4. Investment War

Cf. Salacuse (2015), pp. 26–27.

Some have referred to such investment as “cross-border nationalization” (cf. Heinemann (2011), pp. 96–97; see also Tietje (2015c), p. 1806 (para. 12); Bonnitcha (2019), p. 648).

Although data is fragmented and not always reliable, it seems fairly safe to estimate that SWFs had more than USD 7 trillion assets under management during 2016 and 2017 (Sovereign Wealth Fund Institute 2021). The numbers are well behind estimates for 2015 (around USD 12 trillion, see Wolff 2009, p. 10 (fn. 53)). This figure might seem high, but it has to be distinguished from SWFs’ investments, which are not as easy to come by. In the annual SWF report for the International Working Group of Sovereign Wealth Funds, researchers report investment activity of USD 48 billion for 22 funds in 2015 (Sovereign Investment Lab 2015, p. 15). Comparing this figure (or even a multiple thereof) with total global investment flows of USD 1.76 trillion in 2015 (UNCTAD 2016, p. x), shows that it is almost negligible (less than one percent); see also Tietje (2015c), pp. 1805–1806 (para. 10) (also for a more general discussion of empirical findings on quantitative relevance of state-driven investment).

On the notion that data is the most significant resource of the future (and largely monopolized) see The Economist (2017b) and The Economist (2018e).

See The Economist (2018x). In their “gang of six” IT firms with the highest market capitalization, market analysts include Tencent (a Chinese tech holding and investment company) and Alibaba next to Apple, Alphabet, Amazon, and Facebook (The Economist 2018u, p. 20).

A good example for this is the takeover of Qualcomm (a United States company mainly engaged in wireless and broadband communication products) by Broadcom (a mixed Singaporean and United States company in the same sector), which was blocked by the President of the United States in March 2018 following a CFIUS recommendation. Remarkably, Broadcom is not state-controlled but the fear that the new giant that would have emerged from the takeover might have chosen Chinese hardware as standard for 5G network technology was so grave that the deal was quashed (see The Economist 2018u, p. 19; Department of the Treasury 2018, which also invokes national security reasons). Some take the view that it is preferable that NATO states like Norway make such investments as compared to China, Russia, or Venezuela (cf. Truman (2010), p. 41 citing the Washington Post). Similar concerns were voiced in Germany, see Lecheler and Germelmann (2010), p. 3.

Metzger (2015), pp. 20–21; cf. Klaver and Trebilcock (2013), pp. 137–141.

Heinemann (2011), p. 11, who calls the phenomenon “economic patriotism” after Bernard Carayon, a member of parliament (député) of the French lower house (assemblée nationale). See also Munier (2009d), p. 91 on the etymology. The German government since 2019 officially endorses the formation of national champions, see Bundesministerium für Wirtschaft und Energie (2019), pp. 18–19.

Klaver and Trebilcock (2013), pp. 157–158; Heinemann (2011), pp. 102–104, who also argues that from the viewpoint of the individual politician, these policies can be rational and utility-maximizing in terms of gaining votes. Truman (2010), pp. 41–44 shows that the conduct of SWFs is also a question of perception, with “non-commercial” motivation often being read into decisions of SWFs. Not all fears are unfounded, however, see Lecheler and Germelmann (2010), p. 7.

Metzger (2015), p. 21, who also notes that retaining control over privatized, formerly state-owned enterprises (which typically operate in some of the mentioned sectors) is another motive for investment control. A concise overview of the situation in France, Spain, Italy, the United Kingdom, Switzerland, and Eastern Europe is given by Heinemann (2011), pp. 15–27, who also delivers a law and economics analysis and critique of the protection of the mentioned sectors (pp. 91–95). With regard to Germany, it is pointed out that Volkswagen and Lufthansa are protected from (complete) foreign takeovers and that the German constitution (Basic Law for the Federal Republic of Germany (Grundgesetz)) in its Art. 87e (3) secures state ownership of the German track network (pp. 19–20). Detailed analysis of the limitations on foreign investment in the energy sector is provided by Lecheler and Germelmann (2010), pp. 16 et seqq.

Extensively Clemente (2013).

Host state shall mean the state or jurisdiction in which the acquired companies (or targets) reside.

As defined below Sect. 4.1.1.3.

As defined below Sect. 4.1.1.4.1.

To be sure, other prerequisites also have to be met, such as availability of capital for the state and constitutional permissibility of accumulating and investing state money. However, these prerequisites are either trivial or beyond the scope of this inquiry and will thus not be explored in further detail.

Krugman and Obstfeld (2016), p. 629. Financial globalization is the process deregulating (domestic) financial markets and mobilizing capital in such way that it can cross borders (for instance by abandoning capital and exchange controls, liberalizing the banking industry and stock markets), thereby connecting domestic capital markets and deepening the integration of the (international) capital market (Yang 2000, p. 175; Stepanyan 2011, p. 23). This work employs the understanding of globalization as set forth in Voss (2001), pp. 1–2, i.e. the international integration of commodity, labor, and capital markets.

See the summaries by Hindelang (2009), pp. 19–21; Stulz (2005), p. 1595; Bonnitcha (2019), pp. 633–637. In detail see Obstfeld and Taylor (1998), p. 356; Viterbo (2012), p. 189; International Monetary Fund (2007a), p. 6 (para. 4); International Monetary Fund (2012), pp. 10–13; for the controversies cf. Mishkin (2007), p. 261; Krugman and Obstfeld (2016), pp. 631, 644–646, 652–654 and (with further references) Obstfeld and Taylor (2005, 2003), p. 121.

Cf. Yang (2000), pp. 176 et seqq., 180–181, who also presents an overview of the fundamental differences between the two types of investment. Chang (2007), p. 88 refers to FDI as “Mother Teresa of foreign capital”. See also Sornarajah (2017), p. 130; for more examples see Moran (2011), pp. 71–78; Muchlinski (2007), p. 184; Griffith-Jones and Tobin (2001), pp. 38–39.

One prominent economic indicator for the degree of international financial integration is found by looking at the aggregate of a state’s gross external assets and liabilities relative to its GDP, which has risen continuously from 1970 to 1990, from levels of 50% to more than 100% of GDP. In the time thereafter, industrial countries’ financial integration soared to seven times the 1970 level (to over 300%), while emerging and developing states only achieved gradual improvements of integration (Lane and Milesi-Ferretti 2007, pp. 234–235; International Monetary Fund 2007a, p. 5 (para. 1)). The quotient captures in numerical terms the role of a state (in the sense of the sum of borrowers and lenders resident therein, cf. The CORE Team 2017, p. 803) as borrower from or creditor of other states. Other studies, which draw on a narrower set of countries for which more data is available, find that the high-income countries (within the definition of the IMF) have foreign assets and liabilities in the amount of more than five times their GDP in 2004 while middle- and low-income countries maintain an amount equivalent to their GDP (International Monetary Fund 2007a, pp. 8, 41–45). This development has been curbed by the repercussions of the 2007 to 2008 global financial and entailing economic crisis as well as the 2010 to 2012 euro area crisis. Recent studies suggest that financial globalization (as measured by the abovementioned indicator) peaked in 2007 and has been in minor decline since (evaluated data does not go beyond 2015, however) (Lane and Milesi-Ferretti 2017, pp. 10, 33). Other measures focus on the current account balance of economies, nominal interest rates for the same class of assets in different economies, and real interest rates, see for instance Obstfeld and Taylor (1998), pp. 357–366. An overview of measures is given by Clark et al. (2012), pp. 61–69.

O’Rourke and Williamson (2001), pp. 219–223; Obstfeld and Taylor (2005, 2003), pp. 122–123; see Clark et al. (2012), p. 60; The CORE Team (2017), pp. 806–807.

Bonnitcha (2019), pp. 637–641. For an overview from the years of the classical gold standard (which lasted from around 1870 to the beginning of the First World War) see Davis and Gallman (2001), p. 4; Mishkin (2007), pp. 259–260; O’Rourke and Williamson (2001), p. 225; for the time of the operation of the Bretton Woods system see Obstfeld and Taylor (1998), pp. 381–392, 397; Eichengreen (1996), pp. 96–98; for the time after the collapse of the Bretton Woods system (starting in the 1970s) see Davis and Gallman (2001), pp. 867, 871; Obstfeld and Taylor (1998), pp. 391–393; Eichengreen (1996), pp. 136–145, 152; and for the post-Cold War period (1990s onwards) see Bakker (1996), pp. 147–186, 218–219; Hindelang (2009), pp. 31–42; Krugman and Obstfeld (2016), p. 396; Eichengreen (1996), pp. 152–175. For a timeline see Obstfeld and Taylor (2005, 2003), p. 127. For an overview of earlier foundations of international capital markets see Poitras (2000), pp. 228–266; O’Rourke and Williamson (2001), pp. 208–213; Eichengreen (1996), pp. 7–15; comprehensively Neal (1990).

Yang (2000), p. 194. Economists explain the rifts and movements from one regime to another by a “trilemma” or “inconsistent trinity” facing policy makers: They have to decide between fully free movement of capital across borders, fixed exchange rates, and independent national monetary policy—but only two of these can be pursued (successfully) at a time (Obstfeld and Taylor 1998, pp. 354–355; Obstfeld and Taylor 2005, 2003, pp. 127–129; Krugman and Obstfeld 2016, p. 645; initially based on the Mundell-Fleming model (Fleming 1962 and Mundell 1963), the later version of the trilemma contains “financial stability” and “national control over financial safeguard policy”). From today’s standpoint, the free movement of capital and independent monetary policy have prevailed over fixed exchange rates.

However, the reappearance of the most extreme forms of economic warfare, such as a full sealing-off of an economy from international capital which could be observed in the past, seems unlikely as it would change the status quo of the trilemma’s determination (fn. 22 above) and would have to go hand-in-hand with a fundamental alteration of the global economic system. For such all-out bans of foreign capital cf. Salacuse (2013), p. 94 (fn. 29).

The plans pertinent in the present context are not exclusive to non-market economies, a point proven by extensive schemes such as the Marshall Plan—crafted to revive Europe’s war-ravaged post-Second World War economies and hinder the further advancement of communism into the West—and Germany’s recent policy strategy Industrie 4.0, which were created and implemented by market economy states (the Belt and Road Initiative discussed in the following has already been compared to the Marshall plan by some, see Tiezzi (2014), McKinsey and Co. (2016), against this comparison Chance (2016); on Germany’s Industrie 4.0 plan see Sendler (2017b)).

For instance, the Government Pension Fund of Norway publishes its investment policy, see Government Pension Fund of Norway (2010).

Shubin and Zhi (2017), p. 88.

In the EU, Chinese investment shot up by 77% from 2015 to 2016, still moderate in absolute terms (EUR 35 billion) but expected to rise given China’s GDP, see The Economist (2017e). It should also be noted, however, that investment in the EU from China fell palpably in 2017 (also by as much as 35% regarding investments in the United States). This development mainly has to be credited to a tougher Chinese control of outbound capital, see The Economist (2018c) and The Economist (2018aa).

Then (and today still often) “One Belt One Road” or “OBOR” (in traditional Chinese 一帶一路), see Lo (2017), p. 183; Yu (2018); The Economist (2017c). Analyses of the initiative are offered by Wong and Lye (2014); Fallon (2015); Ye (2015), pp. 218–221; and Len (2015) (especially on the maritime route).

Blanchard and Flint (2017), p. 233.

China-Britain Business Council, Foreign, and Commonwealth Office (2015), p. 6; Blanchard and Flint (2017), p. 223; the confusing labelling with “road” denominating maritime shipping lines and “belt” denominating physical roads is intentional (see McKinsey & Co. 2016). On the Belt and Road Initiative’s meaning for the EU member states see Yu (2018), Pacheco Pardo (2018); and Dave and Kobayashi (2018).

Blanchard and Flint (2017), p. 227.

On the landside, the network will connect several Chinese hubs with cities in Kazakhstan, Uzbekistan, Turkmenistan, Tajikistan, Iran, Turkey, Russia, and several in Europe. On the seaside, Chinese ports will be connected to such in Vietnam, Indonesia, Malaysia, India, Sri Lanka, and Nairobi, with routes passing through the Gulf of Aden and the Suez Canal to end in Europe, cf. Blanchard and Flint (2017), pp. 226–227. However, Chinese plans go beyond east-west routes. Other plans included in the BRI are a north-south land route to connect many ASEAN states such as Vietnam, Laos, Cambodia, and Thailand as well as Myanmar, Bangladesh, and India with China’s Yunnan province (Lo 2017, pp. 189–194). In total, the plan envisions six geographical corridors, covering an enormous space (China-Britain Business Council, Foreign, and Commonwealth Office 2015, pp. 9–14).

Lo (2017), pp. 183–203 also explains and analyses the political aims and obstacles of the BRI; Blanchard (2017), pp. 252, 255; Bonnitcha (2019), p. 648.

Blanchard (2017), p. 252; China-Britain Business Council, Foreign, and Commonwealth Office (2015), p. 7.

China-Britain Business Council, Foreign, and Commonwealth Office (2015), p. 7; Len (2015), pp. 4–5; Campbell (2017).

China-Britain Business Council, Foreign, and Commonwealth Office (2015), pp. 7, 18–19; The Economist (2017c); Blanchard (2017), p. 253; cf. Mackerras (2015), pp. 27, 39.

Blanchard (2017), pp. 255–258 conducts a comprehensive analysis; The Economist (2017c); The Economist (2018ff); Campbell (2017); see also Miller (2017).

In his 2016 speech, then-state secretary Markus Ederer highlighted the positive aspects of the BRI, see Auswärtiges Amt (2016). For official Chinese (and other) narratives see Blanchard (2017), pp. 249–251; China-Britain Business Council, Foreign, and Commonwealth Office (2015), p. 7.

The Economist (2018gg); cf. Campbell (2017): “OBOR remains a nebulous, confusing concept”. Similarly, Yu (2018) finds the Belt and Road Initiative “[…] fluid in nature, opaque in implementation plan and flexible in concrete measures of projects”.

Campbell (2017).

The Economist (2018gg). On the international agreements especially see Blanchard and Flint (2017), p. 230; cf. also China-Britain Business Council, Foreign, and Commonwealth Office (2015), p. 9.

Cf. China-Britain Business Council, Foreign, and Commonwealth Office (2015), p. 17.

UNCTAD (2017a), p. 19. Italy is also said to have joined the BRI, see The Economist (2019c, 2020).

The financial side to the BRI is supposed to be realized through institutions like the multi-billion-dollar Asian Infrastructure Investment Bank and the Silk Road Fund (both established in 2014) under the auspices of the China Investment Corporation and other state organizations and bodies. In addition to the roughly USD 90 billion earmarked by said institutions, the China Development Bank reportedly plans to invest more than USD 890 billion into the BRI’s projects (Lo 2017, p. 183; Blanchard and Flint 2017, p. 228; Le Corre and Sepulchre 2016, pp. 10–11). Despite the enormous sums, analysts believe this to be only a fraction of the estimated USD 2 to 3 trillion financing requirement per year (The Economist 2018ff, p. 15; McKinsey & Co. 2016; China-Britain Business Council, Foreign, and Commonwealth Office 2015, p. 16 estimate a yearly demand of USD 730 billion per year to the year 2020). On dispute settlement see Dahlan (2019).

Campbell (2017). For the full text of the communique by the participants of the roundtable see Xinhuanet (2017).

The Economist (2017c); China-Britain Business Council, Foreign, and Commonwealth Office (2015), p. 9.

Blanchard and Flint (2017), p. 229.

Translated from 中国制造2025; the official documentation on Made in China 2025 is in Chinese and a compilation can be found at Wübbeke et al. (2016), p. 66. A (comparably enthusiastic) summary report on Made in China 2025 can be found here: Shubin and Zhi (2017), pp. 88–96.

Shubin and Zhi (2017), pp. 88, 90, 92.

Wübbeke et al. (2016), p. 6 (emphasis added).

Which, crudely put, updates industrial production with modern IT (also on the German origins of the concept (Industrie 4.0) see Sendler 2017a, pp. 15–19, 22–21).

Wübbeke et al. (2016), pp. 20–21; this is also enforced by local content requirements in specific sectors, see The Economist (2017j); Jungbluth (2018), p. 16 (with a list of sectors).

Wübbeke et al. (2016), p. 17.

The Economist (2017j); Wübbeke et al. (2016), p. 17; for further information on Industry 4.0 see Sendler (2017b), pp. 49–54 and Federal Ministry for Economic Affairs and Energy (2021).

Wübbeke et al. (2016), p. 22; The Economist (2017j).

Jungbluth (2018), pp. 17–18.

Wübbeke et al. (2016), p. 51 (emphasis added).

The Economist (2017e). In terms of financial realization, Made in China 2025 is backed up by specially built financial vehicles such as the Advanced Manufacturing Fund (EUR 2.7 billion), the National Integrated Circuit Fund (EUR 19 billion), the Emerging Industries Investment Fund (EUR 5.4 billion), and a plethora of other government sponsored funds and financial institutions (The Economist (2017j) even reports a total of EUR 807 billion underwritten for the Made in China 2025 industries). The funds are funneled through a complicated network of (jointly) private and state-owned companies, which also make the actual investments (see Wübbeke et al. 2016, pp. 23, 51–54, 59; Jungbluth 2018, pp. 18–19).

Another aspect of the BRI is that political pressure also drives private entrepreneurs into investments and transactions they would not pursue under mere market rationale, which is why some Chinese businessmen (in whispers) reportedly call it “One Road, One Trap” (The Economist 2017c). As the subsequent case study will reveal, a similar assertion can be made regarding Made in China 2025 (below Sect. 4.1.1.2) (cf. the interview with the lead private investor in the Aixtron acquisition, who, asked after involvement of the Chinese state in the acquisition, said that although no such intervention occurred, he assumes that the acquisition is in line with Chinese policy (Böcking 2016)).

