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GLOBALOUTLOOK FDISCREENING


Theslippery slope from security to sovereignty


COVID-19 HAS PROPELLED GOVERNMENTS’ FDI SCREENING TO NEWHEIGHTS, POSING DANGERS FOR ECONOMIES AND INVESTORS ALIKE. DANIELLE MYLES REPORTS


I


downa €16bn bid for its leading retailer Carrefour. Just 48 hours after the firm announced it was in friendly talks with Canada’s Couche- Tard, Mr Le Maire declared on the radio that the government would use its foreign direct investment (FDI) screening regime to block the deal. Labelling the deal as a threat to food security, he said “it’s a polite, but clear and definitive no”. The companies ended discussions the fol- lowing day. For dealmakers, the incident sets


n mid-January, France’s economy minister Bruno Le Maire took to the airwaves to abruptly shut


the high-watermark in a rising tide of protectionism fuelled by Covid-19. Over the past year, everywhere from Australia and Japan to Canada and the EU have expanded FDI screening to cover sectors deemed essential to the pandemic response. This has accelerated the mechanism’s evolu- tion froma creature of national defence to a tool to scrutinise foreign


involvement in so-called ‘strategic sectors’. The EU’s new screening mechanism, for instance, is focused on strengthening what it refers to as ‘open strategic autonomy’. Its mem- ber states nowassess investments into everything frominsurance and water to food and rawmaterials. “When I sat on theCommittee


on Foreign Investment in the United States in the 1990s, national security was very well-defined and discreet,” says Harry Broadman, a managing director at Berkeley Research Group. It was things “that put at risk the population, their health and the military might of the country”. The conflation between national secu- rity and other elements, he says, has significantly expanded over the past five years.


BeyondChina The Organisation for Economic Co-operation and Development (OECD) estimates that 59% of global FDI last year was eligible for national


security review—just shy of the all- timehigh of 60%in 2013. Some pub- lic skirmishes suggest that enhanced scrutiny is starting to bite.Moreover, they are tripping up buyers from all nations, not just Chinese state- owned enterprises, which are widely regarded as the primetarget of today’s tighter rules. Since January, Australian invest-


ment fund IFM’s acquisition of a 22% stake in Madrid-based utility Naturgy has been the subject of a protracted review by Spain. Although the country lacked a screeningmechanismuntil 2019, it nowinvestigates deals worth as little as €1munder a framework that goes beyond EU requirements. US chip- maker Nvidia’s $40bn takeover of the UK’s ArmHoldings is, the Financial Times reported in February, being probed on national security grounds. And inDecember, France blocked a US firm’s takeover of night-vision tech company Photonis. Although this last deal


Blocked: the French government’s FDI screening regime put a stop to Couche-Tard’s Carrefour takeover deal 40 www.fDiIntelligence.com April/May 2021


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