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2024 | OriginalPaper | Chapter

Economic Sanctions as an Instrument of Foreign Investment Control

Author : Tamás Szabados

Published in: Weaponising Investments

Publisher: Springer Nature Switzerland

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Abstract

Treating economic sanctions as an instrument of investment control is somewhat novel. Even if investment control has not been traditionally the objective of the use of economic sanctions, this contribution intends to demonstrate that economic sanctions can have a role in controlling investments.
First, certain economic sanctions, called investment sanctions in a strict sense, directly limit the flow of investments towards and/or from the target state or persons. Such investment sanctions have a variety of forms (general bans of investments, sector-specific investments bans, ban on purchasing and selling securities) that make them suitable to be used as a means of investment control.
Second, the legislature can include considerations related to the application of and compliance with economic sanctions into the formal investment screening procedure, as the US example demonstrates. The use of economic sanctions in investment control is subject to certain economic, political and legal limits. Even so, it seems that they are not only comparable to traditional investment screening mechanisms, but they can constitute an effective element of the regulatory framework of controlling investments.

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Footnotes
1
See, for example, Kim (2013), p. 99; Kaempfer and Lowenberg (2007), p. 867; Baldry and Dollery (1992), p. 1; Kaempfer and Lowenberg (1986), p. 377; Porter (1979), p. 579.
 
2
Lopez and Cortright (1997), p. 328.
 
3
See, for example, Drezner (2011), pp. 97–101.
 
4
Executive Order 13818—Blocking the Property of Persons Involved in Serious Human Rights Abuse or Corruption December 20, 2017; Council Regulation (EU) 2020/1998 of 7 December 2020 concerning restrictive measures against serious human rights violations and abuses, OJ L 410 I, 7.12.2020, p. 1–12.
 
5
Tostensen, Bull (2002), p. 385; Portela (2014), p. 5.
 
6
Council Regulation (EU) 2017/1509 of 30 August 2017 concerning restrictive measures against the Democratic People’s Republic of Korea and repealing Regulation (EC) No 329/2007, OJ L 224, 31.8.2017, p. 1–109, Chapter III and Chapter IV.
 
7
Kaempfer and Lowenberg (2007) The Political Economy of Economic Sanctions, 869.
 
8
Executive Order 13047—Prohibiting New Investment in Burma, May 20, 1997, s 1.
 
9
Executive Order 13047, s 4(d).
 
10
Council Directive 88/361/EEC of 24 June 1988 for the implementation of Article 67 of the Treaty, OJ L 178, 8.7.1988, p. 5–18.
 
11
Selden (2010), pp. 92–93.
 
12
On the economic effects of investment sanctions, see: Jones (2015), p. 31.
 
13
See Executive Order 13959 of November 12, 2020 Addressing the Threat From Securities Investments That Finance Communist Chinese Military Companies; see also Executive Order 14032 of June 3, 2021 Addressing the Threat From Securities Investments That Finance Certain Companies of the People’s Republic of China.
 
14
Comprehensive Anti-Apartheid Act of 1986, s 310(a).
 
15
Comprehensive Anti-Apartheid Act of 1986, s 316.
 
16
On the US sanctions imposed against Burma, see Johansson (2000), p. 317.
 
17
Omnibus Consolidated Appropriations Act § 570(b). Public Law 104–208—Sept. 30, 1996, 110 Stat. 3009–166.
 
18
Executive Order 13047—Prohibiting New Investment in Burma May 20, 1997, ss 1-2.
 
19
Johansson (2000), p. 334.
 
20
Executive Order 13685 of December 19, 2014 Blocking Property of Certain Persons and Prohibiting Certain Transactions With Respect to the Crimea Region of Ukraine.
 
21
98/374/CFSP: Common Position of 8 June 1998 defined by the Council on the basis of Article J.2 of the Treaty on European Union concerning the prohibition of new investment in Serbia OJ L 165, 10.6.1998, p. 1.
 
22
Council Regulation (EC) No 1607/98 of 24 July 1998 concerning the prohibition of new investment in the Republic of Serbia OJ L 209, 25.7.1998, p. 16–17.
 
23
Ibid., art 1.
 
24
Consolidated text: Council Regulation (EU) No 692/2014 of 23 June 2014 concerning restrictive measures in response to the illegal annexation of Crimea and Sevastopol, art 2a(a)-(d).
 
25
Consolidated text: Council Regulation (EU) 2017/1509 of 30 August 2017 concerning restrictive measures against the Democratic People’s Republic of Korea and repealing Regulation (EC) No 329/2007, art 17(2)(a).
 
26
Ibid., art 17(3).
 
27
Executive Order 14066 of March 8, 2022 Prohibiting Certain Imports and New Investments With Respect to Continued Russian Federation Efforts To Undermine the Sovereignty and Territorial Integrity of Ukraine, s 1(a)(ii).
 