One shred of evidence is the pattern of Chinese investment in developing countries, especially in such of which other international investors steer well clear. China invests in states such as Angola, the Democratic Republic of Congo, Sudan, Venezuela, and Ecuador, all of which are largely avoided by other international investors due to instability and governance issues (cf. Lo (2017), p. 170 who finds a relatively high proportion of investment in developing countries; Jian and Tongjuan (2015), pp. 47–51 hold that if one deducts investments in tax havens and offshore investment centers, Chinese outward investment predominantly targets developed countries). To be sure, this investment behavior could alternatively be explained either by rational Chinese investment behavior that acts on some sort of informational advantage concerning the situation for foreign investors in these countries (which is not available to other international investors). Or it could be argued that Chinese investors value risks differently or have a different propensity to take high risks. However, in lack of evidence backing these alternative explanations, it seems plausible to assume that this type of investment is at least in part driven politically and not predominantly by market rationale (see Lo 2017, pp. 170–171 who points out that Chinese investment defies the common logic of FDI streams as it is not attracted by market size and governance environment but by natural resources; Delbecque and Harbulot (2012), p. 36 write: “China is engaged in a long-term ‘asymmetric war’ (based on the logic of economic warfare, […].” (Fr)).

See Yahoo Finance (2021e).

Due to requirements under Sec. 27 (3) and 14 (3) of the German Securities Acquisition and Takeover Act (Wertpapiererwerbs- und Übernahmegesetz), unofficial translation available at https://​www.​bafin.​de/​dok/​7857050 (accessed 21 January 2021), the takeover offer had to be published. It can be found in the German Federal Gazette (Bundesanzeiger (BAnz)) of 12 December 2016 under “AIXTRON SE”; Seibt and Kulenkamp (2017), p. 1346; Wocher (2016).

Manager magazin (2016); Spiegel Online (2016).

Hasselbach and Peters (2017), p. 1348.

Fahrion and Ming (2016), p. 60.

Fahrion and Ming (2016), p. 60.

In an interview with the German magazine Spiegel Online, Liu Zhengdong denied any Chinese state interference and other allegations raised by the Capital article, admitting however that the acquisition of Aixtron would generally fit the China 2025 strategy, see Böcking (2016). Fahrion and Ming (2016), p. 62 investigate possible connections.

Fahrion and Ming (2016), pp. 62–63.

Fahrion and Ming (2016), pp. 58, 63.

Wocher (2016).

See Sec. 5 (2) of the German Foreign Trade and Payments Act of 6 June 2013 (Außenwirtschaftsgesetz) (BGBl. Part I, p. 1482), official (but no longer current) translation: https://​www.​gesetze-im-internet.​de/​englisch_​awg/​englisch_​awg.​html (accessed 21 January 2021). The technical details of the procedure can be found in the Foreign Trade and Payments Ordinance of 2 August 2013 (Außenwirtschaftsverordnung) (BGBl. Part I, p. 2865 as amended by BAnz Amtlicher Teil (AT), 28 December 2018, V1), Sec. 55 to 59, official (but no longer current) translation: https://​www.​gesetze-im-internet.​de/​englisch_​awv/​englisch_​awv.​html (accessed 21 January 2021); see Sec. 55 (1) thereof.

At the time Sec. 56 (1) Foreign Trade and Payments Ordinance. The threshold was lowered subsequently (details below Sect. 4.1.1.4.2.2.3). A brief overview of the whole procedure is given by Pottmeyer (2016), pp. 273–275.

Sec. 56 (2), 55 (2) Foreign Trade and Payments Ordinance.

Sec. 59 (1) Foreign Trade and Payments Ordinance.

Sec. 58 Foreign Trade and Payments Ordinance.

Under Sec. 49 of the German Administrative Procedure Act (Verwaltungsverfahrensgesetz)—an unofficial translation is available at https://​germanlawarchive​.​iuscomp.​org/​?​p=​289 (accessed 21 January 2021). This provision only allows the revocation of lawful administrative acts, which indicates that the initial certificate was deemed to be lawful but that the ministry might “be entitled, as a result of a subsequent change in circumstances, not to issue the administrative act” and that “failure to revoke it would be contrary to the public interest” (Sec. 49 (3) No. 3 German Administrative Procedure Act); Hasselbach and Peters (2017), p. 1348; Seibt and Kulenkamp (2017), p. 1347.

Hasselbach and Peters (2017), p. 1349.

Today, the investigation may take up to four months after the buyer has provided the ministry with complete documentation on the acquisition, see Sec. 59 (1) Foreign Trade and Payments Ordinance.

Hasselbach and Peters (2017), p. 1348; Seibt and Kulenkamp (2017), p. 1346.

Section 2 (a) Order of 2 December 2016. On the CFIUS recommendation Seibt and Kulenkamp (2017), p. 1346.

Jackson (2017), p. 7. On the enhanced use of CFIUS investigations see the graph in Roberts et al. (2019), p. 661.

Section 1 (a) Order of 2 December 2016. The national security concerns were not specified but newspapers speculated that Aixtron machinery could produce semiconductors on the basis of gallium nitride which can be used for radar units. They were allegedly sold to the United States defense contractor Northrop Grumman Corp (Seibt and Kulenkamp 2017, p. 1347).

Handelsblatt (2016a). The offer was conditional on CFIUS approval, see Hasselbach and Peters (2017), p. 1348.

Cf. Zhang and van den Bulcke (2014), p. 162.

Chinese government as cited by Handelsblatt (2016b) (Ger).

For other takeover examples (without involvement from ISCMs) see, for instance, Wübbeke et al. (2016), p. 52; Chazan (2016); Seibt and Kulenkamp (2017), pp. 1346–1348.

Graham and Marchick (2006), pp. 104–109 on the general difficulties in determining state control for Chinese buyers. More generally Le Corre and Sepulchre (2016), pp. 115–127.

Böcking (2016) quotes the private investor with denying any state involvement but admitting that the whole transaction would have been in line with Chinese state acquisition strategy.

Cf. Seibt and Kulenkamp (2017), p. 1346.

Cf. Lecheler and Germelmann (2010), pp. 171–172; Seibt and Kulenkamp (2017), p. 1347.

Bassan (2011), p. 5 coins the term “foreign government-controlled investors” (FGCIs) as the “family” and SWFs and state-owned enterprises as the “genera” belonging to this family, SWFs being characterized by the differentia specifica of “sovereignty”. On Gazprom and Vattenfall and how they differ from SWFs see also Wolff (2009), pp. 8–10 (who also delivers a differentia specifica against central banks, which—although sovereign—are usually constrained in terms of the assets they invest in, which are mostly government bonds). Both SWFs and SOEs are tools of state capitalism, i.e. the promotion of economic growth by the state within a free-market, capitalist economic system (Klaver and Trebilcock 2013, pp. 131–132).

Golding (2014), pp. 539–540. SWFs do not exclusively seek FDI, however, see Truman (2010), pp. 42–43; Klaver and Trebilcock (2013), p. 134.

Tietje (2015c), p. 1801 (para. 1) estimates that scholarly debate has increasingly picked up the issue of SWFs since around 2000. Holistic works include Truman (2010), Bassan (2011), and Sauvant et al. (2012); in German Wolff (2009).

Rozanov (2011), pp. 251–258; Tietje (2015c), pp. 1803–1804 (para. 4).

Schweitzer (2010), p. 254.

See Bassan (2011), pp. 17–35 for the details of the debate.

To provide only two, very similar definitions, see International Working Group of Sovereign Wealth Funds (2008), p. 27 (Appendix I (2)) (emphasis added): “SWFs are defined as special purpose investment funds or arrangements, owned by the general government. Created by the general government for macroeconomic purposes, SWFs hold, manage, or administer assets to achieve financial objectives, and employ a set of investment strategies which include investing in foreign financial assets. The SWFs are commonly established out of balance of payments surpluses, official foreign currency operations, the proceeds of privatizations, fiscal surpluses, and/or receipts resulting from commodity exports.” Bassan (2011), p. 32 defines, too narrowly, SWFs as follows: “[SWFs are] funds established, owned and operated by local or central governments, [whose] investment strategies include the acquisition of equity interest in companies listed in international markets operating in sectors considered strategic by their countries of incorporation.” It would seem, for one, “companies listed in international markets” focuses too much on target companies listed on a stock exchange. Companies not publicly traded on a stock exchange, which can nonetheless be acquired by interested foreign buyers, can also be targeted by SWFs. Second, SWFs may also engage in investment activities outside “strategic” sectors if they are merely rent-seeking. Finally, focus on ownership seems unduly narrow.

International Monetary Fund (2008), p. 26 (para. 52) (asterisk omitted) (emphasis added). The report also cites eight alternative definitions of other institutions in Annex II (pp. 37–38). The definition is called into question by Wolff for its temporal component, which already is a description of what SWFs do (not what they are), see Wolff (2009), p. 1.

Heinemann (2011), p. 13; Das (2008), pp. 81–83; Wolff (2009), pp. 4, 10–12, who also points out Russia, Venezuela, the federal state of Alaska (United States), Chile, Botswana, and Kiribati (the latter three export diamonds and copper). For a typology cf. International Monetary Fund (2008), p. 5 (para. 8); for an instructive list of examples see International Working Group of Sovereign Wealth Funds (2008), pp. 32–49.

Das (2008), pp. 80, 83–84.

Backer (2011), pp. 107 et seqq.; Bu (2015), p. 344; Golding (2014), pp. 540–543; Wübbeke et al. (2016), pp. 7–8, 51–53. An impressive example can be found at Fahrion and Ming (2016), pp. 60–61 (on the attempted takeover of German Aixtron by Chinese Grand Fujian Chip), see also Metzger (2015), pp. 43–46. More generally on the opaque structure of Chinese state holdings Graham and Marchick (2006), pp. 104–109. On the powerful China Investment Corporation see Bu (2010), pp. 855–858; Li (2010), pp. 354–356; International Working Group of Sovereign Wealth Funds (2008), p. 36; Wolff (2009), p. 4.

Li (2010), pp. 363–367; Mattoo and Subramanian (2008), p. 14; Wolff (2009), p. 4. The earlier Chinese preference for (low-yield, low-risk) portfolio investment started to turn from 2011 onwards, see Bu (2015), p. 344.

Golding (2014), p. 537 (revenue stabilization funds fend off price volatilities for states which engage in natural resource trading).

Taylor (2010), para. 13.07; Sovereign Investment Lab (2015), p. 8; Tietje (2015c), p. 1805 (para. 10); Klaver and Trebilcock (2013), p. 134.

Muchlinski (2007), p. 201.

Behrens (1976), p. 261, 267; Muchlinski (2007), p. 202.

Cf. Sornarajah (2017), p. 118; United Nations Centre on Transnational Corporations (1983), pp. 76 et seqq. The history of some ISCMs will be studied in greater detail below (Sect. 4.1.1.4.2). Although this section occasionally stresses differences between developing and developed states, a systematic differentiation between the two is no longer appropriate since the screening and control regimes have drastically converged to the present day (Muchlinski 2007, p. 179).

Muchlinski (2007), p. 213.

See below Sect. 4.1.1.4.2. In preparation of the 1992 World Bank Guidelines on the Treatment of Foreign Direct Investment (see in greater detail below Sect. 4.3.3), a research team produced a wide-ranging study of investment codes of eight developed and 51 developing states, which also addressed the prevalence of ISCMs. Their report concluded that virtually all of the analyzed states maintain some sort of right to deny market access to foreign buyers of domestic companies, although the grounds for denial and the discretion of authorities vary significantly (see Shihata 1993, pp. 202, 221–233, 312–318, who concludes (p. 316): “In sum, under none of the codes considered is there an unrestricted right of entry. Admission is in each case a matter for the local authorities to decide in the exercise of greater or lesser degrees of discretion under law.”). The overview of ISCMs was a byproduct of the review and analysis of 335 BITs and their market access provisions. Of the eight developed states only five states’ investment codes were analyzed while France, the United States, and the United Kingdom did not have uniform investment codes and were mainly looked at comparatively (see also reprints in Khalil 1992, pp. 341–350; Parra 1992, pp. 429–435). Despite its age, the report still seems to be indicative of the continued world-wide prevalence of ISCMs, which may have changed in terms of rigor, but all in all have proven their resilience (cf. Muchlinski 2007, p. 202 who, writing in 2007, argues that “‘screening’ of foreign investments is one of the most widely used techniques for controlling the entry and establishment of [multinational enterprises] in host states” (fn. omitted). A more recent study (relating only to EU member states) has been conducted by Grieger (2017); see also Shihata (1994), p. 49; Wehrlé and Pohl (2016), pp. 43 et seqq.

The access of capital to a host state can be limited in many ways and by a multitude of legal instruments. Metzger (2015), pp. 23–25, 347 et seqq. takes a holistic view and separates “direct” (vis-à-vis the foreign investment) from “indirect” (in pursuit of some other regulatory objective) investment control; in terms of instruments, he considers international investment law, corporate law (including takeover law), antitrust law, and investment control law in the narrow sense (such as golden shares, thresholds, and security controls). See also Sornarajah (2017), pp. 112–113; Muchlinski (2007), p. 179.

On the United States restrictions see Seitzinger (2013); Blumberg et al. (2018), Ch. 152; see generally Salacuse (2013), pp. 92–95.

See Rickford (2010), pp. 60–74; Arnaudo (2017), pp. 2–5 (also on “golden powers”).

See Muchlinski (2007), pp. 184–201; Sauvant (2011), p. 411; Heinemann (2012), pp. 851–852; Metzger (2015), 23–25, 347 et seqq.; Sornarajah (2017), pp. 120–142; Salacuse (2013), pp. 89–90; Truman (2010), pp. 63–64.

Cf. Shihata (1994), p. 50.

On requirements of local equity see Sornarajah (2017), pp. 138–141.

It might be recalled that the policy choice “no foreign investment at all” violates the trilemma (above Sect. 4.1.1.1.1) and is thus no realistic option.

Muchlinski (2007), p. 202 (also with discussions of the respective choices of Ghana, Mexico, and Canada).

Shihata (1994), pp. 51–53.

Shihata (1994), p. 49; Salacuse (2013), p. 90.

While SWFs have been subject of extended academic scrutiny in the past, ISCMs have received considerably less attention (notable exceptions are, inter alia, Heinemann (2012); Salacuse (2013), pp. 107–108; Sornarajah (2017), pp. 128–131; Muchlinski (2007), pp. 201–213; other publications tend to be jurisdiction-specific, see the publications cited under Sects. 4.1.1.4.2.1 to 4.1.1.4.2.4). This is all the more surprising taking into account that, differently from many other means of modern economic warfare, information on ISCMs is (compared to information on most SWFs) easily available because some states, in an attempt to create transparency and attract foreign investors, choose to compile and make widely available their investment laws (see, for instance, International Centre for Settlement of Investment Disputes (1972) and http://​investmentpolicy​hub.​unctad.​org/​InvestmentLaws/​ (accessed 10 January 2020)). Nonetheless, a comparable study of ISCMs as means of economic warfare is yet to be conducted. This excursus aims to begin to fill this research gap and establish that the major economies hold at their disposal some kind of ISCM (and thus engage in economic warfare).

UNCTAD (2017a), p. 12; if relevance were only defined by absolute amount of capital, the United Kingdom with USD 254 billion and China with USD 134 billion would have to be included; these states are briefly considered to complete the picture (below Sect. 4.1.1.4.2.4).

Germany not only being a major political and economic force within the EU and (historically) a fierce advocate of the free movement of capital, but also home to a great many of potential targets for foreign takeovers represented in the Deutscher Aktienindex (DAX) or being part of the German Mittelstand (cf. Jungbluth 2018, pp. 17–18).

UNCTAD (2017a), p. 222.

Jackson (2020), p. 1; Bailey et al. (1992), p. 65; Saha (2013), p. 208; a notion also reflected in the state’s laws, cf. Sud (2006), pp. 1310–1312.

Cited after Seitzinger (2013), p. 1 (fn. omitted) who makes reference to 3 Annals of Congress 994 (1791); see also United States Department of Commerce (1970), p. 121.

Sornarajah (2017), p. 121; Alvarez (1990), pp. 86 et seqq.

For a historical development of FDI and CFIUS from 1973 to 1991 see Bailey et al. (1992), pp. 67–89. For use of CFIUS investigations see Roberts et al. (2019), p. 661.

Heinemann (2011), p. 28 (fn. 76); Alvarez (1990), pp. 3–4.

Hartge (2013), p. 262; Jackson (2017), p. 1.

Available at https://​www.​archives.​gov/​founding-docs/​constitution-transcript (accessed 10 January 2021). See Metzger (2015), p. 273 (fn. 1252) with further references.

Jackson (2017), pp. 3–4; Connell and Huang (2014), p. 136.

Bailey et al. (1992), p. 67; scholars frequently cite the Fujitsu-Fairchild case as spark to the Exon-Florio Amendment (Alvarez 1990, pp. 56–63, 142–143). Its name is derived from Senator James Exon and Representative James Florio (Waite and Goldberg 1991, p. 192).

As Sec. 5021 of the Omnibus Foreign Trade and Competitiveness Act (Pub. L. No. 100-418, 102 Stat. 423, 1107 (1988)). For a detailed legislative history see Alvarez (1990), pp. 63–86; Graham and Marchick (2006), pp. 33–74.

Sec. 721 (a) Defense Production Act read: “The President or the President’s designee may make an investigation […]” compared to Sec. 721 (c): “the President may take such action […]” (emphases added).

Sec. 3-021 Executive Order 12661 of 27 December 1988 (54 FR 779); Jackson (2017), p. 6.

