced labour, for example. While it remains to be seen how the agreements will operate in the real world, we expect the symbolism of political backing will make it easier for both Chinese and European companies to be ambitious in setting and reaching their own ESG-related targets.

It is very likely that in future it will become standard for free-trade agreements to incorporate such social and environmental features.

Home page photo by Kay Nietfeld/Pool/AFP via Getty Images.