National Security Review of Foreign Investment: A Comparative Legal Analysis of China, the United States and the European Union (The Rule of Law in China and Comparative Perspectives)

In recent years, China, the US, and the EU and its Member States have either promulgated new national laws and regulations or drastically revised existing ones to exert more rigorous government control over inward foreign direct investment (FDI). Such government control pertains to the establishment of an __ex-ante__ review regime of FDI in the host state in sectors that are considered as ‘sensitive’ or ‘strategic’, with an aim to mitigate the security-related implications. This book conducts a systematic and up-to-date comparative study of the national security review regimes of China, the US, and the EU, using Germany as an exampling Member State. It answers a central research question of how domestic law should be formulated to adequately protect national security of the host state whilst posing minimum negative impacts to the free flow of cross-border investment. In addition to analyzing the latest development of the national security review regimes in aforementioned jurisdictions and identifying their commonalities and disparities, this book establishes a normative framework regarding the design of a national security review regime in general and proposes specific legislative recommendations to further clarify the law. This book will be of interest to scholars in the field of international and comparative investment law, investors who seek better compliance programs in the host state, and policymakers who aim for high-quality regulation on foreign investment. Cover Half Title Series Title Copyright Contents Acknowledgements List of abbreviations List of legislations List of figures List of tables 1 Introduction 1.1 The changing landscape of national security review of foreign direct investment (FDI) 1.2 An inventory of national security review regimes of FDI 1.2.1 China 1.2.2 The US 1.2.3 The EU 1.3 Juggling between protecting national security and investment protectionism 1.4 Achieving the regulatory goal 1.5 Methodology 1.6 Structure Part I examines the theoretical conceptions and lays the foundation of this research Part II conducts country-specific studies Part III conducts comparison and evaluation, and concludes this research by giving policy recommendations Part I Establishing a normative framework 2 The conceptualization of national security 2.1 Introduction 2.2 A vernacular conceptualization 2.3 Identifying national security (risks) in the FDI context 2.4 National security as a subject to be protected 2.5 The international investment law conceptualization 2.6 The self-determinant nature of national security concerns 3 The jurisprudential foundation of national security review of FDI 3.1 A public international law justification: state sovereignty 3.1.1 Sovereignty in the public international law context 3.1.2 Sovereignty in the foreign investment context 3.2 An international investment law justification: the right to regulate 3.3 Privileging the rule of law in the national security review regime 4 A quest for theoretical principles establishing the national security review regime of FDI 4.1 Addressing the institutional concern in national security review of FDI 4.1.1 An institutional concern: politicization 4.1.2 The agency model as a solution 4.2 Reconciling conflicting interests: the principle of proportionality 4.2.1 Proportionality analysis as a tool for rights-balancing 4.2.2 Assuring regulatory proportionality in the national security review regime 4.3 The principle of non-discrimination 4.4 Procedural fairness: transparency, predictability and accountability 4.4.1 Principles of administrative law 4.4.2 Transparency and predictability 4.4.3 Accountability Part II Country-specific studies 5 The national security review regime of China 5.1 Introduction 5.2 FDI inflow in China and the policy context 1979–2018 5.3 China’s FDI regulatory regime for market access 5.3.1 China’s FDI regulatory regime 1979–2013 5.3.2 China’s FDI regulatory regime in the Pilot Free Trade Zones since 2013 5.3.3 China’s FDI regulatory regime for market access currently applicable nationwide since 2016 5.3.4 The foreign investment law 5.4 The evolutional trajectory of China’s national security review regime 5.4.1 The emergence and development from 2003 to 2009 5.4.2 The review regime currently in effect established in 2011 5.4.3 The national security review regime applicable in the PFTZs 5.4.4 The national security review regime in the draft FIL (2015) 5.4.5 National security review in the FIL 5.5 The review framework currently effective in China 5.5.1 Substantive provisions 5.5.1.1 The review body 5.5.1.2 Sectors and transactions subject to review 5.5.1.3 Factors to be considered 5.5.2 Procedural provisions 5.5.2.1 The initiation of the procedure 5.5.2.2 The two-tier review proceeding 5.5.2.3 Review decision and implementation 5.6 Case study: a process in a black-box? 5.7 Conclusion 6 The national security review regime of the US 6.1 Introduction 6.2 FDI inflow in the US and its policy context 1980–2018 6.3 Formation and development of the US national security review regime 6.3.1 Embryonic period: sectoral restrictions 6.3.1.1 The early stage from 1917 to 1970 6.3.1.2 The establishment of the CFIUS in 1975 6.3.2 Formation period: the Exon-Florio 6.3.2.1 The Exon-Florio Amendment in 1988 6.3.2.2 The Byrd Amendment in 1993 6.3.2.3 Comments and critiques 6.3.3 Reformation period: FINSA in 2007 6.3.3.1 Legislative