Jackson (2017), p. 6; Li (2016), pp. 261–262; Tipler (2014), pp. 1226–1227; Metzger (2015), p. 274; Heinemann (2011), p. 28 (fn. 75); critical Alvarez (1990), pp. 89–90, 98, 140–159 (“Exon-Florio, the latest manifestation of political protectionism” (p. 159)); Connell and Huang (2014), pp. 135–136; Georgiev (2008), p. 127; Sud (2006), pp. 1315–1316.

31 Code of Federal Regulations Part 800 (73 FR 70702) as amended by the Provisions Pertaining to Certain Investments in the United States by Foreign Persons (83 FR 51316) see also fn. 147 below; Waite and Goldberg (1991), p. 198; Seibt and Kulenkamp (2017), p. 1348. Connell and Huang (2014), p. 137 point out that these regulations codified “secret” CFIUS practice since 1975.

Pub. L. No. 102-484 which modified Sec. 721 of the 1950 Defense Production Act. Like all CFIUS reforms thus far, the Byrd Amendment was also induced by a concrete takeover, in this case the defense section of the United States LTV Corp. by the French state-controlled Thomson-CSF Group (Metzger 2015, p. 275).

Connell and Huang (2014), p. 137; Georgiev (2008), p. 127; Jackson (2017), p. 8.

Jackson (2017), p. 9.

A kind of presidential decree directed at the administration, see Metzger (2015), p. 273 (fn. 1250) with further reference. The pertinent Executive Orders are the following: 11858 of 7 May 1975 (40 FR Register 20263), which was last amended by 13456 of 25 January 2008 (73 FR 4677); 12661 of 27 December 1988 (54 FR 779).

Before the John S. McCain National Defense Authorization Act for Fiscal Year 2019 (Pub. L. 115-232) came into effect on 13 August 2018, the following sections were codified in 50 U.S.C. § 2170 App. (see Sec. 3 Pub.L. No. 110–49 (121 Stat. 246), which modified Sec. 721 of the 1950 Defense Production Act). Details on the legislative process see Georgiev (2008), pp. 125–126. Common belief has it that the trigger for FINSA was the attempted takeover of the United States company P&Q (operating several ports) by state-owned Dubai Ports World (Chen 2016, p. 197; details on the transaction Jackson 2017, p. 26).

Georgiev (2008), p. 132; Jackson (2017), pp. 9–10.

House of Representatives bill (H.R.) 5515 became Pub. L. 115-232 on 13 August 2018. The law amends the 1950 Defense Production Act, especially Sec. 721 thereof. For legislative history see, for instance, Hufbauer (2017b) and the same author’s testimony before the Senate Committee on Banking, Housing and Urban Affairs: Hufbauer (2018). For a general discussion see Griffin (2017), pp. 1784–1792; Jackson (2020), pp. 1–2.

Sec. 1702 (c) (1) of H.R. 5515 reads as follows (emphasis added): “It is the sense of Congress that, when considering national security risks, the Committee on Foreign Investment in the United States may consider: (1) whether a covered transaction involves a country of special concern that has a demonstrated or declared strategic goal of acquiring a type of critical technology or critical infrastructure that would affect United States leadership in areas related to national security; […].” See now: 50 U.S.C. § 4565 (f) (5). An even extremer version of the reform plans was not signed into law; it would have allowed consideration of (cf. Sec. 15 of H.R. 4311): “whether the covered transaction is likely to contribute to the loss of or other adverse effects on technologies that provide a strategic national security advantage to the United States.” See further Hufbauer (2018).

31 Code of Federal Regulations Part 801 (83 FR 51322). A proposal to amend these rules published on 24 September 2019 (31 Code of Federal Regulations Part 802 (84 FR 50214) has not come into effect at the time of writing.

See also fn. 138 above.

See in greater detail Wakely and Indorf (2018), pp. 24–26.

Bonnitcha (2019), p. 647.

Many authors refer to a two-step process without any difference in substance (they mostly only refer to the 30-day national security review and 45-day national security investigation), for example Seibt and Kulenkamp (2017), p. 1349 and Schweitzer (2010), pp. 259–260. The details of the process are laid out in 31 Code of Federal Regulations Part 800 (cf. fn. 138, 147 above). A detailed description of the process in German is provided by Metzger (2015), pp. 277–306, in English by Tipler (2014), pp. 1233–1239.

Metzger (2015), pp. 282–283; on the content of the voluntary notification see Waite and Goldberg (1991), p. 194; 31 Code of Federal Regulations § 800.402 and the interim regulations in §§ 801.401 to 801.409.

Li (2016), p. 304.

Despite the letter of the law to the contrary, CFIUS in practice also evaluates whether the transaction could threaten national security (Graham and Marchick 2006, p. 104).

Seibt and Kulenkamp (2017), p. 1350; Jackson (2017), p. 11.

Metzger (2015), p. 285.

Metzger (2015), p. 283.

Jackson (2017), p. 11.

Waite and Goldberg (1991), p. 195.

Jackson (2017), p. 13; Seibt and Kulenkamp (2017), p. 1351.

Jackson (2017), p. 13.

50 U.S.C. § 4565 (d) (4) (emphasis added). By comparison, 50 U.S.C. § 2170 (d) (4) read, before FIRRMA came into effect, in its first paragraph: “(A) there is credible evidence that leads the President to believe that the foreign interest exercising control might take action that threatens to impair the national security; and […]”

Jackson (2017), p. 14.

Metzger (2015), pp. 300–301.

Sud (2006), p. 1317.

Seibt and Kulenkamp (2017), p. 1349; Jackson (2017), pp. 11–12.

Jackson (2017), pp. 11–12.

Sud (2006), p. 1316; Waite and Goldberg (1991), p. 196.

Metzger (2015), p. 284.

Seibt and Kulenkamp (2017), p. 1350; Waite and Goldberg (1991), p. 195.

50 U.S.C. § 4565 (a) (4) (B) (i); see also 31 Code of Federal Regulations § 800.301 (items (e) and (f) added in 2018): “(a) A transaction which, irrespective of the actual arrangements for control provided for in the terms of the transaction, results or could result in control of a U.S. business by a foreign person. […] (b) A transaction in which a foreign person conveys its control of a U.S. business to another foreign person. […] (c) A transaction that results or could result in control by a foreign person of any part of an entity or of assets, if such part of an entity or assets constitutes a U.S. business. (See § 800.302(c).) […] (d) A joint venture in which the parties enter into a contractual or other similar arrangement, including an agreement on the establishment of a new entity, but only if one or more of the parties contributes a U.S. business and a foreign person could control that U.S. business by means of the joint venture. […] (e) A change in the rights that a foreign person has with respect to a U.S. business in which the foreign person has an investment, if that change could result in foreign control of the U.S. business. […] (f) A transaction the structure of which is designed to evade or circumvent the application of section 721. […]”

Alvarez (1990), p. 142; Li (2016), p. 260; see also 73 FR 70702 (70704).

31 Code of Federal Regulations § 800.216.

50 U.S.C. § 4565 (a) (3).

31 Code of Federal Regulations § 800.204. For the proposed change see 31 Code of Federal Regulations § 802.209 (cf. fn. 147 above).

73 FR 70702 (70704); Jackson (2017), p. 17; Waite and Goldberg (1991), p. 202.

31 Code of Federal Regulations § 800.223, § 800.302(b), Note to § 800.204.

50 U.S.C. § 4565 (a) (7).

73 FR 70702 (70709).

Graham and Marchick (2006), p. 109 (for Chinese investment); Li (2016), p. 262.

Metzger (2015), pp. 280–281.

Li (2016), p. 271; Sud (2006), p. 1317; Waite and Goldberg (1991), p. 198.

Waite and Goldberg (1991), p. 198; Jackson (2017), p. 18 who points out that the members of CFIUS apply their respective interpretation of national security during the national security review and investigation.

Alvarez (1990), p. 101.

50 U.S.C. § 4565 (a) (1). It should be added that this provision did not exist at the time of Alvarez’ writing.

50 U.S.C. § 4565 (f) (emphasis added).

Metzger (2015), p. 290; Jackson (2017), p. 19; for a different view see Heinemann (2011), p. 30; Graham and Marchick (2006), pp. 172–173 (the latter writing prior to FINSA, however).

Waite and Goldberg (1991), p. 199 on the practitioner’s working definition of national security.

Wang (2016a), pp. 329–331; Jackson (2017), p. 19; Graham and Marchick (2006), p. 172.

Pasco (2014), pp. 365–366; Jackson (2017), p. 15.

50 U.S.C. § 4565 (a) (5).

73 FR 70702 (70708).

Li (2016), p. 271.

On the formation of the critical infrastructure concept as well as earlier versions of the list see Jackson (2017), pp. 15–16 (fn. 43) and Jackson (2020), pp. 26–28; Graham and Marchick (2006), pp. 176–178; Pasco (2014), pp. 365–369.

Presidential Policy Directive PPD-21 of 12 February 2013, available at https://​obamawhitehouse.​archives.​gov/​the-press-office/​2013/​02/​12/​presidential-policy-directive-critical-infrastructure-security-and-resil, see also https://​www.​dhs.​gov/​critical-infrastructure-sectors (both accessed 21 January 2021).

For the chemical sector, see https://​www.​dhs.​gov/​sites/​default/​files/​publications/​nipp-ssp-chemical-2015-508.​pdf (accessed 21 January 2021).

Cf. Graham and Marchick (2006), p. 150; for a different view see Tipler (2014), p. 1383; Li (2016), p. 272.

50 U.S.C. § 2170 (a) (7).

Metzger (2015), p. 293.

Sec. 1702 (c) H.R. 5515.

Tipler (2014), p. 1342; Li (2016), p. 271; Schweitzer (2010), p. 259; Metzger (2015), pp. 290–291; Waite and Goldberg (1991), p. 198; more cautiously Sud (2006), pp. 1316–1319 pointing out that checks and balances at least exist because the President of the United States has to issue a written report in accordance with 50 U.S.C. § 4565 (g). On the historical understanding of national security by the drafters of the Exon-Florio Amendment see Bailey et al. (1992), p. 82.

Graham and Marchick (2006), pp. 172–173; Bailey et al. (1992), p. 81; see also Pasco (2014); for a different view see Alvarez (1990), pp. 105–106 and more recently Bu (2016), p. 4 who argues that “as a practical matter CFIUS does consider economic issues if they affect national security” (fn. omitted).

Tipler (2014), p. 1349; Goldstein (2011), pp. 226–227; Saha (2013), p. 219; Hartge (2013), p. 261 (who finds that the letter of law stays true to the national security focus of CFIUS by adding “national security-related effects” to contentious items); Bu (2016), p. 4; cf. also Georgiev (2008), p. 133. Moran (2009), pp. 7 et seqq. analyzed CFIUS practice empirically, identifying a—thus far—narrow approach to national security mainly addressing three threats: leakage of sensitive technology, security of supply with crucial or critical products, and espionage in the broadest sense. Looking at recent practice, the author finds this narrow approach to have come under pressure recently (Moran 2017a, pp. 5–6, 11–15).

For a different view see Wakely and Indorf (2018), p. 34.

50 U.S.C. § 4565 (e) (1) (emphasis added).

Of course, the technical subsidiarity of Sec. 721 Defense Production Act of 1950 vis-à-vis other United States law is also not subject to review. For the lack of revisability see Alvarez (1990), pp. 123–124; Tipler (2014), p. 1227; Metzger (2014), p. 796; Jackson (2017), pp. 14–28; Wang (2016a), p. 331; United States Court of Appeals for the District of Columbia Circuit (15 July 2014) Ralls Corporation v. Committee on Foreign Investment in the United States, 13-5315, 758 F.3d 296, pp. 14–18.

Metzger (2014), p. 800.

United States Court of Appeals for the District of Columbia Circuit (15 July 2014) Ralls Corporation v. Committee on Foreign Investment in the United States, 13-5315, 758 F.3d 296 overturning United States District Court for the District of Columbia (22 February 2013) Ralls Corporation v. CFIUS, et al., Decision, Civil Action Number 12-1513 (on the latter see Wang (2016b), pp. 42–43).

See the summaries by Wang (2016a), pp. 331–338; Wang (2016b), pp. 37–45; Li (2016), pp. 275–277; Metzger (2014), p. 797; Tipler (2014), pp. 1262–1266.

Order of 28 September 2012: Regarding the Acquisition of Four U.S. Wind Farm Project Companies by Ralls Corporation (2012), 77 FR 60281.

United States Court of Appeals for the District of Columbia Circuit (15 July 2014) Ralls Corporation v. Committee on Foreign Investment in the United States, 13-5315, 758 F.3d 296, p. 20; Bu (2016), pp. 5–6; Wang (2016a), pp. 338, 347–348.

Wang (2016a), p. 339.

Li (2016), p. 276.

Bakker (1996), p. 109.

Chang (2007), p. 95.

Bakker (1996), p. 114.

Cf. Hein (1983), p. 403; Tietje (2015b), para. 11.

Fn. 71 above. On the German ISCM in English cf. Theiselmann (2009); Schweitzer (2010), pp. 268–270; and Hein (1983), pp. 404–406.

The AWG also contains provisions that directly enable the administration to intervene, see Walter (2013), p. 207.

This paragraph draws on Sachs (1973), pp. 141–142. Special mention should be made of Militärregierungsgesetz Nr. 53 (Law No. 53 Foreign Exchange Control) of 1945 (see Hein 1983, pp. 404–405; Bryde 1996, pp. 493–494 (fn. 24, 26)).

By virtue of the Occupation Statute of Germany (Besatzungsstatut) of 10 April 1949 (see Bryde 1996, p. 494).

Hein (1983), p. 405.

By virtue of the General Treaty (Vertrag über die Beziehungen zwischen der Bundesrepublik Deutschland und den Drei Mächten), BGBl. (1955) Part II, p. 305; Bryde (1996), p. 494.

BGBl. (1961) Part I, p. 481—AWG 1961.

Sachs (2017), para. 10; Bryde (1996), p. 502; Hein (1983), pp. 403–404.

Sec. 1 (1) AWG 1961 (Ger). The provision has remained virtually unchanged since 1961 (Sachs 2017, para. 25).

Hein (1983), pp. 403–404. Art. 12 (1) and Art. 14 Basic Law for the Federal Republic of Germany protect free choice of employment and property respectively; Art. 2 (1) Basic Law for the Federal Republic of Germany provides subsidiary protection where these constitutional rights do not cover the transaction in question. See (Sachs 2017, paras 10–11).

Hindelang (2009), pp. 37–38 also on the former inclusion of the freedom in Directive 88/361/EEC.

Pelz (2017), para. 51. Although the AWG 1961 (as amended from time to time) remained in force until 2013—when it was fundamentally reformed and modernized by the AWG (cited above in fn. 71)—it was reformed significantly thirteen times between 1961 and 2013 (“significant” in the present context means that a law changing specifically the AWG 1961– in German “Gesetz zur Änderung des Außenwirtschaftsgesetzes” (loosely translated “law amending the Foreign Trade and Payments Act”)—was passed; in addition to such “significant“ changes, the AWG underwent numerous smaller en passent alterations primarily aiming to change different laws). The history of changes is summarized in Table 4.1, which holds, in its first column, the year of its certification by the German federal president (Bundespräsident), in its second column, the name of the amending law, in its third column the citation in the BGBl. Part I, and in its fourth and final column the respective date of entry into force.

On the 2013 AWG reform see Walter (2013); Hensel and Pohl (2013); on the 2009 reform Theiselmann (2009); Krause (2009); Traugott and Strümpell (2009); Müller and Hempel (2009); Voland (2009).

Bryde (1996), pp. 495–496; Tietje (2015b), paras 11, 14; Lecheler and Germelmann (2010), p. 146; Stein and Thomas (2014), para. 31.

Bryde (1996), p. 497. See also Sec. 1 (2) AWG.

Tietje (2015b), para. 4.

It should also not go unmentioned that enforcement of EU law and of AWG and AWV are tasks of the competent EU member state authorities (Stein and Thomas 2014, para. 31; Tietje 2015b, paras 12, 59–63).

See references in fn. 287 and 289 below.

According to Sec. 19 Joint Rules of Procedure of the Federal Ministries (Gemeinsame Geschäftsordnung der Bundesministerien, official translation available at https://​www.​bmi.​bund.​de/​SharedDocs/​downloads/​EN/​themen/​moderne-verwaltung/​ggo_​en.​pdf;jsessionid=​7A85EABFD33C1DD5​B80661552AEFA5C4​.​2_​cid295?​_​_​blob=​publicationFile&​v=​1 (accessed 21 January 2021)), the BMWi has to include those other ministries whose remits are affected by the transaction, among which one will find especially the Federal Foreign Office, the Federal Ministry of Defense, and the Federal Ministry of the Interior, Building and Community (cf. Mausch-Liotta 2017d, para. 5).

Sec. 6 (1) Joint Rules of Procedure of the Federal Ministries (above fn. 238); König (2008), pp. 332–333, 337–342 (on the pyramidical organization of the German administration in general).

On this monocratic organizational principle in the German administration see König (2008), p. 341. It should be noted that in an earlier version of Sec. 59 AWV (then Sec. 52 (2) sentence 3 AWV), the BMWi was bound to inform the Federal Government, which could have overruled the BMWi on the basis of Art. 65 Basic Law for the Federal Republic of Germany (Mausch-Liotta 2017b, para. 2). This right of the Federal Government was curtailed to exclude irrelevant (possibly protectionist) factors from the review, cf. Voland (2009), p. 522.

For a general discussion of administrative decision-making in Germany see König (2008), pp. 349 et seqq.; Bohne (2018), pp. 179 et seqq.

