Further tightening of investment control planned to secure Germany's technological sovereignty


Within less than three years, the third amendment to the rules on investment control in Germany is now pending. In late November 2019, Federal Minister for Economic Affairs, Peter Altmaier, already announced further tightening of investment control as part of his ‘Industrial Strategy 2030’.

Now, a proposal for the planned amendments has been made in the form of the draft bill published yesterday by the Federal Ministry of Economic Affairs and Energy (BMWi) for a First Act amending the Foreign Trade and Payments Act. As the name suggests, this concerns only amendments to the Foreign Trade and Payments Act. The investment control regime is, however, primarily governed by the German Foreign Trade and Payments Ordinance, which is also to be further reformed in future. The full extent of the planned tightening measures will therefore only become apparent when the amendments planned here are also announced.

However, the specific tightening measures intended by the BMWi are becoming obvious:

1. Reduction of the level of risk required for investment restrictions

At the heart of the present draft bill is a reduction in the standard based on which the BMWi – partly in agreement with other ministries and partly with the consent of the entire federal government – may restrict or even prohibit foreign investment. The draft provides that instead of the actual threat to public security or public order that has hitherto been required, which must be sufficiently serious and affect a fundamental interest of society, a probable impairment is now sufficient. In future, therefore, a low level of risk will suffice.

The explanatory memorandum refers to the EU Screening Regulation, which actually enables Member States to allow probable impairments to suffice for restrictions up to and including the prohibition of investments. However, this lower level of risk is not mandatory under the EU Screening Regulation. The BMWi has deliberately decided to make full use of the possible restrictions framework here.

Furthermore, it is not only presumed impairments in Germany that are relevant, but also those in another EU Member State. This paves the way for EU-wide coordination on investment clearance, which is likely to make the clearance procedures even more time-consuming.

2. Reinterpretation of the concept of public security and order

Secondly, the explanatory memorandum seeks to reinterpret the concept of public security and order on the basis of the EU Screening Regulation. The BMWi now intends to extend the concept beyond aspects of security, public services provision and critical infrastructure. The Ministry sees a key role here for the critical technologies listed in the EU Screening Regulation, such as artificial intelligence, robotics, semiconductors, cybersecurity, aerospace, defence, energy storage, quantum and nuclear technologies, as well as nano- and biotechnologies.

In the view of the BMWi, even acquisitions relating to such critical technologies could, in individual cases, constitute a prohibited impairment to the good of the community. To this end, the concept of ‘technological sovereignty of the Federal Republic of Germany’, already aimed at in the industrial strategy, is introduced.

It seems to be worth discussing whether the legislator can easily change the existing interpretation of the concept of public security and order by means of a deferred explanatory memorandum without amending the wording of the law on the introduction of the concept of technological sovereignty. It is true that certain critical technologies may also be relevant to security and that an investment review may therefore be appropriate. Caution is needed, however, if via the concept of technological sovereignty also matters of simple industrial policy are introduced into the investment review regime, for which it is not intended.

3. Other envisaged amendments

Other amendments provided for in the draft relate to, for example, the imposition of pro-visional invalidity for execution actions of all investments subject to notification under the provisions of the Foreign Trade and Payments Ordinance. Until now, there has only been regulation in the ‘sector-specific’ area, namely the acquisition of certain defence and IT security companies.

In this way, the BMWi wishes to reduce the risk that a transaction will already be executed by the end of the investigation procedure. However, the imposition of provisional invalidity on the execution deal is not necessarily expedient: in practice, there are many also indirect acquisitions in which, for example, a Luxembourg holding company is sold to a US investor, and this also affects a German portfolio company. In such situations, sales contracts and closing actions are often not governed by German law, and the effect of these rules on applicable law is generally extremely unclear, so the rule in these cases does not in fact amount to a closing prohibition.

It remains to be seen whether the draft bill will ultimately be accepted by the Bundestag as submitted. Some companies are calling for less restrictive and more easily manageable rules to be applied in order to secure Germany’s role as an investment location. However, the discussion of technological boundaries and exclusion currently taking place regarding Huawei may also strengthen voices calling for even more stringent possibilities for intervention. We will keep you posted.

Regulatory and Governmental Affairs