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View this email in your browser <https://mailchi.mp/law/perspective-336?e=79b784afd9> 哥伦比亚大学国际直接投资展望中文版都可以在我们的网站查看: https://ccsi.columbia.edu/content/columbia-fdi-perspectives <https://columbia.us6.list-manage.com/track/click?u=ab15cc1d53&id=b3f8a49c75&e=79b784afd9> . *Columbia FDI Perspectives* Perspectives on topical foreign direct investment issues Editor-in-Chief: Karl P. Sauvant ([log in to unmask]) Managing Editor: Abigail Greene ([log in to unmask]) *The Columbia FDI Perspectives are a forum for public debate. The views expressed by the authors do not reflect the opinions of CCSI or our partners and supporters.* No. 336 July 25, 2022 *How host country governments can ensure competitive neutrality in cross-border M&As* <https://columbia.us6.list-manage.com/track/click?u=ab15cc1d53&id=ed87f137ef&e=79b784afd9> by Phil Baumann* <#m_-3174460165638551123_m_-3312426384417586871__edn1> In competitive cross-border M&A markets, foreign and domestic investors compete based on their entrepreneurial capabilities. Differences in size, management skills, technology, and culture define investors’ unique set of competitive advantages. In bidding processes for corporate assets, investors often offer the highest price, depending on whoever can use the assets most efficiently. Allowing firms to fully realize economies of scale through cross-border M&As increases economic efficiency. Furthermore, cross-border M&As may create a more competitive business environment in host countries, increasing the productivity of domestic companies. Effective competition between foreign and domestic investors only exists to the extent that a level playing field is ensured. However, certain investors enjoy various government-created, undue competitive advantages not available to their competitors, such as preferential financing from state-backed institutions, beneficial regulatory treatment, debt forgiveness, or tax exemptions. While this concern is typically discussed focusing on the privileges that state-owned enterprises (SOEs) enjoy, private firms can also benefit from governmental support measures. Home country governments may grant their MNEs outward FDI incentives (e.g., loans, financial guarantees), placing them in an advantageous competitive position.[1] <#m_-3174460165638551123_m_-3312426384417586871__edn2> Undue competitive advantages can have negative economic consequences. Firms that could use assets more efficiently may be outbid in cross-border M&A transactions, leading to an inefficient allocation of resources and preventing competitors from reaching their full efficiency potential or accessing key tangible and intangible assets. To avoid competitive distortions, host country governments may implement investment-control measures, ensuring that no investor possessing undue competitive advantages can acquire domestic assets by exploiting such advantages. Indeed, some governments and the EU are considering equipping their FDI-control regimes with specific measures to ensure competitive neutrality in cross-border M&As.[2] <#m_-3174460165638551123_m_-3312426384417586871__edn3> Ensuring a level playing field through investment-control measures runs the risk of creating new disadvantages for specific investors, thereby impairing the objective pursued. This is the case if stricter obligations are imposed on certain kinds of investors but not on others that enjoy similar undue competitive advantages, or if the takeover process becomes associated with various uncertainties for foreign investors (e.g., delays in approval processes, unclear redressive measures). Recent research of the U.S. M&A-market suggests that policy risks and uncertainty related to mergers disproportionately deter foreign investors.[3] <#m_-3174460165638551123_m_-3312426384417586871__edn4> In order to design investment controls that offer a level playing field among different kind of investors while ensuring that host countries remain open to FDI, governments should consider the following: - Investment-control measures should be aimed at neutralizing undue competitive advantages and not at discouraging investments from SOEs. The dichotomy between SOEs and private firms hardly ensures a level playing field, as both can benefit from undue competitive advantages. Therefore, governments should employ ownership-neutral investment-control measures that apply to any foreign investor benefiting from undue competitive advantages. - Investment-control measures should mirror