On the following see the organizational chart of the BMWi, available at https://​www.​bmwi.​de/​Redaktion/​DE/​Downloads/​M-O/​organisationspla​n-bmwi.​pdf?​_​_​blob=​publicationFile&​v=​166 (accessed 21 January 2021).

The official translation reads “examination” instead of “review”, the latter of which is chosen here to achieve a higher degree of terminological coherence with the other ISCMs analyzed.

Schuelken (2017), p. 1407.

Mausch-Liotta (2017a), para. 6.

Sandrock (2009), pp. 735–737.

Müller and Hempel (2009), p. 1638; Mausch-Liotta (2017a), para. 6.

Pottmeyer (2016), pp. 273–274; Mausch-Liotta (2017a), paras 9–10; Mausch-Liotta (2017c), paras 5–7.

Krause (2009), p. 1085; Schweitzer (2010), p. 270; Mausch-Liotta (2017a), para. 50.

Pottmeyer (2016), p. 274.

Due to notification requirements under other laws. See Müller and Hempel (2009), p. 1639; Pottmeyer (2013), para. 31; Mausch-Liotta (2017a), para. 28 for such notification requirements.

The amendments of the AWV of 14 July 2017 and of 19 December 2018 were promulgated in BAnz AT, 17 July 2017, V1 and 28. December 2018, V1, respectively. In detail on the former amendment see Hindelang and Hagemeyer (2017), p. 884; Schuelken (2017); Slobodenjuk (2017); Hippelli (2017).

Hindelang and Hagemeyer (2017), p. 884 (also on the EU law implications of the reform).

Pottmeyer (2013), paras 50–54; Krause (2009), pp. 1084–1085; Traugott and Strümpell (2009), pp. 189–190 (also on an alternative to the certificate of non-objection procedure).

Details Pottmeyer (2013), para. 38.

Mausch-Liotta (2017d), para. 10.

The term non-EU resident is defined in Sec. 2 (18) and (19) AWG. Additionally, acquirers from the member states of the European Free Trade Association are treated equivalent to EU residents (Sec. 55 (2) sentence 4 AWV).

On the types of transactions and the concept of direct and indirect participation Pottmeyer (2013), pp. 14–15, 21–29.

One could argue that some of the items introduced in the reform of the AWV in July 2017 are dual-use goods (suitable for military and civil use), see Hindelang and Hagemeyer (2017), p. 889.

They are not to be equated or confused with the concept of public order or security under German police and general public order law, see Müller and Hempel (2009), p. 1640; Pottmeyer (2013), para. 43; apparently with a different view Voland (2009), p. 522. On the pertinent fundamental freedom see Hindelang and Hagemeyer (2017), pp. 885–886 with further references, also on overriding reasons in the general interest (i.e. unwritten justifications) on p. 888.

EU ISCM Proposal (Commission), p. 5 (the terms have to be interpreted restrictively and under the purview of the institutions of the EU).

Court (14 March 2000) Association Église de Scientologie de Paris, Judgement, C-54/99, ECLI:EU:C:2000:124, para. 17 (references omitted); see also Court (4 June 2002) Rights attaching to the ‘golden shares’ held by the Kingdom of Belgium in Société nationale de transport par canalisations SA and in Société de distribution du gaz SA, Judgment, C-503/99, ECLI:EU:C:2002:328, para. 47.

See, for example, Court (4 June 2002) Rights attaching to the ‘golden shares’ held by the Kingdom of Belgium in Société nationale de transport par canalisations SA and in Société de distribution du gaz SA, Judgment, C-503/99, ECLI:EU:C:2002:328, para. 23; Court (14 February 2008) Disposition nationale limitant les droits de vote des actionnaires dans les entreprises du secteur énergétique – Limitation applicable aux entités publiques, Judgement, C-274/06, ECLI:EU:C:2008:86, para. 44; Court (8 July 2010) Portuguese State’s ‘golden’ shares in Portugal Telecom SGPS SA – Restrictions on the acquisition of holdings and on the management of a privatised company, Judgement, C-171/08, ECLI:EU:C:2010:412, para. 72; for more references see Hindelang and Hagemeyer (2017), pp. 887–888; Rickford (2010), pp. 74–75; Mausch-Liotta (2017a), para. 27.

See Friedrich (2009), para. 32; Müller and Hempel (2009), p. 1640; Seibt and Wollenschläger (2009), p. 839; skeptical Schweitzer (2010), pp. 278–279.

Court (14 March 2000) Association Église de Scientologie de Paris, Judgement, C-54/99, ECLI:EU:C:2000:124, para. 17; Rickford (2010), p. 74.

Pottmeyer (2013), para. 44.

Court (14 March 2000) Association Église de Scientologie de Paris, Judgement, C-54/99, ECLI:EU:C:2000:124, para. 18; Pottmeyer (2013), para. 45. Additionally, ISCMs have to be transparent and non-discriminatory, cf. EU ISCM Proposal (Commission), p. 5; Schweitzer (2010), pp. 263, 277–278.

See generally Bratanova (2004).

Roth (2004), pp. 433–434; Mausch-Liotta (2017d), para. 3.

Widder and Ziervogel (2005), para. 262.

Mausch-Liotta (2017c), para. 25; Schweitzer (2010), p. 278.

Mausch-Liotta (2017d), para. 3.

See Krause (2009), p. 1987 for the years up to 2009. Hindelang (2013) gives an in-depth analysis of the available case law and jurisdictional limits of review in regard to Sec. 4 (1) No. 2 AWG. See also Hohmann (2018), pp. 456–461 (for recent decisions relating to exporting).

Court (14 March 2000) Association Église de Scientologie de Paris, Judgement, C-54/99, ECLI:EU:C:2000:124, para. 17; Schweitzer (2010), p. 277.

Mausch-Liotta (2017a), para. 25.

An insightful overview of revisability by German administrative courts is given by Hindelang (2013), pp. 15–17 in English by Hein (1983), p. 406 (fn. 29).

Mausch-Liotta (2017c), para. 26.

Mausch-Liotta (2017d), para. 3; Mausch-Liotta (2017c), para. 26; see also Tietje (2015b), para. 175 citing Court of First Instance (28 September 1995) Ferchimex SA v. Council of the European Union, Judgement, T-164/94, ECLI:EU:T:1995:173, para. 67.

For a complete list of EU member state ISCMs cf. European Commission (2019); see also European Commission (2017a), pp. 7–8; Du (2016), p. 132; Ceyssens (2005), p. 262; on the EU system of foreign investment control altogether Lecheler and Germelmann (2010), pp. 46–87.

Cf. on EU level Art. 2, 21 (4) Council Regulation (EC) No 139/2004 of 20 January 2004 on the control of concentrations between undertakings—EC Merger Regulation—OJ L 24, 29 January 2004, p. 1; Heinemann (2012), p. 859; Grieger (2018), p. 2; see generally Du (2016), pp. 132–136; Goldstein (2011), pp. 227–229; Arnaudo (2017), p. 6.

European Commission (2006) at the heart of which lies Council Directive 2008/114/EC on the identification and designation of European critical infrastructures and the assessment of the need to improve their protection (2008), OJ L 345, 23 December 2008, p. 75.

OJ L 79 I, 21 March 2019, p. 1.

Schweitzer (2010), p. 264 (also with an explanation for the more restrictive approach taken in the energy sector on p. 266 (on these restrictions in great detail Lecheler and Germelmann 2010, pp. 46–87)); with an account of the EU member states’ positions Das (2008), pp. 93–94; Röller and Véron (2008), pp. 6–8 with the policy proposal for an EU ISCM; the regulatory outcome can be found here: European Commission (2008).

Specifically, all states to which TEU and TFEU do not apply (Hindelang 2009, p. 74). Between EU member states, the fundamental freedoms of establishment and free movement of capital (Art. 49 and 63 TFEU) place even higher barriers on ISCM (cf. Schweitzer 2010, p. 261).

Cf. the wording of the pertinent provision before and after the Treaty of Lisbon in Table 4.2 (emphasis added). For an explanation of the reasons for this shift of competence see Meunier (2017), who concludes that it “did not happen through treachery by the Commission, but rather through a combination of historical serendipity and procedural prioritization in a busy, complex agenda” (p. 606).

Court (16 May 2017) Free Trade Agreement between the European Union and the Republic of Singapore, Opinion, Opinion 2/15, ECLI:EU:C:2017:376, para. 82; Hindelang (2014), Art. 64 TFEU, para. 21; Stein and Thomas (2014), para. 30; cf. Ceyssens (2005), pp. 273, 276, 286–287; undecided Lecheler and Germelmann (2010), pp. 147–149. It should be noted that an exclusive EU competence implies that EU member states do not have the right to enact laws in the relevant field (Lecheler and Germelmann (2010), pp. 148, 168; Tietje (2015b), para. 8). Thus, although pre-existing EU member states’ ISCMs are not voided by EU exclusive competence, enacting new ISCM would have been a prerogative of the EU. However, with Art. 3 (1) EU ISCM Proposal (Commission) it would seem that the EU delegates its competence to the EU member states (see generally Weiß (2017), para. 43). Pelz (2017), para. 45 describes the remaining competence for national legislators (not including investment).

As opposed to external acts involving a third state, such as the conclusion of international investment agreements (cf. Tietje 2015b, para. 9).

Weiß (2017), para. 43; Bungenberg (2010b), p. 144; Herrmann (2010a), p. 209; Hindelang and Maydell (2010), p. 72; Bungenberg (2010a), 91, 94–95; Tietje (2015b), para. 23; Nettesheim (2008), p. 740 (expressly pointing out that prior to the Treaty of Lisbon, the EU did not possess this competence); Müller-Ibold (2010), p. 113; Di Benedetto (2017); Wei and Zhang (2017); Puig (2013), p. 161; for further references Hindelang (2013), p. 12 (fn. 8). Prior to the Treaty of Lisbon, the EU already held the competence for the adoption of “[…] measures on the movement of capital to or from third countries involving direct investment - including investment in real estate - establishment, the provision of financial services or the admission of securities to capital markets” (Art. 57 (2) sentence 1 TEC).

However, such measures rewinding the status quo of the liberalization of capital movements—ISCM may be deemed to fall into this category—required unanimity in the Council (Art. 57 (2) sentence 2 TEC, now see Art. 64 (3) TFEU). Thus, it is not outrageous to assume that the EU had the (probably shared) competence to enact ISCM even prior to the Treaty of Lisbon but chose not to exercise it (cf. Lecheler and Germelmann (2010), pp. 49–50, 147). The change brought about by Treaty of Lisbon could thus also be procedural in nature: It arguably changed the procedural framework for autonomous, restrictive EU legislation in the field of foreign direct investment so that the requirement of unanimity in the Council (which is, in other words, an EU member state veto) had ceased with the introduction of Art. 207 (2) TFEU (Herrmann (2010a), p. 209; cf. Ceyssens (2005), pp. 273, 276 (on the identical Art. III-315 of the (failed) Treaty establishing a Constitution for Europe); for a different view Hindelang (2014), Art. 64 TFEU, paras 25–26, who argues that restrictions on the free movement of capital procedurally still have to satisfy Art. 64 (3) TFEU). For an overview of the distribution of competences prior to the Treaty of Lisbon see de Mestral (2010), pp. 369–374.

Meunier (2017), pp. 598–599 on the Commission’s preferences.

Recital (6) Screening Regulation; EU ISCM Proposal (Commission), pp. 8, 27–28; European Commission (2017a), p. 9; Mannheimer Swartling (2017), pp. 8–9, 17 go even so far as to conclude that the EU could make it mandatory for its member states that they screen FDI.

On the EU’s (mostly positive) stance see especially European Commission (2008), pp. 4–5.

On the development and distribution of Chinese FDI to EU member states see Zhang and van den Bulcke (2014), pp. 161–163; Le Corre and Sepulchre (2016), pp. 41–63; Grieger (2017), pp. 2–5; see also Grieger (2018), p. 2; Godement and Vasselier (2017), pp. 37–63.

Wübbeke et al. (2016), pp. 7–8; cf. similarly Godement and Vasselier (2017), pp. 8, 91 and García-Herrero and Sapir (2017) (also with an overview of the opposing views).

Bundesministerium für Wirtschaft und Energie et al. (2017). Before that, several EU member states undertook it to reform and tighten their ISCM, see Grieger (2018), p. 3; Grieger (2017), p. 6.

Under Art. 225 TFEU and Rule 46 (2) of the Rules of Procedure of the European Parliament. The request again stressed fears of losing entire industries to foreign state-led investment, lacking reciprocity, and the deficiency of foreign investment review on EU member state level (see European Parliament (2017), items B, C; in June and October 2017, the European Council also called upon the Commission to take steps (Grieger 2018, p. 4)).

Cf. European Commission (2017c): “Let me say once and for all: we are not naïve free traders. Europe must always defend its strategic interests. This is why today we are proposing a new EU framework for investment screening. If a foreign, state-owned, company wants to purchase a European harbour, part of our energy infrastructure or a defence technology firm, this should only happen in transparency, with scrutiny and debate. It is a political responsibility to know what is going on in our own backyard so that we can protect our collective security if needed.” The Economist (2018aa); similarly (“We want to be open, but not stupid!”) the German State Secretary at the BMWi Matthias Machnig in March 2017 (cited after Moran (2017b)).

The Screening Regulation tolerates that member states do not entertain ISCM (cf. Art. 1 (3), 3 (1) (“may”) as well as recitals (4), (8), and (10) Screening Regulation). The explanatory memorandum to the Draft Proposal reads as follows (EU ISCM Proposal (Commission), p. 3): “The proposed Regulation does not require Member States to adopt or maintain a screening mechanism for foreign direct investment.” However, Bismuth (2018), pp. 52–53 detects an implied obligation to install an ISCM inter alia by the notification and reporting obligations of all EU member states.

European Commission (2017a), p. 9; see Art. 1 (2) Screening Regulation.

Art. 11, 6, 7 Screening Regulation.

For the Commission see cf. recital (16), (19), Art. 1 (1), 6 (3) and (4), 7 (2) and (3), 8 (1) Screening Regulation; for the EU member states cf. Art. 6 (2) and (6), 7 (1) and (5), 9). Art. 6 (3), 7 (2) Screening Regulation. Regarding certain investments listed in the Annex to the Screening Regulation the Commission itself has the power to screen foreign investments (cf. recital (8) Screening Regulation; clearer was Art. 3 (2) EU ISCM Proposal (Commission), which read: “The Commission may screen foreign direct investments that are likely to affect projects or programs of Union interest on the grounds of security or public order.” Although this clause was removed from the Screening Regulation, it is clear that the Commission has to remain competent to screen investments pertaining to “Union interest” in order to issue an opinion on how an investment affects security or public order.

Art. 6 (9), 7 (7) Screening Regulation.

Art. 6 (7), 7 (6) Screening Regulation (extensions are possible).

See Art. 1(3), 6 (3), 7 (2) Screening Regulation. Art. 8 (6a), 9 (5a), recital (16a) EU ISCM Revised Proposal that would have barred an EU member state from authorizing an investment when the Commission and at least one third of the EU member states believe that such investment will affect their or the EU’s security or public order, has not been entered into the Screening Regulation.

Art. 6 (1), 3 (7), 5 Screening Regulation.

Art. 2 (1) Screening Regulation.

See Heinemann (2012), p. 860; cf. Hindelang (2009), pp. 71–72, 85 with a rejection of a purely numerical differentiation.

See recital (9) Screening Regulation. The Commission sought not to include portfolio investment (EU ISCM Proposal (Commission), p. 12), which the Committee on International Trade rejected (EU ISCM Revised Proposal, p. 52).

Recital (10) Screening Regulation. See also recitals (10), (12) EU ISCM Revised Proposal. The concept is not unproblematic under EU law, whose fundamental freedoms on principle apply to EU citizens and EU legal persons (cf. also Schweitzer (2010), p. 286 who calls the “look-through” approach an “awkward instrument under EU law”).

For example, this would seem to include the acquisition of a Russian firm active in the German market by a Canadian investor.

EU ISCM Revised Proposal, p. 52: “This must remain a concept and not be precisely defined so it can remain dynamic according to the specific circumstances of the Member States.”

See especially recital (13) Screening Regulation.

The obligatory wording (“must in all cases take into account”), even more extensive list of factors (including reciprocity and “good or bad relations”), and burden of proof on the investor proposed in Art. 4 (2) EU ISCM Revised Proposal did not enter the Screening Regulation.

Art. 4 (2) Screening Regulation.

See especially recital (13) Screening Regulation. On the Commission’s draft cf. Arnaudo (2017), p. 7; Wei and Zhang (2017); it appears that the draft(s) were also inspired by Wübbeke et al. (2016), pp. 61–62.

Fn. 318 above. Against the inclusion of reciprocity Moran (2017b).

See in detail Hagemeyer (2021).

Shihata (1993), p. 202 (para. 19); similarly Salacuse (2013), p. 106.

Insightful sources for such research are Wehrlé and Pohl (2016), International Centre for Settlement of Investment Disputes (1972), and UNCTAD (2021). Fraedrich and Kaniecki (2018) have compiled an overview of 13 jurisdictions; Mandel-Campbell (2008), pp. 5–21 surveyed six OECD jurisdictions; Grieger (2017), p. 7 summarized the EU ISCMs (see also European Commission (2019)); on https://​gettingthedealth​rough.​com/​area/​48/​ (accessed 22 January 2021) local counsel compiled up-to-date summaries on foreign investment review in more than 20 states. Dated, but still insightful: Parra (1992) and Shihata (1993), pp. 107–134.

Cf. Seidman (1985), pp. 642–645.

Cf., for Nigeria, Osunbor (1988), pp. 41, 45, 65–69, 77; Ekhator and Anyiwe (2016), pp. 126–129; on the current Nigerian investment law framework: Ekwueme (2005).