history 6.3.3.2 Major modifications 6.3.3.3 Comments and critiques 6.3.4 The current CFIUS framework: FIRRMA in 2018 6.3.4.1 The legislative background 6.3.4.2 Major modifications 6.3.4.3 Future policy implications 6.4 The current review framework 6.4.1 Substantive provisions 6.4.1.1 The review body 6.4.1.2 Sectors of focus 6.4.1.3 Transactions subject to review 6.4.1.4 Factors to be considered 6.4.2 Procedural provisions 6.4.2.1 The pre-notice consultation 6.4.2.2 The notice 6.4.2.3 The 45-day review 6.4.2.4 The 45(+15)-day investigation 6.4.2.5 Actions by the President 6.4.2.6 The withdrawal and the resubmission of the notification 6.4.2.7 The mitigation 6.4.2.8 Supervision by the Congress 6.4.2.9 The safe harbour and the evergreen provision 6.4.2.10 The CFIUS fund 6.5 Cases and comments 6.5.1 Fujitsu Ltd – Fairchild Semiconductor Corp 6.5.2 Thomson CSF – LTV Corporation’s missile division 6.5.3 CNOOC – Unocal 6.5.4 Dubai Ports World – Peninsular and Oriental Steam Navigation Co 6.5.5 Huawei – 3Com and Huawei – 3Leaf 6.5.6 Ralls – Terna 6.6 The CFIUS clearance patterns in practice and the rationale behind 6.6.1 Covered transactions and withdrawals 6.6.2 Covered transactions by country 6.6.3 A reformed CFIUS to address China-specific concerns? 6.7 Conclusion 7 The national security review regimes in the EU 7.1 Introduction 7.2 The strictures of the EU law 7.2.1 Introduction 7.2.2 The free movement of capital – Article 63(1) TFEU 7.2.3 The direct control of FDI on the EU level 7.2.4 Legitimate derogations to the free movement of capital in the TFEU 7.2.4.1 Public policy or public security 7.2.4.2 Prudential measures 7.2.4.3 Third-country restrictions 7.2.4.4 Other exceptions stipulated in the TFEU 7.2.5 Legitimate derogations to the free movement of capital in the ECJ jurisprudence – the general interest 7.2.6 The EU regulation screening foreign direct investment 7.2.6.1 The legislative background 7.2.6.2 The regulatory framework 7.2.6.3 Future policy implications to different stakeholders 7.3 The national security review regime of Germany 7.3.1 Introduction 7.3.2 Substantial provisions 7.3.2.1 The review body 7.3.2.2 Sectors and transactions subject to review 7.3.2.3 Criteria for evaluation 7.3.3 Procedural provisions 7.3.3.1 The cross-sectoral review procedure 7.3.3.2 The sector-specific review procedure 7.3.3.3 Judicial review 7.3.4 The compatibility between EU law strictures and the German review regime 7.4 Conclusion Part III Comparison, conclusions, and recommendations 8 Revealing similarities and differences 8.1 Introduction 8.2 Comparison of substantive attributes 8.2.1 The subject to be protected 8.2.2 Transactions and sectors subject to review 8.2.3 Factors to be considered 8.3 Comparison of procedural attributes 8.3.1 The review body 8.3.2 The review procedure 9 An evaluation to the comparative results 9.1 Evaluation of substantive attributes 9.1.1 The subject to be protected 9.1.2 Transactions and sectors subject to review 9.1.3 Factors to be considered 9.2 Evaluation of procedural attributes 9.2.1 The review body 9.2.2 The review procedure 9.3 Conclusion 10 Conclusions and policy recommendations 10.1 Conclusions 10.1.1 A tendency towards tightened and heightened national security review regimes 10.1.2 National security-related concerns are self-determinant 10.1.3 National security review regimes are legitimate regulation justified by state sovereignty 10.1.4 National security review regimes are investment-restrictive-measures and are prone to protectionism if abused by the host state 10.1.5 National security review regimes should comply with the rule of law in order to achieve the regulatory goal 10.2 Policy recommendations: a proposition of a normative framework establishing the national security review regime 10.2.1 National security review regimes should adhere to proportionality 10.2.2 The use of rules of thumb in the scope of review 10.2.3 The sectors subject to the national security review should be confined to the public sector 10.2.4 The review body should be established assimilating the agency model 10.2.5 The review procedure should enhance transparency and maximize predictability 10.2.6 The national security review regime should guarantee accountability 10.3 Concluding remarks Selected bibliography Index "In recent years, China, the US, and the EU and its Member States have either promulgated new national laws and regulations or drastically revised existing ones to exert more rigorous government control over inward foreign direct investment (FDI). Such government control concerns the establishment of an ex-ante review regime of FDI in the host state in sectors that are considered as 'sensitive' or 'strategic', with an aim to mitigate the security-related implications. This monograph conducts a systematic and up-to-date comparative study of the national security review regimes of China, the US, and the EU, using Germany as an exampling Member State. It answers a central research question of how domestic law should be formulated to adequately protect national security of the host state whilst posing minimum negative impacts to the free flow of cross-border investment. In addition to discussing the latest development of the national security review regimes in aforementioned jurisdictions and identifying their commonalities and disparities, this monograph establishes a normative framework regarding the design of a national security review regime in general and proposes specific legislative recommendations to further clarify the law"-- Provided by publisher