Turning to the EU, calls from Germany, France and Italy for rights under EU law to intervene in investments by state-controlled and state-funded entities (especially those which give access to key technologies) have resulted in the European Commission announcing similarly themed proposals to boost its foreign investment review powers and to give itself a co-ordinating role between its Member States. The proposals set out a new framework for scrutinising foreign investment in sectors of national importance. These include technology, cybersecurity, nuclear power and financial services.

As part of this, they list factors that may be taken into account when screening foreign investment, although this list is non-exhaustive. The so-called “co-operation mechanism” it includes requires each Member State screening a proposed investment to inform the Commission and the other relevant Member States and allow them to offer opinions and comments that must be given “due consideration” by the screening Member State. Also, where the Commission considers that a foreign investment is likely to affect the “security or public order” of the EU, it may offer an opinion to the screening Member State, which must take “utmost account” and provide an explanation if the opinion is not followed.

While the proposals are intended to establish better screening of investments from third countries, they also reflect the Commission’s desires to avoid the risk of Member States adopting protectionist policies and to provide transparency to potential investors. Ultimately, the Commission wants to continue to encourage foreign investment in Europe.

It’s probably no great surprise that, given the Trump Administration’s openly aggressive protectionist stance, there are also attempts to extend the powers of the Committee on Foreign Investments in the United States (CFIUS), which conducts national security reviews of M&A activity involving a foreign investor.

The proposals being put forward envisage stricter enforcement rules and the expansion of CFIUS’ jurisdiction and authority, with a focus on countries of special concern (in particular China). They also set out longer timeframes (so a single complete CFIUS review process potentially could take as long as 120 days, as opposed to 75 days under the current law) and new filing fees (the lesser of $300,000 or 1% of the transaction value).

Meanwhile, Germany has already enacted reforms to its regime. From July 2017, the existing rules were strengthened and the notification obligations were increased for acquisitions in specified industry sectors related to public security, i.e. sectors including information technology, telecoms and critical infrastructure.

Whilst the amended legislation does not result in a material restriction on foreign investments in German companies, the extended application area, new notification requirements and extended review periods will require potential investors to engage with the regime proactively and early in the deal process.

Generally speaking, intervention under foreign investment rules is already much harder to predict than under the tried and tested merger control regimes. Our experience is that transaction timeframes are also subject to greater uncertainty, since many foreign investment regimes have very unclear and open-ended review timetables.

Going forward, potential investors can expect their cross-border deals to take longer to complete, and they will need to consider foreign investment issues upfront to mitigate any potential delays. In addition, the various reforms and proposals will mean potentially increased scrutiny and execution risk for a broader range of deals in a number of jurisdictions. It is vital for deal teams to consider the practical considerations for managing this uncertainty and addressing individual transaction challenges upfront.