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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])

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] 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] 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]
  • 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 security.
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.
* 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 series.
** 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.
[2] Notifications to the OECD of new policies, mandatory under its instruments, are available at http://oe.cd/natsec.
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 (www.ccsi.columbia.edu).” A copy should kindly be sent to the Columbia Center on Sustainable Investment at [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 http://ccsi.columbia.edu/publications/columbia-fdi-perspectives/

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 2019CCSI 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 Officials (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
(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]
wwww.ccsi.columbia.edu | t: @CCSI_Columbia

"Five Key Considerations for the WTO Investment-facilitation Discussions, Going Forward", Arriving at Sustainable FDI Characteristics", "Putting FDI on the G20 Agenda", "International Investment Facilitation: By Whom and for What?", "Moving the G20's Investment Agenda Forward", "Emerging Markets and the International Investment Law and Policy Regime", "Sustainable FDI for Sustainable Development", "Towards an Investment Facilitation Framework: Why? What? When?", "Beware of FDI Statistics!", "Towards an Indicative List of FDI Sustainability Characteristics", “The Importance of Negotiating Good Contracts", "A New Challenge for Emerging Markets: the Need to Develop an Outward FDI Policy”, "China Moves the G20 toward an International Investment Framework and Investment Facilitation", "The Next Step in Governance: The Need for Global Micro-regulatory Frameworks", and "The Evolving International Investment Law and Policy Regime: Ways Forward" are available at https://ssrn.com/author=2461782 and http://www.works.bepress.com/karl_sauvant/.

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