In 2016, little more than 3% of global investment was headed for states on the African continent (2015: 3.4%; 2014: 5.3%), UNCTAD (2017a), pp. 4, 10–13. For an example of the investor-friendly approach see the Nigerian legislation compiled by Ekhator and Anyiwe (2016), pp. 130–131.

All information in the following has been obtained from UNCTAD (2021).

Art. 5 Cabo Verde External Investment Code (1993); Art. 6 Central African Republic Charte Communautaire de l’Investissement (2001); Art. 31, 32 Djibouti Investment Code (1984); Art. 3 Kenyan Foreign Investments Protection Act (1964); Art. 9 Libyan Law on Investment Promotion (2010); Art. 22 Mozambique Law on Investment (1993); Sec. 20 Nigerian Investment Promotion Commission Act (1995); Art. 8 Somalian Foreign Investment Law (1987); Art. 21 South Sudanese Investment Promotion Act (2009); Sec. 10 Ugandan Investment Code Act (1991) (all laws available at UNCTAD (2021)).

Authorization regimes: Art. 8 Burkina Faso Code des Investissements (1995); Art. 12 Ethiopia Investment Proclamation No. 769/2012 (2012); Art. 25–29 Mauritanian Code des Investissements (2012); Sec. 4, 12 Namibia Investment Promotion Act (2016); Art. 25 Sudanese National Investment Encouragement Act (2013); Art. 68 Zambia Development Agency Act (2006). Registration regimes: Art. 4 Algérie Promotion de l’investissement (2016); Art. 45 Angolan Private Investment Law (2015); Art. 3 Burundi Investment Code (2008); Art. 29 Chad Charte des Investissements (2008); Art. 5–6 Democratic Republic of the Congo Code des Investissements (2002); Art. 8 Gabon Charte des Investissements (1998); Art. 5 Gambia Investment and Export Promotion Agency Act (2010); Sec. 24 Ghana Investment Promotion Centre Act (2013); Sec. 4 Liberia Investment Act of (2010); Art. 12–14 Madagascar Investment Law (2008); Art. 12 Mauritian Investment Promotion Act 2000 (2001); Art. 21 Mozambique Law on Investment (1993); Art. 10–12 Rwandan Law Relating to Investment Promotion And Facilitation (2015); Sec. 5 Sierra Leone Investment Promotion Act (2004); Sec. 18 Tanzanian Investment Act (1997). Except for Ethiopia and Mauritania, all authorization regimes also expressly include a registration regime (all laws available at UNCTAD (2021)).

Art. 12 Republic of Armenia on Foreign Investments (1994); Art. 18 Azerbaijanian Law on the Protection of Foreign Investments (1992); Sec. 3 Bangladesh Foreign Private Investment Promotion and Protection Act (1980); Art. 10 Law on Chinese-Foreign Equity Joint Ventures (1990); Art. 6 Chinese Law on Wholly Foreign-Owned Enterprises (1986); Art. 5 Indonesian Law Concerning Investment (2007); Art. 5–6 Iranian Law on Encouragement and Protection of Foreign Investment (2002); Art. 21 South Korean Foreign Investment Promotion Act (1998); Art. 21 Kyrgyzstan Law on Investments (2003); Art. 1, 3 Maldives Law on Foreign Investments (1979); Art. 4 Mongolian Law On Investment (2013); Art. 3 Nepal Foreign Investment and Technology Transfer Act (1992); Art. 1 Oman Foreign Capital Investment Law (1994); Sec. 5 Philippines Foreign Investment Act of 1991 (1991); Art. 2 Saudi Arabian Foreign Investment Law (2000) (all laws available at UNCTAD (2021)).

Translations of the pertinent Foreign Exchange Management Act (1999) and the Securities and Exchange Board of India (Substantial Acquisition of Shares and Takeovers) (Amendment) Regulations 2017 are available at https://​indiacode.​nic.​in/​handle/​123456789/​1988?​view_​type=​browse&​sam_​handle=​123456789/​1362 and https://​www.​sebi.​gov.​in/​legal/​regulations/​aug-2017/​securities-and-exchange-board-of-india-substantial-acquisition-of-shares-and-takeovers-amendment-regulations-2017_​35634.​html (both accessed 22 January 2021).

In addition to any local permits, see altogether Sweeney (2010), pp. 225–226.

Chang (2007), pp. 94–95; for a brief historical sketch see Yoshino (1975), pp. 274–278; in detail Bailey (2003).

Bailey (2003), pp. 316, 333, 336.

外国為替及び外国貿易法 translation available at http://​www.​japaneselawtrans​lation.​go.​jp/​law/​detail/​?​id=​3066&​vm=​02&​re=​&​new=​1 (accessed 22 January 2021).

対内直接投資等に関する政令 (as amended from time to time) translation available at http://​www.​japaneselawtrans​lation.​go.​jp/​law/​detail_​download/​?​ff=​09&​id=​2024 (accessed 22 January 2021). See Bailey (2003), pp. 316, 331–333, 336.

UNCTAD (2017b), p. 18.

Art. 27 (3) (i) Foreign Exchange and Foreign Trade Act. The former, CFIUS-like Foreign Trade Control Council (formerly Foreign Investment Council) has been abandoned (Grieger 2017, p. 9; cf. on these bodies Averyt 1986, p. 51).

Ishikawa and Yukawa (2017); on earlier reform Nakamoto (2008); further reform is expected to come into effect in March 2021 (see Scanlan-Dyas and Kamoto 2019).

Fraedrich and Kaniecki (2018), p. 9.

Li (2016), p. 267; cf. Bu (2015), p. 347; Hartge (2013), pp. 244–249; Li and Bian (2016), pp. 155–161, who includes earlier legislation from 1995 (only relating to national security). For an overview of the history of European investment in China Shan (2005), pp. 6–17; see comprehensively Mahony (2015), pp. 4 et seqq.

中华人民共和国外商投资法 available at https://​npcobserver.​com/​lawlist/​foreign-investment-law/​ (accessed 22 January 2021).

The pertinent rules are firstly those for mergers and acquisitions (M&A): The Provisions on Mergers and Acquisition of Domestic Enterprises by Foreign Investors (关于外国投资者并购境内企业的规定) promulgated as Decree No. 6 (2006) of the MOFCOM as amended 2009—M&A Provisions 2009—), which contain an application procedure for foreign investors. Secondly, the Chinese Anti-Monopoly Law of 2008 (The People’s Republic of China Anti-Monopoly Law (中华人民共和国反垄断法) promulgated by Order No. 68 (2008) of the President of the People’s Republic of China—AML 2008—), which includes a concurrent national security review of foreign investment and also requires the notification of transactions above a certain threshold (Zhang 2014, p. 681) but establishes no standing, standardized framework for vetting foreign investment with regard to its impacts on national security (Saha 2013, p. 216). Thirdly, the Circular on the Establishment of the Security Review System for Mergers and Acquisitions of Domestic Enterprises by Foreign Investors (国务院办公厅关于建立外国投资者并购境内企业安全审查制度的通知) promulgated by Order No. 6 (2011) of the State Council—2011 Circular—) and—in implementation of the latter—the Provisions on the Implementation of the Security Review System for Mergers and Acquisitions of Domestic Enterprises by Foreign Investors (商务部实施外国投资者并购境内企业安全审查制度的规定) promulgated by MOFCOM Announcement No. 53 (2011)—2011 SRS Provisions—), which established China’s national security review committee (the Joint Inter-Ministerial Security Review Committee), set up criteria guiding the national security review, and formalized and standardized the details of the review (Li and Bian 2016, pp. 160–161; Saha 2013, pp. 216–217; Bu 2015, p. 348; Hartge 2013, pp. 248–249). By placing national security review in the hands of the National Development and Reform Commission (NDRC), the Ministry of Commerce of the PRC (MOFCOM), and an undefined number of other “pertinent departments” enjoined in the Joint Inter-Ministerial Security Review Committee—a CFIUS like institution—as well as by formalizing the whole investment review process, the 2011 Circular and 2011 SRS Provisions mark the starting date for the Chinese systemic national security review of foreign investment (Chen 2016, p. 202; Li 2016, p. 265). Fourth, 2015 saw the passing of China’s National Security Law, which contains a broader take on defining national security, allots responsibilities for its maintenance, and makes provision for a (standing) review mechanism for the screening of foreign investment on statutory basis (it also subjects further types of transactions to national security review—not only M&A investments and investments within the ambit of the AML 2008) (Art. 59 The People’s Republic of China National Security Law (中华人民共和国国家安全法) promulgated by Order No. 29 (2015) of the President of the People’s Republic of China—Chinese National Security Law 2015—). These four regimes run parallelly, neither one clearly superseding the other, thus mixing general FDI approval requirements with competition issues, and (multiple) national security reviews, while at the same time involving a myriad of official bodies at different levels of government and with partially conflicting interests, thus creating uncertainty for foreign investors (Bu 2015, p. 349; for instance, the co-existence of the AML 2008 and 2011 Circular procedures make it possible that investors have to undergo one, the other, or neither procedure, cf. Hartge 2013, p. 248, 266; Bu 2016, p. 8).

See Art. 48 et seqq. The People’s Republic of China Foreign Investment Law (Consultation Draft) (中华人民共和国外国投资法) (草案征求意见稿) (2015)—PRC Draft Foreign Investment Law—; Kwok (2015). By contrast, the Foreign Investment Law of the PRC contains only one provision (Art. 35), which reads: “The State establishes a security review system for foreign investment and conducts security review of foreign investment that affects or may affect national security. Security review decisions made in accordance with law are final decisions.”

Since the Foreign Investment Law of the PRC leaves procedural details to implementing legislation, the current investment screening framework continues to apply but is expected to be integrated into the implementing legislation, see Dong and Stone (2019).

Li (2016), p. 267; Shan (2005), pp. 31–54 with a detailed but partially outdated description of the Chinese law on inward investment. By virtue of this regime, inflows of capital (and outflows alike) are tightly regulated and monitored by several Chinese authorities (Li 2015, p. 697).

For the authorities in charge see Li (2015), pp. 699–700; Zhang (2014), pp. 700–701. China’s central government consists of the State Council and the ministries (the Politburo is in charge of political strategy decisions); local government is spread over four levels including 31 provincial units, 332 cities, 2,853 counties, and 40,466 townships (as of 2014), see Zhang (2014), p. 683.

For the procedure see Hartge (2013), pp. 255–256.

It appears that the criteria applied in both stages of review are identical (see Liu 2018, p. 302, who also argues that the reviewing organs might be different). National security is defined in Art. 2 Chinese National Security Law 2015 as “a status in which the regime, sovereignty, unity, territorial integrity, welfare of the people, sustainable economic and social development, and other major interests of the state are relatively not faced with any danger and not threatened internally or externally and the capability to maintain a sustained security status.”

(Translation from http://​www.​lawinfochina.​com (accessed 22 January 2021)). It is unclear whether this definition is also authoritative for investment reviews. Neither the AML 2008 nor the M&A Provisions 2009 provide a definition, see Bu (2015), p. 348. On the development of the Chinese national security concept see Bath (2013), pp. 83–86; Goldstein (2011), pp. 237–240. Li and Bian (2016), p. 161 cite the following national security-relevant factors under the 2011 Circular: “(1) national defence security, including the ability for producing domestic products and providing domestic services required for national defence and the relevant equipment and facilities; (2) the stable operation of the national economy; (3) the order of basic social life; and (4) the capacity of research and development of key technologies involving national security”. For a discussion see Goldstein (2011), pp. 237–240. On the concept of control in the 2011 Circular see Li (2016), pp. 290–291; Hartge (2013), pp. 260, 268.

Earlier drafts made it abundantly clear that even procedural revision—as is possible in the CFIUS procedure in the aftermath of the Ralls judgement—will not be possible (see Chen 2016, p. 203; Li and Bian 2016, p. 168). This exclusion from jurisdiction is in line with a more general tendency in China, where—despite its Administrative Litigation Law dating back to 1989—rule of law and litigation against the government are rare, costly, and chances of success uncertain (Zhang 2014, pp. 677–680).

Hsu (2009b), p. 455.

According to UNCTAD authorization is required by Art. 3 Albanian Foreign Investment Act (1990) and registration by Art. 5 Bosnia and Herzegovina Law on the Policy of Foreign Direct Investment (1998) and Art. 7 Iceland Act on Investment by Non-residents in Business Enterprises (1991) (all laws available at UNCTAD (2021)).

Federal Law N57-FZ Procedures for Foreign Investments in the Business Entities of Strategic Importance for Russian National Defence and State Security enacted by the State Duma on 2 April 2008, approved by the Federation Council on 16 April 2008 (Федеральный закон от 29 апреля 2008 г. N 57-ФЗ “О порядке осуществления иностранных инвестиций в хозяйственные общества, имеющие стратегическое значение для обеспечения обороны страны и безопасности государства”) Art. 6, available at http://​ivo.​garant.​ru/​#/​document/​12160212/​1:​2 (translation available at http://​en.​fas.​gov.​ru/​documents/​documentdetails.​html?​id=​13918) (both accessed 22 January 2021).

Lecheler and Germelmann (2010), pp. 201–203 (also on the details of the legislative procedure).

Lecheler and Germelmann (2010), p. 205.

Cf. Salacuse (2013), p. 107 (fn. 60).

Fraedrich and Kaniecki (2018), p. 7. Other EU states maintaining ISCM are, for instance, France (see Schweitzer 2010, pp. 267–268) and Spain (Heinemann 2011, pp. 17–19). See comprehensively European Commission (2019).

Revised Statutes of Canada (RSC), 1985, c. 28 (1st Supp.) available at http://​laws-lois.​justice.​gc.​ca/​PDF/​I-21.​8.​pdf (accessed 22 January 2021). From the extensive literature: Du (2016), pp. 128–130; Muchlinski (2007), pp. 206–213; Klaver and Trebilcock (2013), pp. 146–149; Lan (2014), pp. 1276–1278; Golding (2014), pp. 568–573; historically: Mandel-Campbell (2008), pp. 2–3; Sornarajah (2017), pp. 120–121; Averyt (1986), pp. 50–51; Turner (1983), pp. 337–342 (on Canada’s Foreign Investment Review Agency); Paterson (1986).

CAD 5 million and CAD 50 million for direct and indirect non-WTO investors (respectively) and CAD 1 billion for WTO, non-SOE investors (cf. Canada Gazette, Part I: Vol. 151 (2017) No. 28 of 15 July 2017).

See Lan (2014), pp. 1290–1292; Golding (2014), p. 568. For more factors see Du (2016), pp. 128–129 (especially regarding acquisitions by SOEs).

VanDerMeulen and Trebilcock (2009), pp. 404–408; Bhattacharjee (2009); a summary of the legislation enacted in 2009 can be found at Parravicini et al. (2010), pp. 287–289.

Lan (2014), p. 1276.

Muchlinski (2007), p. 212.

Klaver and Trebilcock (2013), p. 169; cf. also Lan (2014), pp. 1318–1319.

Turner (1983), pp. 335–337; Mandel-Campbell (2008), p. ii; for a different view Anwar (2012), p. 241.

Art. 2 Argentinian Ley de Inversiones Extranjeras (1993); Art. 7–8 Colombian Régimen de Inversiones Internacionales (2000); Art. 21 Cuban Foreign Investment Act (2014); Art. 4 Dominican Republic Ley Sobre Inversión Extranjera (1995); Art. 17 El Salvador Investment Law (1999); Art. 17-17A Mexican Ley de Inversión Extranjera (1993); Art. 9 Nicaraguan Ley de Promoción de Inversiones Extranjeras (2000); Art. 3 Peru Ley de Promoción de las Inversiones Extranjeras (1991); Art. 4-5 Trinidad and Tobago Foreign Investment Act (1990); Art. 9, 37 Venezuelan Ley Constitucional de Inversión Extranjera Productiva (2017) (all laws available at UNCTAD (2021)). On Brazil see Fraedrich and Kaniecki (2018), pp. 2–3.

Fraedrich and Kaniecki (2018), pp. 9–10.

Law No. 92 (1975) as amended from time to time, available at https://​www.​legislation.​gov.​au/​Details/​C2016C01144 (accessed 21 January 2021). For additional pertinent legislation see Du (2016), p. 130; for prior legislation see Golding (2014), p. 543 (fn. 55).

Golding (2014), pp. 546–547; extensively in historical perspective Flint (1985), pp. 51–266.

Golding (2014), p. 544; Sauvant (2011), pp. 175–176.

Bath (2013), pp. 87–88; Du (2016), p. 131; in detail Bath (2012), pp. 12–19, also quoting a governmental definition as “the security and prosperity of Australia and Australians” (fn. 42); Werther (2013), pp. 274–277; critical Sauvant (2011). Whether the investment carried an economic benefit for the Australian economy was part of the national interest test until 1985 (Golding 2014, pp. 544–545).

Golding (2014), p. 536: “The foreign investment review process in Australia is inherently political in its ultimate decision making.”

Bath (2013), p. 91; Golding (2014), p. 545 quotes a rejection rate of less than one percent. Cf. Anwar (2012), pp. 239–240 on the schizophrenic attitude of Australia towards FDI.

Bath (2012), pp. 13–14.

Public Act No. 82 (2005), available at http://​www.​legislation.​govt.​nz/​act/​public/​2005/​0082/​27.​0/​DLM356881.​html (accessed 21 January 2021).

Golding (2014), pp. 575–576.

Sec. 25 Papua New Guinea Investment Promotion Act (1992); Sec. 15 Solomon Islands Foreign Investment Act (2006); Art. 5 Tonga Foreign Investment Act (2002); Art. 5–6 Vanuatu Foreign Investment Promotion Act (1998) (all laws available at UNCTAD (2021)).

