16 November 2017

Rising Scrutiny: Assessing the Global Foreign Investment Review Landscape

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Most advanced economies have long adhered to an open, rules-based approach to foreign direct investment (FDI), benefitting both as large global investors and as recipients of foreign investment. In view of risks to global growth, many are reaffirming their openness to foreign investment to promote jobs, innovation and economic growth.

Yet the investment policy landscape is becoming more complex as nations respond to the effects of globalization, cybersecurity threats, state development strategies and geopolitical risks. While advanced economies remain eager to attract FDI, many have enacted, or are considering, new legislation to broaden the scope of government review of cross-border investments to address national security concerns. The reassessment of foreign investment policy is primarily due to record levels of Chinese investment, state development strategies and increased activity by state-owned enterprises and sovereign entities, and changing ideas about national and economic security.

Our new report examines the shifting foreign investment review landscape in select advanced economies, focusing on the EU and eight of the world’s key FDI jurisdictions – Australia, Canada, the US, France, Italy, Germany, Spain and the UK. Six of these countries have either changed their foreign investment review procedures since 2014 (Australia, Canada, France and Germany) or are considering doing so (the US and the UK). The EU has also put forth a proposal to establish a new EU framework for screening foreign investment.

Strategies for foreign investors

In the last year, countries such as Australia, Canada and Germany have clarified their foreign investment review frameworks to increase the transparency of the process and provide more certainty to investors. Other countries are ramping up scrutiny of investments in sensitive sectors to address national security risks. And independent of changes to host country laws, foreign governments are increasingly coordinating with each other where transactions involve assets in multiple jurisdictions.

All of this activity underscores the need for investors to prioritize foreign investment review risks. While most cross-border transactions still have a high likelihood of being approved, those in sensitive sectors may encounter more scrutiny and face a prolonged approval process. Our report offers ten strategies for investors to get deals through. Taking the time to identify applicable foreign investment laws and a regulatory strategy early in the deal process can minimize the risk of delays, last-minute changes to the deal structure, or even failed transactions.

The reality is that if you conduct a proper risk assessment early in the transaction by and large you know what you are getting into, you know what the issues are, and you can manage the risks. 
Sylwia Lis, Washington D.C.-based Partner

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