28
Executive Order 14068 of March 11, 2022 Prohibiting Certain Imports, Exports, and New Investment With Respect to Continued Russian Federation Aggression, s 1(a)(iii).
 
29
Executive Order 14071 of April 6, 2022 Prohibiting New Investment in and Certain Services to the Russian Federation in Response to Continued Russian Federation Aggression, s 1(a)(i).
 
30
Council Decision 2010/232/CFSP of 26 April 2010 renewing restrictive measures against Burma/Myanmar (OJ L 105, 27.4.2010, p.22), art 5.
 
31
Executive Order 13959 of November 12, 2020; replaced by Executive Order 14032.
 
32
Executive Order 13974 of January 13, 2021 Amending Executive Order 13959–Addressing the Threat from Securities Investments that Finance Communist Chinese Military Companies.
 
33
Council Regulation (EU) 2022/576 of 8 April 2022 amending Regulation (EU) No 833/2014 concerning restrictive measures in view of Russia’s actions destabilising the situation in Ukraine, OJ L 111, 8.4.2022, p. 1–66, art 1(21); Council Regulation (EU) 2022/577 of 8 April 2022 amending Regulation (EC) No 765/2006 concerning restrictive measures in view of the situation in Belarus and the involvement of Belarus in the Russian aggression against Ukraine, OJ L 111, 8.4.2022, p. 67–69, art 1(2).
 
34
Council Regulation (EU) No 692/2014 of 23 June 2014 concerning restrictive measures in response to the illegal annexation of Crimea and Sevastopol, art 2a(e).
 
35
Council Regulation (EU) No 833/2014 of 31 July 2014 concerning restrictive measures in view of Russia’s actions destabilising the situation in Ukraine, art 5(1) and (2).
 
36
Consolidated text: Council Regulation (EU) 2017/1509 of 30 August 2017 concerning restrictive measures against the Democratic People’s Republic of Korea and repealing Regulation (EC) No 329/2007, art 17(2)(c).
 
37
Council Regulation 692/2014, art 1(i); Council Regulation 833/2014, art 1(e); Council Regulation (EU) 2017/1509, art 2(14).
 
38
Regulation (EU) 2019/452 of the European Parliament and of the Council of 19 March 2019 establishing a framework for the screening of foreign direct investments into the Union, OJ L 79I, 21.3.2019, p. 1–14, recital 9.
 
39
Bill for the National Critical Capabilities Defense Act of 2021.
 
40
EU FDI Screening Regulation, recital (2).
 
41
Consolidated text: Council Regulation (EU) 2017/1509 of 30 August 2017 concerning restrictive measures against the Democratic People’s Republic of Korea and repealing Regulation (EC) No 329/2007, art 17(1).
 
42
Proposal for a Regulation of the European Parliament and of the Council on the protection of the Union and its Member States from economic coercion by third countries, COM(2021)775, Brussels, 8.12.2021. The European Parliament International Trade Committee supported the proposal with some amendments. INTA, Press Releases, MEPs back new trade instrument to protect the EU from economic blackmail, 10.10.2022. https://​www.​europarl.​europa.​eu/​news/​en/​press-room/​20221010IPR42635​/​meps-back-new-trade-instrument-to-protect-the-eu-from-economic-blackmail. Accessed 1 December 2022. The proposal is at the moment before the Council. Council of the European Union, Proposal for a Regulation of the European Parliament and of the Council on the protection of the Union and its Member States from economic coercion by third countries (First reading) - Mandate for negotiations with the European Parliament, 14837/22, Brussels, 16 November 2022.
 
43
On the national security review of CFIUS, see Jusuf (2020), p. 145.
 
44
31 CFR § 800.401 (c)(1).
 
45
50 U.S. Code § 4565 (f)9(C).
 
46
31 CFR § 800.219 (c)(1)(iv).
 
47
Portela (2007), p. 7.
 
48
Johansson (2000), p. 339.
 
49
Council Regulation (EC) No 2271/96 of 22 November 1996 protecting against the effects of the extra-territorial application of legislation adopted by a third country, and actions based thereon or resulting therefrom, OJ L 309, 29.11.1996, p. 1–6.
 
50
See the Annex of the EU Blocking Regulation.
 
51
Act No 57/1990. The text of the Act is translated into German and commented by Krüger (1990), p. 934.
 
52
EU FDI Screening Regulation, art 3(5).
 
53
Joined cases C-402/05 P and C-415/05 P Yassin Abdullah Kadi and Al Barakaat International Foundation v Council of the European Union and Commission of the European Communities, EU:C:2008:461.
 
54
US District Court for the District of Columbia, Xaomi v. Department of Defense, 12 March 2021.
 
55
US District Court for the District of Columbia, Luokung Technology Corp. v. Department of Defense, May 5, 2021.
 
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Metadata
Title
Economic Sanctions as an Instrument of Foreign Investment Control
Author
Tamás Szabados
Copyright Year
2024
DOI
https://doi.org/10.1007/17280_2023_7

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