For the United States cf. VanDerMeulen and Trebilcock (2009), pp. 412–413; Griffin (2017), pp. 1763–1764; for Canada cf. Muchlinski (2007), p. 206. Observations taking a macro perspective on national FDI legislation have found a rising number of legislation to be curtailing foreign investment, especially since 2003 (Sauvant 2009, p. 6).

Muchlinski (2007), p. 212.

Salacuse (2013), pp. 108–110.

Feng (2010), pp. 283–293 (on CFIUS).

On the United States Congress remaining (de facto) influence on CFIUS and presidential decisions see Prabhakar (2009); Graham and Marchick (2006), pp. 123 et seqq. Cf. also Bu (2015), p. 346. For only one example see The Economist (2018j).

For commonalities between the United States and China’s definitions of control see Bu (2015), pp. 348–349.

What is often lost in the Western hemisphere-centric debate is that similar concerns regarding foreign investment exist world-wide, for China cf. Hartge (2013), p. 246.

One is of course left with the question of what strategic or critical sectors, infrastructure, or technologies are (topical in this regard: Clemente 2013). On an international level, no agreement exists to this end. Thus, the factors differ from state to state according to the state-specific preferences—for France, vineyards as cultural heritage could be “strategic” and for other nations their semiconductor industry, (air)ports, railway systems, energy or telecommunications sectors etc. Apart from saying that military goods and the companies producing them are generally “strategic” (and also fairly well-definable), it is not possible to name abstract criteria to delineate strategic from non-strategic industries. The debate on dual use goods, i.e. such which can be used both for military purposes and civil purposes (such as dough mixers which can be used to produce solid rocket propellant or pastries), is proof of this predicament (Hohmann 2002b, p. 70). Cf. Bu (2015), p. 348 for the Chinese economic security concept.

Cf. Klaver and Trebilcock (2013), p. 173.

Cf. The Economist (2017k). Highly critical of the concept of reciprocity nonetheless is Heinemann (2011), pp. 101–102 (Ger) (emphasis added): “In the context of takeovers many demand reciprocity, i.e. making the permission of foreign direct investment dependent on a corresponding opening of the home state of the investor. This demand is of special relevance for Russia, China, and the Arab states whose companies distinguish themselves as active investors but whose home state capital markets at least partially shield foreign capital. The demand for reciprocity does have something intuitively evident because it is the manifestation of a golden rule that dictates do as you would be done by. Yet, caution is warranted: Investments from abroad enlarge the domestic capital stock and are thus beneficial to the development of the country, independently of reciprocity or the differentiation of private or public provenience of the resources. This is why in the EU the rules on the free movement of capital are given erga omnes effect and this effect is expressly not dependent on reciprocity. […]”

The view relies on the assumption that FDI is economically beneficial under all circumstances—an assumption that at least deserves critical consideration given the conditions which have to prevail for it to be accurate (above Sect. 4.1.1.1.1).

Meyer (2017), pp. 5–29 shows how German investment in China is regulated and which restrictions it faces. A different, thus far unanswered, question is whether reciprocity effectively leads out of such discrepancies.

Anwar (2012), p. 232.

For example, scholars have made more than one attempt to explain how the “black box” CFIUS makes its assessment of national security (especially Moran 2009, 2017a; Graham and Marchick 2006, pp. 53–58; Connell and Huang 2014).

For CFIUS cf. Wang (2016a), pp. 349, 358 et seqq.; for EU and German law cf. Hagemeyer (2021), pp. 819 et seqq.

Extended review by courts (or the like) would contribute to lessen the degree of politicization, see Muchlinski (2007), p. 213; Klaver and Trebilcock (2013), pp. 172–173; for CFIUS cf. Wang (2016a), pp. 345, 358 et seqq.; cf. generally Hindelang (2013), pp. 51–52. Arguably, this would only be the case if adjudicators are also given more concrete rules to decide by—otherwise, one unpredictable decision-making process would only be replaced by another (cf. Graham and Marchick 2006, p. 161).

Munier (2009d), pp. 83–85 considers them weapons of economic warfare.

See, for instance, Taylor (2010), para. 13.15; Alvarez (2012), p. 263; Truman (2010), pp. 35–56; VanDerMeulen and Trebilcock (2009), pp. 399–404. This work is, by the subject of analysis, forced to emphasize negative aspects of SWFs. The impression conveyed thereby is probably one-sided, in any case incomplete, because SWFs have also been welcomed as sources of (otherwise scarce) capital in many states (see Schweitzer 2010, p. 252; Bassan 2011, pp. 10–11) and regulatory intervention may cause a disruption of capital supply for the regulating state (see Heinemann 2011, p. 100). Das (2008), p. 82 emphasizes that “majority of [SWFs] are largely semi-autonomous, self-directed entities, dedicated to professional portfolio management”.

Taylor (2010), para. 13.15. That the usual behavior of market actors in market economies is determined by utility maximization, the price mechanism, and only “involuntary” inefficacy is illustratively shown by Wolff (2009), pp. 25–28; see also Bassan (2011), pp. 9, 11–14; Truman (2010), pp. 40–44; Lecheler and Germelmann (2010), pp. 6–7.

Schweitzer (2010), pp. 256–257; Bassan (2011), p. 9.

Alvarez (2012), p. 263; Metzger (2015), pp. 21–22; Heinemann (2011), pp. 13, 96; against such accusations Das (2008), pp. 90–91; Bu (2015), p. 345; Klaver and Trebilcock (2013), pp. 157–158; and Golding (2014), p. 538 find no and little empirical evidence, respectively, for such non-commercial behavior. Bu (2010), pp. 854–858, 876 explains how the China Investment Corporation is intertwined with the State Council and susceptible to use for political objectives.

Wolff (2009), pp. 33–39; she also shows how to reach these goals under German corporate law (pp. 39–64). See also Metzger (2015), pp. 37–118 and Lecheler and Germelmann (2010), pp. 16–87 who also take into account the other instruments available under German (and EU) law.

Bassan (2011), pp. 12–13; Truman (2010), pp. 35–44 (also on issues of mismanagement, financial protectionism, market (in)stability, and conflicts of interest). On the domestic level, SWFs raise additional questions which are not at the focus of this research, for instance the mixing of state roles as regulator and investor (Bassan 2011, p. 6).

Taylor (2010), para. 13.15. The discussion among lawyers has produced a vast body of literature, see exemplarily Bean (2009); Backer (2011); Bu (2010); Lippincott (2013); Hsu (2009a, b); Cooke (2009); Klaver and Trebilcock (2013), pp. 174–175; Tietje (2015c); Sauvant et al. (2012); Epstein and Rose (2009); Lee (2010); Annacker (2011); Sornarajah (2011); Slawotsky (2009); Junior (2014); in German: Krolop (2008); Nettesheim (2008); Schäfer and Voland (2008); Steinbrück (2008); Weller (2008); Martini (2008); Wolff (2009); Roth (2009). Bassan (2011), pp. 89 et seqq. and 116 et seqq. raises the question of how state immunity and BITs relate to SWFs.

See Lippincott (2013), pp. 660–662; Annacker (2011).

See Bassan (2011), pp. 39–40; Tietje (2015c), pp. 1810–1812 (paras 22, 26) (although the GATS might arguably offer some form of protection for SWFs’ investments, see Burgstaller (2011), pp. 175–176). The notable exception being Mattoo and Subramanian (2008), pp. 17, 27–28 who argue that the exceptions in the market access commitments of the GATS parties include numerous restrictions for government involvement. But the authors also argue that this fragment of regulation is not sufficient and argue for a regulation in the WTO law system framework, namely under the GATT and Government Procurement Agreement (GPA). Wübbeke et al. (2016), p. 63 utter the notion that China might violate WTO obligations with its Made in China 2025 plan, which contains localization targets and subsidies.

Hsu (2009b), p. 457, who also points out that this is why the Agreement on Trade-Related Investment Measures (TRIMs) is of little avail; cf. Mattoo and Subramanian (2008), p. 18 who suggest transfer of these rules nonetheless; on the commercial considerations obligation Willemyns (2016), pp. 666–667, who also points out that SWFs are expressly exempt from state trading enterprise obligations under the TPP (now the CPTPP (cf. Ch. 6 fn. 92 below)).

Lippincott (2013), pp. 660 et seqq.; Truman (2010), pp. 57–68; Bassan (2011), pp. 41–45; Wolff (2009), pp. 85–101.

Wolff (2009), pp. 87–93 (whose inquiry, however, is looking for international rules that constrain host states’ power to regulate SWFs which are stricter than applicable EU law; she does find the GATS to be applicable). On the United States’ approach of entering into IIAs with the home states of SWFs Backer (2011), pp. 91–92.

International Working Group of Sovereign Wealth Funds (2008) and OECD Council (2009), see Gordon and Gaukrodger (2012). For a third meaningful (EU) instrument see European Commission (2008) and Chaisse (2012); Backer (2011), pp. 86–91. For other instruments see comprehensively Hsu (2009a), p. 797. These soft law efforts were completed at remarkable speed, which commentators explain by the widespread, potentially protectionist domestic legislation directed against the activity of SWFs (Taylor 2010, para. 13.23); on the regulatory measures on the domestic level Sauvant (2009); Backer (2011), pp. 74–84; Hsu (2009b), p. 456. In opposition of such SWF-specific domestic regulations are Klaver and Trebilcock (2013), pp. 149–155 given the existing laws.

By contrast, the domestic law issues are closely related to those of SWFs because ISCMs—often enacted or tightened as a direct response to (perceived) threats by SWFs—are supposed to mitigate the (perceived) perils posed by state-led investment. Addressing some of these perils, investment screening and control is, inter alia, guided by notions of national security or ordre public (Shihata 1994, p. 68). Other (non-legal) issues surrounding ISCMs are mostly economic and political in nature: While some view them as detrimental to economic development, especially if they are non-transparent, arbitrary, or overly restrictive, others welcome ISCMs as a counterbalance to the perils of unfettered free flow of capital into and out of an economy (see Shihata 1993, p. 73 on the one hand and Sornarajah 2017, pp. 113–114, 120–121 on the other). Most observers agree that ISCMs are apt to protect the national security interest of states in times of financial globalization, for instance by barring the foreign takeover of defense industry companies (see, for instance, Shihata 1993, p. 75; Heinemann 2012, pp. 868–869).

For instance Muchlinski (2007), pp. 177–178; Shihata (1994), pp. 47–48; Sornarajah (2017), p. 110; de Mestral (2015), para. 1; Gómez-Palacio and Muchlinski (2008), p. 228; Juillard (2000), pp. 326–327. Some commentators argue that the vague legal concepts of domestic law regarding national security are protected by international law, which, in effect, gives states the power over the access of foreign capital to the extent of arbitrariness (cf. Sauvant 2011, pp. 417–418, 421–422 (describing especially heightened restraint in recent years); Heinemann (2012), pp. 867–869; Wang (2016a), p. 361; see also Metzger (2015), p. 21).

Cf. Metzger (2015), pp. 35–36.

More concretely: If, hypothetically, Russian company R acquires Japanese company J, which holds 30% in German company G, this acquisition falls under the purview of the German ISCM, although the acquisition itself takes place outside Germany. For the German ISCM see the examples provided by Hensel and Pohl (2013), p. 854; Seibt and Wollenschläger (2009), p. 838; for further examples see Chap. 6 fn. 16 below.

Meng (1994), pp. 437–441.

Sornarajah (2017), p. 434; with a different view Salacuse (2015), p. 316.

Large scale land takings or the expropriation of the whole economy (the latter would appear to be an abolishment of a market-based economic system altogether) are also thinkable Ruzza (2018), para. 12. Schrijver views nationalizations as “the transfer of an economic activity to the public sector as part of a general programme of social and economic reform” (see Schrijver 1997, pp. 285–286 with references on the terminological discussion in fn. 123).

Subedi (2012), p. 118. The many facets and debates on the notion of expropriation, direct, indirect, and measures “tantamount”, are not relevant to the present discussion (in this regard see Reinisch 2008, pp. 420 et seqq.; Salacuse 2015, pp. 325–348; Salacuse 2013, p. 315 with further references).

Cf. Dolzer (2015), p. 378 (who also predicts a “resurgence of the rules on expropriation”).

Hence, the following discussion also has a bearing on the other, more common forms of investment-related economic warfare (Ruzza 2018, paras 9, 28; cf. Salacuse 2015, p. 316).

In the long run, such takings deteriorate a state’s attractivity for foreign investors (the “investment climate”) and will lead to less capital imports and rising prices for capital; if the domestically available capital is not sufficient to substitute the missing foreign capital, investment bottleneck and decline may follow, see Posner and Sykes (2013), pp. 288–290.

Subedi (2012), p. 119. Ait-Laoussine and Gault (2017), pp. 47–49, 51–54 accept nationalizations as one sine qua non for the diversification of oil producing countries’ economies.

Not all investment protection law is international law. Domestic law can also protect foreign investors (see Salacuse 2013, p. 35).

Griebel (2008), p. 6.

Salacuse (2013), pp. 308–320; Salacuse (2015), pp. 56–71; Subedi (2012), pp. 55–80.

von Walter (2015), pp. 80–92.

Subedi (2012), pp. 81–114.

Salacuse (2015), p. 4 (fn. 19); Salacuse (2013), p. 331 (fn. 4).

Decreto No. 1510, Gaceta Oficial de la Republica Bolivariana de Venezuela No. 37.323, Spanish original available at https://​www.​mppp.​gob.​ve/​wp-content/​uploads/​2013/​09/​GO-37323-Ley-Organica-de-Planificaci%C3%B3n-2001.​pdf; unofficial English translation available at http://​www.​engelog.​com/​site-engelog/​press/​press_​information_​files/​press_​venezuela_​information_​files/​legislation-venezuela_​mid_​fset_​files/​legislation-venezuela_​text_​files/​organichydrocarb​onslaw.​pdf (both accessed 21 January 2021); the content of the law and the difference to the 2006 law of the same name is explained by Cuervo (2010), pp. 658 et seqq., 670 et seqq. “Organic law” is a form of organizational law derived from the constitution and pertaining to the constitutional matters, for instance delimiting or assigning powers to public bodies (Art. 203 Constitución de la República Bolivariana de Venezuela, available at http://​www.​oas.​org/​dil/​esp/​constitucion_​venezuela.​pdf (accessed 21 January 2021)).

ICSID (9 October 2014) Venezuela Holdings, B.V., et al. (case formerly known as Mobil Corporation, Venezuela Holdings, B.V., et al.) v. Bolivarian Republic of Venezuela, Award, ICSID Case No. ARB/07/27, para. 88. The Venezuelan President was bestowed with law-making rights by the Venezuelan National Assembly in 2000 (Cuervo 2010, p. 658). For a recount of Venezuelan nationalization policies from 2004 to 2007 and policy analysis regarding its implications for institutions such as protection of foreign investment via BITs see Koivumaeki (2015), pp. 112–115.

Eljuri and Tejera Pérez (2008), p. 478.

Boue (2014), p. 444; Cuervo (2010), p. 676; Eljuri and Tejera Pérez (2008), p. 483.

PDVSA had shares in these companies, too, but no controlling majority. Art. 4 Decreto No. 1510 (cf. fn. 425 above); Dolzer (2015), p. 379. The economic background for this step was certainly the increasing world market price of oil, which made the existing agreements between the Venezuelan state and foreign investors extremely profitable for the latter. Boue (2014), pp. 443–444; Guriev et al. (2011) suggest that high oil prices and weak political institutions generally make nationalizations of oil assets more likely.

Eljuri and Tejera Pérez (2008), p. 475.

It should be added that PDVSA (or its affiliates) were already involved in these old companies as (minority) shareholders. Boue (2014), p. 445; Art. 5 Decreto No. 1510 (cf. fn. 425 above); Eljuri and Tejera Pérez (2008), p. 484.

In 1975, the oil industry was (at least formally) nationalized by The Organic Law that Reserves to the State the Industry and Trade of Hydrocarbons (La Ley Orgánica que Reserva al Estado la Industria y el Comercio de los Hidrocarburos). Although theoretically a state monopoly was established by this law, a much-used backdoor was left open to cooperate with (foreign) private investors in so-called association contracts in national interest. To exploit the Orinoco Oil Belt, reportedly the world’s (but at least the Western Hemisphere’s) largest oil deposit, the Venezuelan government in the late 1980s permitted more foreign investors into the country and allowed their participation through the backdoor in the 1975 law. This policy of Apertura Petrolera—Spanish for “oil opening”—lured foreign investors with income tax and royalty rate reductions. This was also ExxonMobil’s and ConocoPhillips way into the Venezuelan hydrocarbon reserves in the Orinoco Oil Belt. Dismantling and reversing the results of Apertura Petrolera were seen as the main aims of the new Venezuelan policy from 2001 onwards by policy observers (see Eljuri and Tejera Pérez (2008), pp. 476–477, 484–485; ICSID (9 October 2014) Venezuela Holdings, B.V., et al. (case formerly known as Mobil Corporation, Venezuela Holdings, B.V., et al.) v. Bolivarian Republic of Venezuela, Award, ICSID Case No. ARB/07/27, paras 36, 39, 42 et seqq.; Hellinger (2006), pp. 56, 62-63; Dolzer (2015), p. 379. Detailed account is given by Cuervo (2010), pp. 638–639, 642 et seqq. with doubts regarding the effects of the 1975 law and it being termed “nationalization”). For other nationalizations in the sectors of telecommunication, electricity, foodstuffs, cement, and steel in 2008 see Furman et al. (2009), p. 1137; UNCTAD (2007), p. 59; and UNCTAD (2008), pp. 64, 155.