domestic regulations regarding competitive neutrality. A level playing field is not achieved if only foreign MNEs supported by their home countries face investment restrictions, while simultaneously domestic firms’ undue competitive advantages are tolerated. Therefore, the measures of an investment-control regime—such as the prohibition of acquisitions, repayments of subsidies, divestments of certain assets, the reduction of market presence—should apply in the same manner to all investors benefiting from undue competitive advantages. In this context, it is important to ensure that a uniform definition of undue competitive advantages is used, whereby existing definitions of subsidies (e.g., under WTO law <https://columbia.us6.list-manage.com/track/click?u=ab15cc1d53&id=a45e3609ff&e=79b784afd9>) can serve as a reference. - In terms of investment procedures, governments should coordinate with existing investment-control proceedings based on national security, competition law or sector-specific concerns. Applicable approval processes need to be transparent and their application coordinated. For instance, investment-control procedures should be completed by the competent authorities during the same time period as the applicable merger controls. - Investment-control measures should be proportionate. Attempts to avoid all distortions of competition will likely do more economic harm than good. Therefore, governments should set thresholds regarding the value of targeted transactions and undue competitive advantages, as is the case in the European Commission's proposal <https://columbia.us6.list-manage.com/track/click?u=ab15cc1d53&id=1d232639f4&e=79b784afd9> . The issue of competitive neutrality in cross-border M&As in general has long remained unaddressed. Ownership-neutral investment-control measures can be a tool to close this gap. However, a comprehensive government policy to ensure competitive neutrality must also take into account international commitments. Typically, international investment agreements addressing the issue of competitive neutrality focus on requirements for SOEs and rarely deal with undue competitive advantages related to cross-border M&As in general. To remedy this discrepancy, governments should include specific obligations in their international investment agreements regarding competitive neutrality that apply to all enterprises, public or private. Finally, governments should try to agree on international best practices on undue competitive advantages, for example within the OECD. ------------------------------ * <#m_-3174460165638551123_m_-3312426384417586871__ednref1> Phil Baumann ( [log in to unmask]) is lecturer and senior academic assistant at the University of Lucerne and country reporter Switzerland for the CELIS Institute. The author wishes to thank Joachim Karl, Joachim Pohl and Jens Velten for their helpful peer reviews. [1] <#m_-3174460165638551123_m_-3312426384417586871__ednref2> Karl P. Sauvant and Clémence Boullangeret, “Trends in FDI, home country measures and competitive neutrality,” in Andrea Bjorklund, ed., *Yearbook on International Investment Law & Policy 2012-2013 *(New York: OUP, 2014) <https://columbia.us6.list-manage.com/track/click?u=ab15cc1d53&id=0d5a6b086e&e=79b784afd9>, p. 98. [2] <#m_-3174460165638551123_m_-3312426384417586871__ednref3> See the EU Commission’s Proposal for a Regulation on foreign subsidies distorting the internal market <https://columbia.us6.list-manage.com/track/click?u=ab15cc1d53&id=9340bfbb43&e=79b784afd9> . [3] <#m_-3174460165638551123_m_-3312426384417586871__ednref4> Joseph A. Clougherty and Nan Zhang, “Foreign investor reactions to risk and uncertainty in antitrust: U.S. merger policy investigations and the deterrence of foreign acquirer presence,” *JIBS*, vol. 52 (2021), pp. 454-478. *The material in this Perspective may be reprinted if accompanied by the following acknowledgment: “Phil Baumann**, ‘**How host country governments can ensure competitive neutrality in cross-border M&As,**’ Columbia FDI Perspectives No. 336, July 25, 2022. Reprinted with permission from the Columbia Center on Sustainable **Investment (**http://ccsi.columbia.edu* <https://columbia.us6.list-manage.com/track/click?u=ab15cc1d53&id=90812d336f&e=79b784afd9>*).” 