Global FDI Scrutiny May Still Be Rising, Lawyers Say

As the U.S. continues to bolster and reform the Committee on Foreign Investment in the U.S., industry lawyers have seen a sharp rise over the last few years in global foreign direct investment screening regimes. That trend may continue to accelerate, some said.

“We're definitely at a higher high-water mark historically here,” said Scott Flicker, a trade lawyer with Paul Hastings. “And I think the water is still rising.”

Some investment experts believe the rise in global screening is increasingly dissuading companies from pursuing foreign direct investment, chilling acquisitions in a range of sectors (see 2106030034). While the global rise in protectionist measures is partly a response to supply chain concerns stemming from the COVID-19 pandemic, the U.S. has also played an active part in convincing allies to increase their FDI scrutiny, particularly against Chinese investments (see 2002260042). The United Kingdom, Germany and Canada have all taken steps this year to boost their FDI screening regimes (see 2108030045).

Flicker said he believes the trend partly began because of CFIUS. “I think other countries got a sense of, essentially, what's good for the U.S. should be good for them, too,” he said. “So they started looking at this as a fairly effective tool that has some protectionist elements to it.” Foreign governments likely wanted to emulate the process as more of their investors became subject to CFIUS scrutiny, said Chris Stagg, a trade lawyer with Miller & Chevalier. “Other countries have taken a look at this because they've heard about it from their constituents who are interested in investing in the United States,” Stagg said. "That certainly now is an increasing area with other countries.”

Adelicia Cliffe, a trade lawyer with Crowell & Moring, said FDI scrutiny has especially become more of an issue in the past two to three years. “When I first started out 15 years ago, you'd have global transactions and CFIUS would really be the focus. Now we also have to think about the U.K. and Australia” and others, she said. “There has been a ramp up in the last few years.”

Flicker said he doesn’t expect that to change, especially as CFIUS continues to heavily target non-notified deals and scrutinize acquisitions involving critical technologies under the Biden administration. “The Trump administration seized on CFIUS as sort of the tip of the spear in trying to blunt China's ambitions in the various key sectors,” Flicker said. While he said Biden may try to pursue investment restrictions more multilaterally, the committee will likely maintain, if not increase, its level of scrutiny.

“If anything, I think the Biden administration is going to go at it in a way that really makes the restrictions more robust and enduring,” he said. “Not just the multilateral aspects of it, which I think will broaden the impact, but the legal and regulatory structures that are being put in place now to limit or restrict technology transfers and investments by China. Those are going to last.”