Cuervo (2010), p. 677; see also ICSID (9 October 2014) Venezuela Holdings, B.V., et al. (case formerly known as Mobil Corporation, Venezuela Holdings, B.V., et al.) v. Bolivarian Republic of Venezuela, Award, ICSID Case No. ARB/07/27, para. 298. Eni settled in 2008 (Otero Garcia-Castrillon 2013, p. 150).

Cf. ICSID (9 October 2014) Venezuela Holdings, B.V., et al. (case formerly known as Mobil Corporation, Venezuela Holdings, B.V., et al.) v. Bolivarian Republic of Venezuela, Award, ICSID Case No. ARB/07/27, para. 45; Decreto No. 5200, Gaceta Oficial de la Republica Bolivariana de Venezuela No. 38.617, Spanish original available at http://​cdn.​eluniversal.​com/​2007/​03/​14/​faja.​pdf (accessed 21 January 2021); Dolzer (2015), p. 379.

Overview: Boue (2014), pp. 445–446.

For the other complaints see ICSID (9 October 2014) Venezuela Holdings, B.V., et al. (case formerly known as Mobil Corporation, Venezuela Holdings, B.V., et al.) v. Bolivarian Republic of Venezuela, Award, ICSID Case No. ARB/07/27, paras 86, 124; ICSID (3 September 2013) Conoco Phillips Petrozuata B.V. et al. v. The Bolivarian Republic of Venezuela, Decision on jurisdiction and merits, ICSID Case No. ARB/07/30, paras 212–215.

Ripinsky (2012).

ICSID (3 September 2013) Conoco Phillips Petrozuata B.V. et al. v. The Bolivarian Republic of Venezuela, Decision on jurisdiction and merits, ICSID Case No. ARB/07/30, paras 163–165; ICSID (10 June 2010) Mobil Corporation, Venezuela Holdings, B.V. et al. v. Bolivarian Republic of Venezuela, Decision on jurisdiction, ICSID Case No. ARB/07/27, paras 147–148; Peinhardt and Wellhausen (2016), p. 573; Topcan (2014), pp. 638–639.

The BIT between the Netherlands and Venezuela contains a sunset clause which will keep it in effect even for future disputes until 2023 (Art. 14 (2) Netherlands—Venezuela BIT, available at http://​investmentpolicy​hub.​unctad.​org/​Download/​TreatyFile/​2094 (accessed 21 January 2021)).

UNCTAD (2008), p. 65; for Venezuela’s compliance with earlier International Chamber of Commerce (ICC) awards relating to the nationalization see Koivumaeki (2015), p. 115.

ICSID (10 June 2010) Mobil Corporation, Venezuela Holdings, B.V. et al. v. Bolivarian Republic of Venezuela, Decision on jurisdiction, ICSID Case No. ARB/07/27, paras 140, 206. As regards disputes prior to the restructuring, the tribunal considered these barred from its jurisdiction due to an abuse of rights (ICSID (10 June 2010) Mobil Corporation, Venezuela Holdings, B.V. et al. v. Bolivarian Republic of Venezuela, Decision on jurisdiction, ICSID Case No. ARB/07/27, para. 205). Due to this jurisdictional decision, Mobil Corporation was ejected from the dispute (and the case’s name); its claims footed in the Venezuelan 1999 Investment Law only, see ICSID (10 June 2010) Mobil Corporation, Venezuela Holdings, B.V. et al. v. Bolivarian Republic of Venezuela, Decision on jurisdiction, ICSID Case No. ARB/07/27, para. 207; for a detailed explanation of the underlying case law see Topcan (2014), pp. 638–639.

Yet, it would be 0.2% of Venezuela’s government budget proposal for 2012, which was around USD 87 billion (see The Economist Intelligence Unit (2013)).

ICSID (9 October 2014) Venezuela Holdings, B.V., et al. (case formerly known as Mobil Corporation, Venezuela Holdings, B.V., et al.) v. Bolivarian Republic of Venezuela, Award, ICSID Case No. ARB/07/27, para. 404, item (d). On this formulation see Marboe (2015a), paras 8, 26, 36, who advocates a strict terminological hygiene in the use of “compensation”. Unlawful expropriations give a right to reparation, i.e. primarily the full restitution of property, and if restitution is not possible (as it is usually), compensation is the consequence (cf. also Boue 2014, p. 447; Draft Articles Art. 31, 35, 36).

The case possesses an interesting development on several procedural issues such as the disqualification of the tribunal, see https://​icsid.​worldbank.​org/​en/​Pages/​cases/​casedetail.​aspx?​CaseNo=​ARB/​07/​30 (accessed 21 January 2021).

ICSID (3 September 2013) Conoco Phillips Petrozuata B.V. et al. v. The Bolivarian Republic of Venezuela, Decision on jurisdiction and merits, ICSID Case No. ARB/07/30, paras 214, 401, 404 (d); Boue (2014), p. 439 views these as “some of the largest claims ever to have been brought against a state by international investor”.

See https://​icsid.​worldbank.​org/​en/​Pages/​cases/​casedetail.​aspx?​CaseNo=​ARB/​07/​30 (accessed 21 January 2021).

ConocoPhillips is taking action against Venezuela for fraudulent transfer of assets in anticipation of a quantification of the ICSID award, see complaint of ConocoPhillips Petrozuata B.V. et al. v. Petróleos de Venezuela S.A. et al. dated 6 October 2016 available at https://​www.​italaw.​com/​sites/​default/​files/​case-documents/​italaw7706_​0.​pdf (accessed 21 January 2021).

Protocol Ad Art. 3 (1) Netherlands—Venezuela BIT.

Dolzer (2015), p. 380 sees this as the “traditional manner” to apply the BIT. The FET standard was not applied to the nationalization. It was found not applicable to other measures which fell under a special provision of the BIT dealing with taxes, fees, charges, and fiscal deductions and exemptions (Art. 4 Netherlands—Venezuela BIT ), see ICSID (3 September 2013) Conoco Phillips Petrozuata B.V. et al. v. The Bolivarian Republic of Venezuela, Decision on jurisdiction and merits, ICSID Case No. ARB/07/30, paras 332–333.

See ICSID (9 October 2014) Venezuela Holdings, B.V., et al. (case formerly known as Mobil Corporation, Venezuela Holdings, B.V., et al.) v. Bolivarian Republic of Venezuela, Award, ICSID Case No. ARB/07/27, para. 128; ICSID (3 September 2013) Conoco Phillips Petrozuata B.V. et al. v. The Bolivarian Republic of Venezuela, Decision on jurisdiction and merits, ICSID Case No. ARB/07/30, para. 335.

Art. 6 Netherlands—Venezuela BIT.

Marboe (2015b), para. 9.

Cf. Marboe (2015b), para. 27.

ICSID (3 September 2013) Conoco Phillips Petrozuata B.V. et al. v. The Bolivarian Republic of Venezuela, Decision on jurisdiction and merits, ICSID Case No. ARB/07/30, para. 342; Wälde and Sabahi (2008), p. 1057; Marboe (2015b), para. 29.

International Law Commission (2001), Art. 31, para 1 and Art. 36, para. 3 citing PCIJ (13 September 1928) Case Concerning The Factory at Chorzów (Claim for Indemnity), Merits, Publications of the PCIJ, Series A. - No. 17, pp. 46–47; Marboe (2015a), para. 12; Art. 31 (1) Draft Articles reads: “The responsible State is under an obligation to make full reparation for the injury caused by the internationally wrongful act.”

Art. 36 Draft Articles reads: “1. The State responsible for an internationally wrongful act is under an obligation to compensate for the damage caused thereby, insofar as such damage is not made good by restitution. 2. The compensation shall cover any financially assessable damage including loss of profits insofar as it is established.”

Marboe (2015b), paras 32 et seqq. One could argue with Marboe that in accordance with the PCIJ, the investor has to receive more than in the case of a lawful taking, see PCIJ (13 September 1928) Case Concerning The Factory at Chorzów (Claim for Indemnity), Merits, Publications of the PCIJ, Series A. - No. 17, p. 48.

ICSID (3 September 2013) Conoco Phillips Petrozuata B.V. et al. v. The Bolivarian Republic of Venezuela, Decision on jurisdiction and merits, ICSID Case No. ARB/07/30, para. 339; Marboe (2015b), paras 32 et seqq.; Marboe (2015a), para. 23 quoting Georg Schwarzenberger; Dolzer (2015), p. 381.

ICSID (3 September 2013) Conoco Phillips Petrozuata B.V. et al. v. The Bolivarian Republic of Venezuela, Decision on jurisdiction and merits, ICSID Case No. ARB/07/30, para. 350; Dolzer (2015), p. 381.

The arbitral tribunal’s reasoning, which does not quote any authority on this point, can be doubted, see Dolzer (2015), p. 382.

Boue (2014), p. 446; ICSID (9 October 2014) Venezuela Holdings, B.V., et al. (case formerly known as Mobil Corporation, Venezuela Holdings, B.V., et al.) v. Bolivarian Republic of Venezuela, Award, ICSID Case No. ARB/07/27, para. 247 (fn. 320).

Questions of revisability of measures of economic warfare by adjudicative bodies such as ICSID tribunals are not pursued any further in this study.

On the meaning of “market access” extensively Wallace and Bailey (1998), pp. 227 et seqq. On the difference between market access and admission see Gómez-Palacio and Muchlinski (2008), pp. 229–232; Juillard (2000).

Market access need not be unrestricted, particular sectors of the economy may be singled out and protected from foreign ownership. Neither is market access necessarily restricted to the capital market and investments but can also exist regarding goods, services, or persons.

Sornarajah (2017), pp. 110, 128–129.

Sornarajah (2010), p. 88; the formulation (but not its content) was dropped in the next edition, see Sornarajah (2017), pp. 110–111.

Salacuse (2013), p. 309; Neff (1990b), p. 152; cf. García-Amador et al. (1974), pp. 46–47.

Gómez-Palacio and Muchlinski (2008), p. 228.

Dimopoulos (2011), p. 50; Gómez-Palacio and Muchlinski (2008), pp. 228, 239; Griebel (2008), p. 67; Heinemann (2011), p. 39; Jennings et al. (1992a), pp. 382–385 (paras 117–118); Juillard (2000), p. 336; Mann (1949), pp. 268–269; de Mestral (2015), para. 1; Muchlinski (2007), pp. 177–178; Sacerdoti (2000), p. 105; Salacuse (2013), pp. 76, 309; Salacuse (2015), p. 213; Schrijver (1997), pp. 281–283; Shan (2005), p. 115; Shihata (1994), p. 47; Wallace (2002), p. 288; see Neff (1990b), pp. 125, 149 (regarding trade and export controls) and historically Neff (1990a), pp. 70–73; Ralston (1926), p. 270 (para. 476) (with regard to the comprehensive exclusion of access of foreigners); even Sandrock (2010), pp. 268–269, 301–302 seems so admit this at the basis of his argument, arguing however that (enforceable) market access rights have been granted in the majority of German (and, arguably, even European) post-1968 BITs; implicitly Carlevaris (2008), p. 44; Carreau and Juillard (2013), pp. 441–442; see also UNCTAD (2002), p. 7; UNCTAD (2003), p. 102; World Bank (1992), Art. II (3) World Bank Guidelines; Art. 2 (2) (a) 1974 Charter; Commission on Transnational Corporations (1983), Art. 47. A GATT panel also acknowledged the right: Panel (25 July 1983 (adopted 7 February 1984)) Canada - Administration of the Foreign Investment Review Act, Report of the Panel, L/5504 - 30S/140, para. 5.1.

Heinemann (2012), p. 852.

See Ellis (1990), pp. 1–3; quoting the classical economists in favor of such unrestricted capital: Neff (1990a), pp. 80–85. Alexander Hamilton, first Secretary of the United States Treasury, is quoted with the 1791 statement that foreign capital “[i]nstead of being viewed as a rival […] ought to be considered as a most valuable auxiliary, conducing to put in motion a greater quantity of productive labor, and a greater portion of useful enterprise, than could exist without it.” (quoted after United States Department of Commerce 1970, p. 121).

For instance, Andrew Jackson in 1832 denied the Second Bank of the United States (at the time fulfilling central bank functions) the renewal of its license arguing that its foreign ownership was too high (as cited in Wilkins 2004, p. 84): “Controlling our currency, receiving our public moneys, and holding thousands of our citizens in dependence, it would be far more formidable and dangerous than the naval and military power of the enemy. If we must have a bank […] it should be purely American.”

See Mann (1945), p. 253; Art. VI, VII Articles of Agreement of the International Monetary Fund—IMF Statute—2 U.N.T.S. 39.

Curiously enough often without putting a significant dent into the influx of foreign capital, see Chang (2007), pp. 93–96.

Neff (1990b), p. 153.

Salacuse (2013), p. 309 (emphasis added).

Gómez-Palacio and Muchlinski (2008), pp. 228, 239–240; UNCTAD (2002), p. 12; for examples see Wallace (2002), pp. 290–295.

See fn. 478 above on terminology.

Salacuse (2015), p. 222.

Either by taking a “positive list” approach, committing expressly to the sectors which are opened for foreign investors or by taking a “negative list” approach, principally opening up to foreign investments but exempting specified sectors from such commitment (de Mestral 2015, para. 9).

For instance European Commission (2016), Chapter 8, Chapter II, Sec. 3, Art. 1 (1). State-state enforcement remains an option in this case, see Hindelang and Sassenrath (2015), p. 118.

Salacuse (2015), pp. 218–221.

Sornarajah (2017), p. 110; Salacuse (2015), pp. 225–226.

UNCTAD (2015), pp. 110–112; Dimopoulos (2011), pp. 50–53.

Salacuse (2015), pp. 218, 225.

Sornarajah (2017), p. 130, who also acknowledges these reasons as economically “sound”. See also Gómez-Palacio and Muchlinski (2008), p. 236. For a brief explanation of the infant industry argument see Muchlinski (2007), p. 183.

Salacuse (2015), p. 214; on defense and national security see Trebilcock et al. (2013), pp. 575–577.

Sornarajah (2017), p. 128 (fn. 86); Salacuse (2015), p. 214.

Cf. Sornarajah (2017), pp. 130–131, even doubting that open discrimination against an ethnic group may be unlawful under international law in an economic context.

Trebilcock et al. (2013), p. 486; Sornarajah (2017), pp. 130–131.

Gómez-Palacio and Muchlinski (2008), pp. 245–246.

Trebilcock et al. (2013), pp. 480, 485.

Gómez-Palacio and Muchlinski (2008), p. 246; Trebilcock et al. (2013), p. 486.

For further examples cf. Gómez-Palacio and Muchlinski (2008), p. 249.

Sacerdoti (2000), p. 112.

On the provisions’ material scopes of application and their distinction see Hindelang (2009), pp. 42 et seqq., 81 et seqq.

Art. 14.4 (1) USMCA provides equivalently: “Each Party shall accord to investors of another Party treatment no less favorable than that it accords, in like circumstances, to its own investors with respect to the establishment, acquisition, expansion, management, conduct, operation, and sale or other disposition of investments in its territory.”

On NAFTA cf. Trebilcock et al. (2013), p. 595; Price (1993), pp. 728–729; Annacker (2011), p. 549.

Equivalently: Art. 14.12 (2) USMCA in conjunction with Annex II. On NAFTA cf. Sacerdoti (2000), p. 111; Trebilcock et al. (2013), p. 595.

Under the USMCA, Canada has withdrawn from investment dispute settlement completely, cf. Art. 14.2(4) in conjunction with Annex 14-D USMCA.

On an earlier version of CETA Hindelang and Sassenrath (2015), p. 118 (see also for other examples).

OECD (2019).

Wallace (2002), p. 416; Zimmermann (2011b), p. 731; Juillard (1998), p. 478; Kern (2015), para. 16 and Bakker (1996), pp. 50–52 (both also on the Code of Liberalisation of Current Invisible Operations).

Feibelman (2015), pp. 440–442.

Juillard (1998), p. 478; cf. Viterbo (2012), p. 182.

For example, the Australian reservation in Annex B OECD Code applies to “proposals falling within the scope of Australia’s Foreign Acquisitions and Takeovers Act 1975, which broadly covers acquisitions of partial or controlling interests in Australian companies or businesses with total assets valued over A$100 million or A$200 million for foreign offshore takeovers and other arrangements relating to foreign control of companies and businesses”, which is necessary because it contains a “national interest test” (above Sect. 4.1.1.4.2.4) hardly falling under the OECD-wise accepted derogations.

Bakker (1996), p. 52; for a different view see Wallace (2002), p. 294.

Cf. de Mestral (2015), paras 5–11; Salacuse (2015), pp. 217–218.

Alvarez (1990), pp. 120–121 (also on treaties of friendship, commerce, and navigation); Annacker (2011), pp. 546–547; Gómez-Palacio and Muchlinski (2008), pp. 240–244 call this the “‘controlled entry’ approach”; Sacerdoti (2000), p. 108; Sandrock (2010), pp. 275, 280; Sornarajah (2011), pp. 274, 281 also lists Japan and South Korea as employing effective market access provisions.

For the EU see Reinisch (2015), paras 20–22; for some non-EU examples Gómez-Palacio and Muchlinski (2008), p. 255 (fn. 65).

Sornarajah (2011), pp. 281–282. According to Sandrock (2010), pp. 286–288, 310, however, the German model BIT contains a right to market access for foreign investors that is enforceable by way of investor-state dispute arbitration. See also Carlevaris (2008).

Annacker (2011), pp. 546–550 has compiled the nuances in the configuration of market access provision customary in IIA practice.

The CJEU even demands of EU member states to include such exceptions to ensure that Art. 64, 66, and 75 TFEU can take effect, see, for instance, Court (3 March 2009) Commission of the European Communities v. Kingdom of Sweden, Judgment, C-249/06, ECLI:EU:C:2009:119, paras 37–38; Viterbo (2012), p. 195 (fn. 133) with further references.

