Foreign Investment Screening Mechanisms. An Empirical Approach

Economic statecraft, state capitalism, economic security, and strategic autonomy are some of the new focus points. This is understandable given the multitude of domestic measures that are challenging the liberal understanding of international economic relations, be it economic sanctions, weaponized tariffs, reshoring, the rise of industrial policy, subsidies, and foreign investment screening. However, given that such measures greatly affect the parties to international economic relations, the latter’s perspective should also be examined. Therefore, this paper pursues several aims, all centred around the question of how parties to international economic transactions react/adapt to recent measures adopted pursuant to (national and economic) security concerns. Firstly, it uses the UK National Security and Investment Act 2021, a very far-reaching domestic measure that provides for the screening of domestic and foreign investments, to advocate for a bottom-up perspective when assessing the afore-mentioned measures. Secondly, it aims to showcase how a multi-method approach is needed when using a bottom-up approach. Lastly, it will discuss the benefits, limitations, and difficulties of a multi-method approach. The paper will be structured as follows. Firstly, it provides a descriptive overview of the NSIA 2021. Secondly, it focuses on the methods that need to be employed to answer the seemingly simple question of how affected parties adapt/react to it. The term ‘affected’ party has been chosen, instead of investor or private party, because not only companies, but also universities and other entities are often subject to screening. Furthermore, some of them are not privately owned. The project first uses annual UK Government reports that mention the number of voluntary and mandatory notifications submitted by affected parties. It then identifies the Government’s ‘final orders’ that accompany a screening decision. The information thus retrieved is then coded according to multiple variables, such as the parties involved, their nationality, ultimate owner, the sector of industry they operate in, the reason for the screening, whether the transaction was blocked or approved with conditions, whether the final orders were challenged before courts of law, etc. For this latter question, I have tried conducting semi-structured interviews with the affected parties, to understand whether they have challenged the final orders, and if so, why or why not. Since final orders are based on national security concerns, the difficulties in obtaining interviews will be discussed. The paper will also consider whether anonymous surveys could provide extra sources of information. Thirdly, the paper takes stock of the data to highlight several issues that go beyond methodology. For example, while the NSIA 2021 and the authorities managing it emphasize its nationality neutral character, the data shows that only transactions involving Chinese or Russian ultimate owners have been blocked or ordered to divest. Furthermore, very few orders have been judicially challenged, which aligns with findings of the OECD. The question is, why? Moreover, even when orders are challenged before UK courts, the courts show significant deference to the executive. Lastly, I also aim to find out whether the affected parties have considered alternative avenues, such as the ECHR or investor-state arbitration.