Foreign Direct Investments

The German government has repeatedly tightened investment screening standards in recent years. A modernization of the Foreign Trade and Payments Act (Außenwirtschaftsgesetz) is planned for 2020. The government should protect national security and public order. However, interference in private property and contractual freedom motivated by industrial policy would lead to severe market distortions.

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.

An EU-China investment agreement is long overdue. So far, the negotiations for the Comprehensive Agreement on Investment (CAI), which had started in 2013, are proving difficult at best. The CAI is so cover both investment protection and improved market access. To ensure a level playing field for German companies, the negotiations should finally be concluded in 2020.

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.