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From: Karl Sauvant <[log in to unmask]>
Date: Mon, Feb 25, 2019 at 11:53 AM
Subject: Is international investment threatening or under threat? (Columbia
FDI Perspective No 246)
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*Columbia FDI Perspectives*
Perspectives on topical foreign direct investment issues
No. 246  February 25, 2019
Editor-in-Chief: Karl P. Sauvant ([log in to unmask])
Managing Editor: Marion A. Creach ([log in to unmask])
*Is international investment threatening or under threat?*
* <#m_-1644045604523995441__edn1>
Joachim Pohl** <#m_-1644045604523995441__edn2>

Three recent *Perspectives* have opined on how openness to international
investment can be reconciled with growing concerns over host countries’
national security resulting from such investment. The *Perspectives* cover
ongoing reforms in the world’s two largest economies, the United States and
the European Union, and concerns around investment by state-owned
enterprises, often associated with the third-largest world economy, China.
[1] <#m_-1644045604523995441__edn3> All three *Perspectives* express
worries that new policies to manage threats may unduly restrict
international investment. Is international investment under threat or is it
threatening national security?

Over the past two years, nine of the ten largest economies have changed
their rules on foreign takeovers to fend off risks for their national
security, as have many smaller economies, both advanced and emerging.[2]
<#m_-1644045604523995441__edn4> Many governments are concerned about the
circumvention of existing rules; acquisitions of smaller stakes in target
enterprises; new threats in emerging sectors (e.g., artificial
intelligence, robotics, networks, quantum computing) and in relation to
sensitive personal information; new risks in more established sectors
(e.g., real estate); insufficient sanctions for breaches of obligations;
and unduly short time frames for conducting a thorough review of proposed
transactions. This comes on top of many perceived shortcomings of existing
policies, revealed by policy practice and the apprehension of new threats,
most often related to digital activities. The recent proliferation of
restrictive policies and reforms suggests broader perceptions that foreign
investment may threaten national security.

But governments’ responsibility to manage threats to national security
should not become a threat to international investment, or international
economic transactions more generally.

How can risk-management be reconciled with openness, and how can the impact
of legitimate policies on international investment be minimized?

The main threat to international investment does not stem predominantly
from the stringency of regimes in individual countries—so far, there are no
signs of manifest overreach. A veritable problem may, however, result from
the growing number of countries that screen investment for threats
independently from each other, aggravated by different criteria and
procedures in each jurisdiction. A single proposed acquisition involving an
MNE may trigger reviews in each of the jurisdictions where it has
operations, which may delay or derail the transaction.

Two remedies should be considered cumulatively:

   - Governments harmonize the criteria and procedures they use to evaluate
   the risk of transactions so that investors face a single set of rules in
   all jurisdictions in which they must obtain approval. Governments could
   develop jointly common guidelines that would be reflected in domestic rules
   and practice. Harmonized assessment criteria, such as transparency about
   ultimate beneficial ownership, would likely require or entice investors to
   adapt their corporate governance and behavior to lower their risk profile,
   similar to steps sovereign wealth funds took when agreeing on the Santiago
   Principles a decade ago.[3] <#m_-1644045604523995441__edn5>
   - Governments work toward mutual recognition, either in part or in full,
   of the assessment that their peers have made of individual investment
   proposals. They could take inspiration from other areas where multiple
   jurisdictions are competent and efficiency considerations call for a
   concentration of procedures or decisions. Collaboration among competition
   authorities, the recognition of judicial decisions abroad and product
   standard recognition are among the many examples where this approach has
   been successful. Common standards on combating anti-money laundering and
   terrorism financing, developed by the Financial Action Task Force, show
   that cooperation can succeed in sensitive policy areas related to national

While examples for successful international standard-setting and mutual
recognition abound, such co-operation in the investment area is still at
infant stages. However, recent US legislation and EU efforts (as outlined
in other *Perspectives*) call for co-operation, without specifying the form
that it should take. The OECD has spearheaded endeavors to balance openness
and national security risk management for decades. With 59 advanced and
developing economies around the table, the OECD is well placed to catalyze
agreement on common standards and rules and to foster harmonization in this
area so that threats from investment do not threaten investment.

