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Becoming a commercial lawyer can be a complicated, complex, concept that leads to a wall of information for students and trainees alike. Next up in our LegalLingo series, which we’ve included to help break this term down, is the ‘101’ on Foreign Investment law.
Foreign Direct Investment (FDI) is defined by the Organization for Economic Co-operation and Development (OECD) as: ‘an area of cross-border investment in which an investor in one economy establishes a permanent interest and significant influence over an enterprise located in another economy.’
In recent years – and following the global COVID-19 pandemic – governments around the world have implemented FDI measures to protect what they consider to be highly strategic businesses from or the acquisition of foreign lands. The FDI regime gives the national government the ability to monitor and prohibit or impose restrictions on investment from (mostly) foreign investors in companies. which serve large sectors of the economy.
In the past, these sectors focused on important aspects of national security, such as the military and defense-related companies. However, due to the increase of geopolitical threats in other areas and the development of powerful technologies, the concept of national security includes the most important infrastructures – including electrical networks and ports – the information resources, and advanced technologies and data, such as artificial intelligence, quantum computing, and advanced encryption technologies and materials.
The COVID-19 pandemic has heightened the relevance of a wide range of industries dealing with issues of national security and public health, such as companies that make vaccines and personal protective equipment.
In the face of increasing protectionism in the world, FDI regulation has become an important part of the regulatory tapestry in recent years, so it is necessary to carefully consider the application of FDI regulation to cross borders. M&A from scratch, along with merger control and more. legal exemption. This may be the case for the sale of minority interests as small as 1%.
Although most investors may not consider it a ‘problem’, these practices have significant implications for investors, especially for transactional timelines. Investors should consider their own position, as well as that of investment partners, and incorporate these approval requirements into their acquisition strategy.
Do you want to know about FDI? If so, here are links to three good articles on the subject:
Reuters: Germany blocks Chinese takeover of satellite industry over security concerns
The Economist: The pandemic cut annual FDI flows by one-third
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“Legal Lingo aims to break down legal terms, concepts and terminology into bite-sized explanations to make the industry more accessible for trainee candidates.”
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