See especially OECD (2007), p. 105; Moon (2012), p. 483; However, Alvarez (2012), p. 275 (fn. 83) quotes a study indicating that 90% of the 2000 reviewed IIAs did not contain security exceptions.

Burgstaller (2011), pp. 181–186, who points out the extension of the essential security doctrine to non-military reasons; Dolzer and Schreuer (2012), pp. 188–189; Salacuse (2015), pp. 378–385; Sornarajah (2017), pp. 544–553 is more critical.

Skovgaard Poulsen (2016), p. 21 finds that “[w]ith respect to security concerns, the US is arguably the country most insulated from sensitive claims due to its self-judging security carve-outs in recent BITs.” Alvarez (2012), p. 273 draws a rather pessimistic picture, too.

Burgstaller (2011), p. 186. Cf. also Bassan (2011), pp. 141, 147–148; Sornarajah (2011), pp. 287–288; Chen (2013), pp. 312, 320–321; for the development of United States BITs see Mendenhall (2012), pp. 341–342; Mendenhall (2016), pp. 34–42; seing the potential for abuse rather limited is Alvarez (2012), pp. 275–276.

For substantial standards of protections cf. Dolzer and Schreuer (2012), pp. 119 et seqq.

However, since ISCMs are per definition gatekeepers to the national capital market (above Sect. 4.1.1.4.1), these questions are not addressed in detail here.

Mavroidis (2016b), pp. 520, 528–529; Gómez-Palacio and Muchlinski (2008), pp. 238–239; Burgstaller (2011), p. 176.

Panel (25 July 1983 (adopted 7 February 1984)) Canada - Administration of the Foreign Investment Review Act, Report of the Panel, L/5504 - 30S/140, para. 5.1; cf. Muchlinski (2007), p. 208.

Price (1993), pp. 358–359.

See Trebilcock et al. (2013), p. 583; Hahn (2015).

For a recent summary of the debate see Blyschak (2016) (whose concept of SOEs includes SWFs).

See Subedi (2012), pp. 55–80 for an overview.

Audit (2009), p. 625.

Audit (2009), pp. 624, 625.

Sornarajah (2011), pp. 274–275.

Tietje (2015c), p. 1812 (para. 28).

Taylor (2010), para. 13.11.

For a review of how SWFs could benefit from material provisions of (German) IIAs, especially market access, most-favored-nation treatment, and national treatment, see Sandrock (2009), pp. 739–749.

On this issue see Mendenhall (2016), pp. 40, 42, 44; Clodfelter and Guerrero (2012), pp. 182–183; extensively DeSouza and Reisman (2012).

Cf. the respective definitions of “investor of a Party”, “enterprise”, and “state enterprise” in the model BITs, which are available at https://​investmentpolicy​.​unctad.​org/​international-investment-agreements/​treaty-files/​2872/​download and https://​investmentpolicy​.​unctad.​org/​international-investment-agreements/​treaty-files/​2820/​download, respectively (both accessed 21 January 2021). Shima (2015), pp. 12–14 reports only 16% of over 1800 analysed IIAs to expressly include SOEs, 6% the government itself, less than 1% SWFs; see also Burgstaller (2011), p. 178; Bassan (2011), p. 144; for the inclusion of SWFs in the ASEAN Comprehensive Investment Agreement see Sornarajah (2011), p. 279.

Annacker (2011), pp. 531–532, 537–539.

Shima (2015), p. 13 (for SOEs); see Annacker (2011), p. 534.

Sornarajah (2011), p. 283.

Annacker (2011), pp. 533–534, 539–542.

Cf. the references in fn. 568 to 572 below. For instance, Bassan is less generalizing and sees the typical reference of IIA definitions of protected investors to “nationals” and “any juridical person” as disqualifying the state and its subdivisions as investors under IIAs, in lack of a separate legal personality (see Bassan 2011, p. 144).

Skovgaard Poulsen (2016), p. 16; Chen (2013), pp. 314–321 lists the reasons why pertinent arbitral tribunal awards and decisions are scarce.

Sornarajah (2011), pp. 279–280; Chen (2013), p. 313.

Annacker (2011), p. 543.

Sornarajah (2011), pp. 280–281; Chen (2013), p. 314 leans toward accepting SWF investments.

Burgstaller (2011), p. 180, who, in the light of no published arbitral decisions in this respect, doubts the usefulness of market access provisions; see also Sornarajah (2017), p. 544.

Annacker (2011), p. 548; see also Chen (2013), pp. 310–311.

Sornarajah (2011), p. 282.

See Audit (2009), p. 624 for other IIA obligations relevant for SWFs.

Sornarajah (2011), pp. 278, 282, 284; Chen (2013), p. 311.

For a different view see Lippincott (2013), p. 661.

Annacker (2011), p. 551.

Audit (2009), p. 626; Burgstaller (2011), p. 177; Annacker (2011), pp. 554–555; Tietje extends this argument in such way that “standard jurisdiction clauses of BITs cannot apply to a dispute between States” (Tietje 2015c, pp. 1812–1813 (para. 29)), but it remains unclear why other regimes such as the UNCITRAL Arbitration Rules (United Nations Commission on International Trade Law Arbitration Rules (2013)—UNCITRAL Arbitration Rules—) should not be applicable and allow investor-state dispute settlement even with a state party involved.

ICSID (24 May 1999) Ceskoslovenska Obchodni Banka, A.S. v. The Slovak Republic, Decision of the Tribunal on Objections to Jurisdiction, ICSID Case No. ARB/97/4, para. 17 (fn. omitted) citing Broches (1972), p. 355 who developed this test.

Chen (2013), p. 316; Audit (2009), pp. 626–627; similarly Skovgaard Poulsen (2016), pp. 21–22; see also Burgstaller (2011), p. 178.

Cf. Skovgaard Poulsen (2016), pp. 17–18, 23.

Cf. Gallagher (2016), pp. 99–100.

On the terminological debate see fn. 413 above.

ICSID (3 September 2013) Conoco Phillips Petrozuata B.V. et al. v. The Bolivarian Republic of Venezuela, Decision on jurisdiction and merits, ICSID Case No. ARB/07/30, para. 335; Jennings et al. (1992b), pp. 911, 918–919 (para. 407); Shaw (2017), p. 627; Subedi (2012), pp. 119–120; Kriebaum (2015), para. 2; Ruzza (2018), para. 30; Sornarajah (2017), pp. 245, 431; Griebel (2008), pp. 76–77; Dolzer and Schreuer (2012), p. 98; Herz (1941), pp. 251–252; Schrijver (1997), p. 285.

See Dolzer and Schreuer (2012), p. 99.

Reinisch (2008), pp. 410–417 with details.

See, for instance, Dolzer and Schreuer (2012), pp. 101 et seqq. and the references in fn. 414 above.

Some would add a fourth requirement, that due process be followed in the course of the nationalization, but it is not clear whether this is a separate requirement for the legality of nationalizations or a treatment standard under the FET or minimum standard under customary international law, see Dolzer and Schreuer (2012), p. 100; Reinisch (2008), pp. 447–448; on the requirements generally see Jennings et al. (1992b), pp. 919–922 (para. 407); Shaw (2017), pp. 631–635; Sornarajah (2017), pp. 482–489; Kriebaum (2015), para. 216.

Jennings et al. (1992b), p. 919 (para. 407); Sornarajah (2017), pp. 482, 486, 490–534.

Griebel (2008), p. 18; Kriebaum (2015), para. 219; Dolzer and Schreuer (2012), p. 99.

Kriebaum (2015), paras 225–247 for case law.

If states fail to pay, this does not render an (otherwise proper) expropriation illegal (see Sornarajah 2017, pp. 431, 482).

Shaw (2017), p. 634; Dolzer and Schreuer (2012), pp. 100–101.

Even lawful nationalizations are measures of economic war within this work’s definition. The requirement that lawful nationalizations have to occur in “public interest” (cf., for instance, Art. 6 (a) Netherlands—Venezuela BIT) could suggest otherwise: It could be argued that if the nationalization occurs in public interest, its purpose cannot be putting pressure on the investor’s home state (as would often be the case for measures of economic warfare). Despite this line of argument, nationalizations usually constitute acts of economic war. For one, the malleable category of public interest can be understood in such way that the foreign policy goal of pressuring another state is also part of public interest (cf. Sornarajah 2017, p. 482; Salacuse 2013, p. 316). For instance, it is also possible to view the seizure of control of the oil assets of the country as preparation for later moves of Venezuela in international policy, such as threatening to cut off the United States from Venezuelan oil (not an empty threat considering that the United States imported around one tenth of its total oil consumption from Venezuela) or forging alliances with states such as Russia, China, or Cuba (Cuervo 2010, pp. 681–685). Or, as declared by the Venezuelan President, the nationalization could be interpreted as a recovery of “oil sovereignty” (cited after ICSID (3 September 2013) Conoco Phillips Petrozuata B.V. et al. v. The Bolivarian Republic of Venezuela, Decision on jurisdiction and merits, ICSID Case No. ARB/07/30, para. 211). If one is not inclined to overstretch the notion of public interest and thereby render it meaningless, the definition of economic warfare still captures nationalizations in public interest because the intent underlying a nationalization is of economic nature (above Sect. 2.​2.​2.​5.​3).

Since these are clear restrictions on economic warfare vis-à-vis protected investors, it suffices to point at the pertinent discussions of typical standards of protection granted under IIAs such as Dolzer and Schreuer (2012), pp. 130–215.

Another example for the general tendency of international investment law not only to restrict but also to secure certain means of economic warfare shines through in an example given by Salacuse, who notes that some IIAs also contain provisions which exempt (contracting state) enterprises controlled by nationals of one (third) state from the privileges granted under the IIA if one of the contracting states does not entertain “normal economic relations” with the third state. For instance, Cuban-owned companies do not benefit from IIAs between the United States and other states, see Salacuse (2015), p. 377.

It is noteworthy that this passage relating to capital was inserted by the IMF Second Amendment, which took force on 1 April 1978 (see International Monetary Fund 1978).

International monetary law will be understood in this work synonymously with the IMF Statute. Commonly, pertinent bilateral and other multilateral agreements would have to be included (Mann 1982, pp. 463–464, 510 et seqq.; see also Lastra (2015), para. 13.01 (fn. 2)). It should be noted, however, that an ever-broader understanding of the term is on the rise. For instance, Zimmermann (2011b), p. 725 notes (fn. omitted): “The formerly clear-cut body of international law on capital and exchange controls, once exclusively enshrined in the [IMF Statute], and in decisions, interpretations and resolutions of the IMF’s Board of Governors and its Executive Board, has been replaced by a multi-faceted framework of rules emerging from all three traditional pillars of international economic law: international trade, foreign investments, and money.”

Art. VI, Sec. 3 IMF Statute.

Chwieroth (2010), pp. 108–109; Bakker (1996), p. 48; Feibelman (2015), p. 429. For an overview of what capital control means in modern financial practice see Ostry et al. (2010), pp. 6–9; Viterbo (2012), pp. 155–159, 178–180; Bakker (1996), pp. 11–14.

Lastra (2015), para. 13.72; Viterbo (2012), pp. 150–151, 178–180; Feibelman (2015), p. 429; Posner and Sykes (2013), p. 307; on monetary sovereignty generally Mann (1982), pp. 465 et seqq. and Zimmermann (2013).

Viterbo (2012), pp. 151, 153, 161 et seqq.

The IMF has jurisdiction for current account measures (Pasini 2011, p. 6; Viterbo 2012, pp. 151, 183 (also on the failed introduction of IMF jurisdiction for capital account liberalization on pp. 186–186)).

See Pasini (2011), pp. 6–8; Viterbo (2012), pp. 181, 183–184; Siegel (2004), pp. 298–299 for the handful of cases in which the IMF does have jurisdiction over its member states’ capital accounts. They mainly concern the use of IMF funds and questions of conditionality for financial assistance (cf. Art. VI, Sec. 1, IV, V Sec. 3 (a) IMF Statute).

Mann (1949), pp. 268–269; Chwieroth (2010), pp. 107–114; Eichengreen (1996), pp. 93–95; Pasini (2011), p. 6; Feibelman (2015), pp. 429–431; Bakker (1996), pp. 48, 50; Dolzer and Schreuer (2012), p. 213.

Cf. Zimmermann (2011b), pp. 727–728. According to economists, the current account records international “[t]ransactions that arise from the export or import of goods or services” (Krugman and Obstfeld 2016, p. 358). Simple as this may sound, even the conceptual architects of the IMF—Harry Dexter White and John Maynard Keynes—were aware that distinguishing current from capital account movements would produce difficulties (Chwieroth 2010, p. 106).

Mann (1949), pp. 268–269.

Crawford Lichtenstein (2000), pp. 65-66 (para. 2.10); Lastra (2015), para. 13.68; Viterbo (2012), p. 162 (fn. 34); Pabian (2015), p. 19.

Zimmermann (2011b), p. 728.

Siegel (2004), p. 299; Crawford Lichtenstein (2000), p. 66 (para. 2.11); see also Viterbo (2012), p. 162; Feibelman (2015), p. 430.

IMF practice counts as capital account transactions the following (International Monetary Fund 2005, p. 74 (para. 295) (emphasis added)): “[…] First, a transfer in kind is a capital transfer when it consists of (i) the transfer of ownership of a fixed asset or (ii) the forgiveness of a liability by a creditor when no counterpart is received in return. Second, a transfer of cash is a capital transfer when it is linked to, or conditional on, the acquisition or disposal of a fixed asset (for example, an investment grant) by one or both parties to the transaction. A capital transfer should result in a commensurate change in the stocks of assets of one or both parties to the transaction. Capital transfers also may be distinguished by being large and infrequent, but capital transfers cannot be defined in terms of size or frequency.”

Pasini (2011), p. 6.

Cf. Viterbo (2012), pp. 179–180; Lupo Pasini (2012), p. 587 notes they are “subject to two completely different legal regimes”. And although international monetary law is understood here synonymously with the IMF Statute, it would be futile to look for other multilateral prescriptions on capital controls, as—in the words of Feibelman—“[c]urrently, there is no comprehensive multilateral framework for regulating and coordinating domestic policies to manage capital flows” (Feibelman 2015, p. 425; see also Viterbo 2012, pp. 88–89).

See Siegel (2004), p. 301 for details on this overlap.

Drawing on a much wider understanding of international monetary law cf. Zimmermann (2011b), p. 741.

Thürer (2018), para. 8; see similarly Vitzthum (2016), p. 25 (para. 68); Shaw (2017), pp. 87–88; Orakhelashvili (2019), p. 49; see generally Detter Delupis (1994), pp. 212 et seqq.; for a different view Goldmann (2015), pp. 3–4. Yet another, very intriguing understanding of soft law would integrate, inter alia, the rulings of international adjudicative bodies: “soft law [are] those nonbinding rules or instruments that interpret or inform our understanding of binding legal rules or represent promises that in turn create expectations about future conduct” (Guzman and Meyer 2010, p. 174). The pursuit of this definition would lead too far afield here.

Taylor (2010), paras 13.53 to 13.68.

World Bank (1992).

Shihata (1993), pp. 157–158; World Bank (1992), pp. 299–300 (emphasis added).

Wallace (2002), p. 1119; Shihata (1994), pp. 66–67; Subedi (2012), p. 35 remarks that the World Bank Guidelines were not, as supposed by their drafters “emerging rules of customary international law”.

Shihata (1993), p. 194 (para. 3); Shihata (1994), p. 66; critical Subedi (2012), p. 35.

Shihata (1994), p. 67; critical of the drafting process is Subedi (2012), p. 35 (“more a product of an internal process within [the World Bank, the IMF, and the Multilateral Investment Guarantee Agency] rather than the ‘world community’”).

Subedi (2012), p. 35; Wallace (2002), p. 1119.

Australia, Azerbaijan, Bahrain, Botswana, Canada, Chile, China, Equatorial Guinea, Islamic Republic of Iran, Republic of Ireland, Korea, Kuwait, Libya, Mexico, New Zealand, Norway, Qatar, Russia, Singapore, Timor-Leste, Trinidad and Tobago, the United Arab Emirates, and the United States (International Working Group of Sovereign Wealth Funds (2008), p. 1 (fn. 2); Backer (2011), pp. 86–91).

Recommendation of the Council on Guidelines for Recipient Country Investment Policies relating to National Security (2009), C(2009)63; these guidelines were also endorsed in a OECD ministerial declaration of 5 June 2008, see OECD Secretary-General (2008), p. 2.

OECD Secretary-General (2008), p. 1.

OECD Council (2009), pp. 3–4; OECD Secretary-General (2008), pp. 4–5.

See the Art. 5 (b) of the Convention on the Organisation for Economic Co-operation and Development - OECD Convention - 888 U.N.T.S. 179.

Hillgenberg (1999), p. 503; Seidl-Hohenveldern (1979), pp. 178–181; see also Brummer (2012).

Thürer (1985), pp. 443–444; Seidl-Hohenveldern (1979), p. 194.

Guzman (2008), 9, 23; Guzman and Meyer (2010), p. 180; Hillgenberg (1999), p. 502; Seidl-Hohenveldern (1979), p. 194.

Hillgenberg (1999), p. 504; Chinkin (1989), p. 862.

Seidl-Hohenveldern (1979), p. 225 notes: “[Soft law rules] cannot solve international conflicts between States, if either not all the States parties to the conflict had accepted them or if the States interpret the content of such rules in a different manner.” See also Chinkin (1989), pp. 852–853; Wallace (2002), p. 1094.

Cf. Lindemeyer (1975), p. 404.

Ress (2000), p. 20; Neuss (1989), p. 67; Sornarajah (2017), p. 131; Heinemann (2011), p. 40; Hakenberg (1988), pp. 142–143.