Foreign direct investments

In the United States, tighter screening of foreign investments by the CIFUS – the responsible review committee – is being discussed. To what extent will German companies be affected? A statement from Freya Lemcke, Vice President of RGIT Washington.

Increasing investments from emerging economies are fueling the political debate over government interventions in foreign direct investment in Germany. We spoke with Hubertus von Baumbach, chairman of the BDI Foreign Trade Committee, about foreign direct investment and investment screening.

The number of German and European companies taken over by Chinese firms is growing. Does the state need increased intervention rights to prevent such takeovers? In Berlin and Brussels, the first political measures have been undertaken. However, industry continues to insist that Europe must remain open to investment and interventions in private property must be avoided.

The increase in investment from emerging markets is fuelling the political discussion about the possibilities for state intervention in foreign investments in Germany. BDI rejects the tightening of investment screenings. Germany should unequivocally present itself as an open country.

The instrument of investment guarantees is indispensable for German exporters. It secures the global presence of German industry. When investing in emerging economies and developing countries in particular, investors are exposed to political risks that they could not take without investment guarantees.

Comprehensive protection from political risks to foreign direct investment is of great importance to business. International Investment Agreements (IIAs) and investment chapters in free trade agreements (FTAs) offer such protection.

For companies, foreign investments go hand in hand with both economic and political risks. Agreements promoting and protecting investment (Bilateral Investment Treaties or BITs) as well as investor-state dispute settlement (ISDS) offer much needed protection against political risks. As foreign direct investment is increasing worldwide, the number of such treaties and the number of investor-state disputes are also on the rise. At the same time, public criticism on the design of BITs has intensified.

Emerging economies are pressing for reforms in investment promotion and protection. Existing agreements are being terminated and renegotiated, new standards drafted. The objective is frequently to secure the state’s right to regulate.

Since 2000, the United Nations Conference on Trade and Development (UNCTAD) has identified a trend towards greater protectionism against foreign direct investment. Reversing this trend is of great importance, not only for German industry.

More than half of all the ISDS cases ever brought by German investors have been directed against other EU member-states. The European Commission has demand-ed that the EU member-states terminate their international investment agreements with other EU states. Nevertheless, investor protection must be upheld.