Foreign Direct Investments

At the end of 2020, it was news that had hardly been expected: the EU and China agreed on key points of the Comprehensive Agreement on Investment (CAI) between the two trading partners. This brought the negotiations, which had been ongoing since 2013, to a conclusion for the time being. For the time being, because the negotiations on investment protection have not been concluded yet and will have to be picked up within two years of the signature of the CAI.

To protect public order and security, government investment screening has been tightened several times in recent years. In the 17th amendment to the Foreign Trade and Payments Ordinance, however, the German government has addressed many of industry’s concerns. In the interests of Germany as an investment location, it is now important to apply the instrument with a sense of proportion. Investors and companies should not be exposed to further changes to the legal framework.

In recent years, the German Federal Government has repeatedly expanded its rights of intervention in foreign investments. Three modernization rounds of the regulatory framework are planned for 2020 alone. For industry, one thing is clear: Europe must remain open to investment. Intervention in private property and freedom of contract, motivated by industrial policy, threaten to damage our status as a business location.

By investing abroad, companies do not only face economic but also political risks. Bilateral and plurilateral treaties between states offer protection against political risks as well as clear procedures for settling disputes (investor-to-state dispute settlement; ISDS). With the increasing volume of foreign direct investment (FDI) worldwide, the number of disputes is also on the rise. At the same time, BITs have faced increasing criticism in the wider public.

Foreign direct investment is a crucial building block in achieving the Sustainable Development Goals of the United Nations (SDGs). Worldwide, investment facilitation is the key to making developing countries more attractive for international investors.  

Investment guarantees are indispensable for German exporters. When investing in emerging or developing countries in particular, investors expose themselves to political risks that they could not take without investment guarantees. As such, they are indispensable in ensuring the presence of German companies, in particular small and medium-sized firms, abroad.

The United States has tightened its investment screening (FIRRMA). The competencies of the CFIUS Committee, which is responsible for investment screening, have been significantly expanded. The reform increases the leeway of the government to prevent unwanted investment from abroad and to guard national security.