* <#m_-1644045604523995441__ednref1> *The Columbia FDI Perspectives are a
forum for public debate. The views expressed by the author(s) do not
reflect the opinions of CCSI or Columbia University or our partners and
supporters. Columbia FDI Perspectives (ISSN 2158-3579) is a peer-reviewed
** <#m_-1644045604523995441__ednref2> Joachim Pohl ([log in to unmask])
is an analyst in the Investment Division of the OECD. This *Perspective* is
based on a forthcoming report on policies to manage acquisition and
ownership-related risks to essential security interests (to be released at
the occasion of an OECD conference on March 12, 2019
the previous report “Investment policies related to national security: a
survey of country practices” (Paris: OECD, 2016)
and a note on “Current trends in investment policies related to national
security and public order” (Paris: OECD, 2018)
The author is grateful to Ana Novik and Frédéric Wehrle for their feedback
and Alvaro Cuervo-Cazurra, Krista Nadakavukaren Schefer and Mark Plotkin
for their helpful peer reviews.
[1] <#m_-1644045604523995441__ednref3> Carlos Esplugues, “A future European
FDI screening system: solution or problem?,” *Columbia FDI Perspectives*,
No. 245, February 11, 2018
Alvaro Cuervo-Cazurra, “Host country concerns and policies toward
state-owned MNEs,” *Columbia FDI Perspectives*, no. 237, October 22, 2018
Theodore H. Moran, “CFIUS reforms must be reformed,” *Columbia FDI
Perspectives*, no. 231, July 30, 2018
[2] <#m_-1644045604523995441__ednref4> Notifications to the OECD of new
policies, mandatory under its instruments, are available at
[3] <#m_-1644045604523995441__ednref5> Frédéric Wehrlé and Hans
Christiansen, “State-owned enterprises, international investment and
national security: the way forward,” *OECD on the level*, October 4, 2017
*The material in this Perspective may be reprinted if accompanied by the
following acknowledgment: “Joachim Pohl, ‘Is international investment
threatening or under threat?,’ Columbia FDI Perspectives, No. 246,
February 25, 2019. Reprinted with permission from the Columbia Center on
Sustainable Investment (***
A copy should kindly be sent to the Columbia Center on Sustainable
Investment at **[log in to unmask]* <[log in to unmask]>*.*

For further information, including information regarding submission to the
*Perspectives*, please contact: Columbia Center on Sustainable Investment,
Marion A. Creach, [log in to unmask]

*Most recent Columbia FDI Perspectives*

   - No. 245, Carlos Esplugues, “A future European FDI screening system:
   solution or problem?,” February 11, 2019
   - No. 244, Mark Feldman, “China’s Belt and Road investment governance:
   building a hybrid model,” January 28, 2019
   - No. 243, Karl P. Sauvant, “Five key considerations for the WTO
   investment-facilitation discussions, going forward,” January 14, 2019

*All previous FDI Perspectives are available at *
*. *

*Other relevant CCSI news and announcements*

   - CCSI is hiring a new *Special Assistant to the Director* to begin in
   late spring/early summer 2019. *To apply for the position, please see
   our website here
   for more information.*
   - *In January 2019*, CCSI submitted comments to the Drafting Team
   of the Hague Rules on Business and Human Rights Arbitration
   - *We are still accepting applications for our three upcoming executive
   trainings on: *Extractive Industries and Sustainable Development
    *(June 3–14, 2019), **Sustainable Investments in Agriculture
   (June 11–21, 2019) and Investment Treaties and Arbitration for Government
   (June 17–27, 2019).* Each program is designed to equip participants with
   the necessary skills, analytical tools and frameworks to address relevant
   challenges and opportunities, and to encourage a rich dialogue about best
   practices from around the globe.* More information about each training,
   including brochures and applications, is available at the links above.*
   Applications are accepted on a rolling basis. Participants will receive a
   Statement of Attendance from Columbia University.

Karl P. Sauvant, Ph.D.
Resident Senior Fellow
Columbia Center on Sustainable Investment
Columbia Law School - Earth Institute
Ph: (212) 854-0689
Fax: (212) 854-7946
*Copyright © 2019 Columbia Center on Sustainable Investment (CCSI), All
rights reserved.*
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*Karl P. Sauvant, PhD*

*Resident Senior Fellow*
*Columbia Center on Sustainable Investment*
Columbia Law School - The Earth Institute, Columbia University
435 West 116th St., Rm. JGH 825, New York, NY 10027
| p: (212) 854 0689 | cell: (646) 724 5600 e: [log in to unmask]
| w: | t: @CCSI_Columbia

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