Industrial policy strikes again: Germany announces further tightening of Foreign Investment Control rules
For M&A transactions in Germany and beyond, Foreign Investment Control screenings have become an indispensable standard element to assess when structuring deals and planning for regulatory review. Similarly to merger control, acquirers and sellers need to consider the impact of the increasing number of jurisdictions that might want to review their proposed transaction. In the last few years, Germany has been at the forefront of the EU Member States concerning, in particular, the screening of Chinese investments, although the number of notified acquisitions by US acquirers has also increased. And there is more to come:
On 30 January 2020, the German Federal Ministry for Economic Affairs and Energy (Bundesministerium für Wirtschaft und Energie - BMWi) issued a draft bill further tightening regulations on Foreign Direct Investment (FDI) into Germany (the draft is publicly available in German here). Specifically, the current draft bill concerns a reform of the German Foreign Trade and Payments Act (Außenwirtschaftsgesetz - AWG) in three main areas:
The reform tightens the standard of review as the threshold for the BMWi to take action is lowered to encompass all transactions likely to affect public order or security in Germany. So far, actual endangerment of public order or security is required for the BMWi to take action. In line with the EU FDI Framework Regulation (EU) 2019/452 of 19 March 2019 (publicly available here), the draft bill expands the scope of FDI review to include considerations of public order or security of other Member States or projects or programmes of Union interest and not only considerations of public order or security of Germany. The scope of the stand-still obligation for closing shall in the future extend to all transactions subject to mandatory review in Germany. So far, only so-called sector-specific transactions, mainly in the sector of defence, are subject to the stand-still obligation. Also, the reform establishes a contact unit for the cooperation mechanism at the BMWi to exchange with the European Commission as well as other Member States on foreign investments undergoing screening in Germany. This is foreseen in the EU FDI Framework Regulation. Further to the amendments foreseen to the AWG, the Federal Government also intends to amend the German Foreign Trade and Payments Ordinance (Außenwirtschaftsverordnung - AWV). The AWV specifies the provisions of the AWG in practice. For instance, the operation of satellite-based earth remote sensing systems will be included in the catalogue of security-relevant activities of targets subject to mandatory review. Furthermore, the Federal Government intends to add critical technologies to the catalogue.
Both the amendment of the AWG, as well as the amendment of the AWV, are planned to become effective in October 2020 when the EU FDI Framework...