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, Abigail Greene, [log in to unmask] *Most recent Columbia FDI Perspectives* <https://columbia.us6.list-manage.com/track/click?u=ab15cc1d53&id=8060843d11&e=79b784afd9> - No. 335, Karl P. Sauvant and Federico Ortino, “The WTO Investment Facilitation for Development Agreement needs a strong provision on responsible business conduct,” Columbia FDI Perspectives, July 11, 2022 - No. 334, Emmanuel Kolawole Oke and Olufunmilola Olabode, “International investment law, intellectual property and development,” Columbia FDI Perspectives, June 27, 2022 - No. 333, Luca Jobbágy, “BEPS reform: The end of fiscal incentives to attract FDI?,” Columbia FDI Perspectives, June 13, 2022 *All previous FDI Perspectives are available at https://ccsi.columbia.edu/content/columbia-fdi-perspectives <https://columbia.us6.list-manage.com/track/click?u=ab15cc1d53&id=e01ca2b414&e=79b784afd9>* . *Other relevant CCSI news and announcements* - *On October 3-7, 2022*, CCSI will hold its 2022 Executive Training on Investment Treaties and Arbitration for Government Officials. The program, taking place online, is designed for public sector officials whose responsibilities relate to investment treaty negotiation or investor-state arbitration. There is a critical need for officials at all levels of government to stay up to date on new developments in investment treaty content and investor-state arbitration law and practice. Through an intensive course, government officials will increase their knowledge of crucial aspects of investment law with direct consequences for host-state liability and implications for myriad areas of law and policy. *For more information, and to apply, visit our website <https://columbia.us6.list-manage.com/track/click?u=ab15cc1d53&id=a622d505b0&e=79b784afd9>.* - CCSI, in partnership with E3G, an independent climate change think tank based in London, UK, *is conducting a survey *to better understand the economic, financial and regulatory factors that drive and/or limit the necessary domestic and foreign investments in renewable energy sectors. We hope to use the results of this survey combined with desk research to determine the fundamental determinants (and constraints) of renewable energy investments, and the corresponding ways in which economic, policy and regulatory frameworks can be strengthened to accelerate renewable energy investments. *If you are in the renewable energy industry, and are interested in participating in this survey or would like to receive more information about this project, please contact Ladan <[log in to unmask]>.* 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 © 2022 Columbia Center on Sustainable Investment (CCSI), All rights reserved.* [log in to unmask] *Our mailing address is:* Columbia Center on Sustainable Investment (CCSI) Columbia Law School - Earth Institute, Columbia University 435 West 116th Street New York, NY 10027 Add us to your address book <https://columbia.us6.list-manage.com/vcard?u=ab15cc1d53&id=a61bf1d34a> unsubscribe from this list <https://columbia.us6.list-manage.com/unsubscribe?u=ab15cc1d53&id=a61bf1d34a&e=79b784afd9&c=b95283f678> update subscription preferences <https://columbia.us6.list-manage.com/profile?u=ab15cc1d53&id=a61bf1d34a&e=79b784afd9&c=b95283f678> [image: Email Marketing Powered by Mailchimp] <http://www.mailchimp.com/email-referral/?utm_source=freemium_newsletter&utm_medium=email&utm_campaign=referral_marketing&aid=ab15cc1d53&afl=1> *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: www.ccsi.columbia.edu | t: @CCSI_Columbia <https://twitter.com/CCSI_Columbia> "The WTO Investment Facilitation for Development Agreement Needs a Strong Provision on Responsible Business Conduct", *Investment Facilitation for Development: A Toolkit for Policy Makers. Second Edition,* "Agenda for Practice-oriented Research", "WTO Processes Would Benefit from the Input of Civil Society", "How Would a Future WTO Agreement on Investment Facilitation for Development Encourage Sustainable FDI Flows, and How Could it be Further Strengthened?”, "What Foreign Investors Want: Findings from an Investor Survey", "Incentivising Sustainable FDI", "Green FDI: Encouraging Carbon-neutral Investment", "Extending International Legal Aid from Trade to Investment: An Advisory Centre on International Investment Law", "More Attention to Policies! Improving the Distribution of FDI Benefits", "Facilitating Sustainable FDI in a WTO Investment Facilitation Framework: Four Concrete Proposals", "An Inventory of Concrete Measures to Facilitate the Flow of Sustainable FDI: What? Why? How?", are available at https://ssrn.com/author=2461782 . ____ AIB-L is brought to you by the Academy of International Business. 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