The CFIUS started a security investigation of TikTok after Beijing ByteDance Technology acquired US app Musical.ly in 2020, just one example of a growing global trend of FDI protectionism. (Photo by Justin Sullivan/Getty Images)

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.

New era for Chinese FDI regulations

China’s Foreign Investment Law (FIL) came into force on 1 January 2020, ushering in a new era for its foreign investment regime. The FIL expanded the scope of China’s national security review to include transactions between two foreign entities if there is a Chinese company or Chinese interests involved. As per rules published in December 2020, a body for security reviews will also be established and headed by the National Development and Reform Commission and the Ministry of Commerce. In addition, in December 2020, the Market Access Negative List was released, which outlines the industries that are either restricted or prohibited from both foreign and domestic investment. While the 2020 list features eight fewer restricted sectors than in 2019 (123 down from 131 in the previous edition), investors in industries such as agriculture, mining and financial services will still face restrictive measures.

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The impact of Covid-19

This protectionist trend has been exacerbated following the Covid-19 outbreak, with a raft of temporary amendments introduced by countries worldwide to protect vulnerable companies from opportunistic foreign takeovers. Numerous countries, including the UK and Japan, implemented measures to protect domestic life sciences companies while Australia made all foreign takeover proposals, regardless of sector or monetary value, subject to up to six months’ scrutiny. As the pandemic rages on in many parts of the world and economic recession looms, it remains to be seen which countries will loosen, extend or make permanent these changes.

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The interactive database in this article was made by Georges Corbineau.