Multiple governments in recent years have amended existing legislation or adopted new regulatory processes to better screen or block FDI, if necessary.
With approval by Parliament in July, Hungary adopted a new foreign direct investment (FDI) screening regime that expands national security review to protect security and public safety in the face of the Covid-19 pandemic. The new requirements make Hungary the latest country to address the rise of foreign investments in sensitive strategic assets such as personal digital data and energy infrastructure.
Multiple governments in recent years have amended existing legislation or adopted new regulatory processes to better screen or block FDI, if necessary. US legislation in 2018, for example, expanded regulatory review to include minority investments in critical technologies.
The Covid-19 outbreak has accelerated the trend, intensifying the screening of foreign investment for national security reasons, including measures to protect domestic capacities relating to medical supplies and equipment, healthcare services and infrastructure and pharmaceuticals.
To defend such assets in times of crisis against foreign mergers, foreign investment screening thresholds have been lowered and government agencies can initiate investigations retroactively, often based on a broader interpretation of national security interests.
In May, Germany amended its Foreign Trade and Payments Ordinance, which covers critical public-health sectors, to require prior governmental authorization for foreign acquisitions of 10% of stock in German companies developing, manufacturing or producing vaccines, medicines, protective medical equipment and other goods for the treatment of highly infectious diseases.
The prior month, India restructured its FDI review and approval policies to respond to opportunistic takeovers of vulnerable assets, especially during the Covid-19 crisis. The new legislation permits entities from countries sharing a land border with India, such as China and Pakistan, to invest only under a special approval track. The new restriction also applies if the beneficial owner of the investment is an entity situated in, or a citizen of, such countries. The legislation is considered broad and can be applied retroactively, including to all ownership structures and all sectors beyond healthcare.