New German FDI association – Learnings from the first annual meeting

Practitioners often criticize the lack of transparency in FDI proceedings in Germany (and elsewhere). The fact that decisions are not made public further adds to that lack of transparency. So, the inaugural meeting of the German “Forum Investitionsprüfung”, which was also attended by many representatives from German ministries, presented a valuable opportunity to gain insights into current challenges and future trends straight from the horse’s mouth, in addition to one’s own experience. Here are my personal key take-aways from the event.

This week marked the first annual meeting of the “Forum Investitionsprüfung,” a recently established association dedicated to fostering dialogue among lawyers, academics, and government officials concerning FDI matters in Germany and Europe. More than 100 participants convened at this initial gathering to delve into contemporary FDI trends.

The most notable aspect was the substantial presence of representatives from various German ministries. Alongside delegates from the Ministry of Economic Affairs and Climate Action, which oversees FDI procedures, attendees included representatives from other ministries actively involved in FDI proceedings, such as the Ministry of the Interior and, of course, the Ministry of Defense. What stood out was not merely their attendance, but their active engagement in discussions, extending beyond their designated panels and even during coffee breaks.

The elephant in the room was an “internal” paper which outlines some of the legislative changes envisaged by the Ministry preparing the new legislative act on the German FDI rules. The Ministry was well aware of the fact that the paper had been leaked and read by (nearly) everyone in the room. So, it was not a surprise that many of the issues raised in the paper were also the main topics discussed on and between the panels.

Condensing a seven-hour meeting into a brief blog post is challenging, but three key developments merit attention.

No black and white

As a regular reader of this blog, you know of course that (at least to public knowledge) so far only Chinese (and one Taiwanese) investments have been prohibited. In light of this, it could, from the outset, make sense to classify acquirers by country of origin, for example by creating “white” and “black” lists.

However, the representatives clearly rejected these ideas and emphasized that foreign investment control will remain (formally) agnostic in the future. While acknowledging that German security interests vary depending on the investor’s home country, the Ministry believes that case-by-case evaluations are a more suitable means of assessing investments than relying on predetermined lists.

Not only assets are relevant

Ministry representatives stressed the significance of licensing agreements and similar arrangements pertaining to intellectual property (IP), which can have an impact comparable to asset transfers. The concern is that critical know-how can end up in the hands of non-EU investors through such agreements.

Since these agreements are currently not caught by the German FDI rules, the government is considering new powers to deal with this topic. On a related note, the government might also want to get a grip on certain R&D cooperations. The extent to which these cooperations should be subject to FDI rules (on top of existing export control rules) is still in flux but it became evident that the government feels it is necessary to think about a tool which allows for intervention in certain scenarios.

More light for Black Box?

It seemed to be more or less common ground between the lawyers present that the lack of transparency in German foreign investment control procedures made advising clients often more complex: First, the general view was that it was often difficult to determine whether the activities of the acquired company were covered by the German regime. Second, any (substantial) security concerns were often expressed only very late in the proceedings and sometimes in such a manner that it was very difficult to address them specifically, including via commitments.

The government representatives seemed to acknowledge the problem and emphasized that they are available for discussion, especially prior to a notification. At the same time, however, they also emphasized that FDI procedures are about security interests and that transparency was therefore only possible to a very limited extent. So, too many changes should not be expected in this respect.

Overall, the event proved to be a good opportunity to connect and discuss amongst practitioners and government representatives (note that the European Commission also participated in a panel). In my opinion, such an exchange beyond a specific case is valuable for all involved.

Photo by Phil Hearing on Unsplash