Strengthening of Investment Controls in Germany

In November 2019, the German Federal Ministry for Economic Affairs and Energy (BMWi) presented its concept for an “Industrial Strategy 2030 - Guidelines for a German and European Industrial Policy”. The BMWi announced the implementation of EU Screening Regulation for a coherent Europe-wide investment control and that the criteria for German investment control will be specified in greater detail (see our Blog "Germany will Increase the Screening of Foreign Investments".

In January 2020, the BMWi released a draft law amending the German Foreign Trade Act (Außenwirtschaftsgesetz, AWG) and invited interested parties to submit their comments. The German Parliament (Bundestag) could therefore soon adopt an amendment to the German Foreign Trade Act. What aims is the BMWi under the leadership of the German Federal Minister for Economic Affairs, Peter Altmaier, seeking to pursue with the amendments and what specific changes are foreseen?

1) The national Situation

In Germany, the German Foreign Trade Act (AWG) and the German Foreign Trade and Payments Ordinance (Außenwirtschaftsverordnung, AWV) form the legal basis for the control of foreign investments. Such an investigation can result in the prohibition or approval of a certain transaction, where necessary, provided that further requirements and legal obligations are fulfilled. German foreign trade law has been reformed several times in the past years.

The most recent amendment is the Twelfth Amendment of the German Foreign Trade and Payments Ordinance, which was adopted on 19 December 2018 and lowered the shareholding threshold for acquisitions from non EU/EFTA countries from 25 % to a minimum of 10 %: Investments in areas relevant to security and defence now require examination when this 10 % threshold is exceeded (see our Blog "Germany`s Tighter FDI Regime and the EU`s Path to Uniform Standards"). The proposed amendment of the German Foreign Trade Act within the framework of the “Industrial Strategy 2030” should now lead to more specific rules and potentially to the strengthening of the control of investments.

2) EU Screening Regulation

Within the EU, the control of foreign investment is a national matter. Until now, foreign investments have not been examined in all EU Member States. The national assessment criteria differ a lot and they do not necessarily take the interests of other EU Member States into account. A framework for the assessment of direct foreign investments in the all countries of the EU was developed upon the initiative of Germany, France and Italy (Regulation (EU) 2019/452 of 19 March 2019 (EU Screening Regulation) – see our Blog "New EU Uniform and Stricter Standards for Screening Foreign Investments"). This Regulation aims to safeguard the security or public order as well as the strategic interests of the entire European Union, by requiring the EU Member States to create the framework for the assessment and control of foreign direct investments in key sectors and in relation to critical infrastructure, and to cooperate with other EU Member States and the European Commission when carrying out their screening.

3) Implementation into the German Foreign Trade Act

The BMWi proposes to implement the EU Screening Regulation into German law by amending the German Foreign Trade Act.

The first draft, which was published on 30 January 2020, aims to provide the German investment control regime with an efficient tool for protecting the public order or security in case of critical acquisitions by investors from non-EU/EFTA countries. At the same time, however, the BMWi considers it important to find a balance between protecting public order or security on the one hand, and not endanger the attractiveness of Germany as an investment location on the other. By taking the following important points into account, the BMWi is trying to do justice to this balancing act.

a) New approach to the “degree of risk” requirement

According to the current legal framework, restrictions or commitments may only be imposed if the acquisition poses an "actual danger" to the public order or security of the Federal Republic of Germany. Instead of an “actual threat”, a “probable impediment” of public order or security will be sufficient in the future. According to the draft law, this requirement will also not be limited to the Federal Republic of Germany and will allow investment controls which are affecting public order or security of another EU Member State or in regard to projects and programmes of EU interest within the meaning of Article 8 of the EU Screening Regulation.

b) Extension of the ban against implementing the acquisition before clearance

Under current administrative practice, investors may complete their acquisition even before the acquisition’s investigation has been completed. As a result, the relevant authority is faced with a fait accompli before the investigation is concluded, undermining the sense and purpose of the investigation. The draft seeks to prevent this by extending the suspension effect until the completion of the investigation – including any cross-sector investigation.

c) Establishment of a National Liaison Office

Besides the amendments of the purely legal nature, the draft’s intention is to establish a national liaison office within the BMWI as part of the EU-wide cooperation mechanism. The liaison office is supposed to serve as the German link between national and European bodies in order to ensure the exchange of information throughout the EU.

4) Other Planned Amendments

The second step will consist in amending the German Foreign Trade and Payments Ordinance in order to determine which technologies are "critical" so that a shareholding of just 10 % will trigger a notification requirement and a possible investigation. Such technologies are expected to include artificial intelligence, robotics, semiconductors, biotechnology and quantum technology.

5) Conclusion

The declared objectives of the draft law are to make the German investment control procedures more effective and to provide more specific rules for exercising this control. At the same time, the EU Screening Regulation will be implemented into national law. Whether the draft will actually achieve the first objective is still a controversial issue. One criticism is that the regulation’s wording is too broad and unclear. Other interested parties consider that the rules are not wide-reaching enough. It therefore remains to be seen, whether the German Foreign Trade Act recast bill will be adopted by the German Parliament in the current form, which amendments might be made and what changes will actually result for the control of foreign investments.

For further information please contact Dr Rainer Bierwagen.