Investment control procedures: Further tightening to secure Germany’s “technological sovereignty”

These amendments were presented, at least in part, at the end of January in the context of the draft bill on the “First Act to Amend the German Foreign Trade and Payments Act”. This is partly only because the planned adjustments within the framework of the German Foreign Trade and Payments Ordinance (AWV) are to be presented and worked out in a separate process at a later date. Since the most important formal and procedural regulations regarding the investment control procedure provided for in German foreign trade law are reflected in the AWV, the full scope of possible adjustments to German foreign trade law with regard to the investment control procedure can only be assessed when this second stage is also available. However, even based on this first stage, the planned amendment of the AWG, it is possible to anticipate where the next development of the German investment control procedure will lead.

On the one hand, the draft bill provides for necessary adjustments to the AWG on the basis of the EU Screening Regulation. This regulation, which came into force on 11 April 2019, provides for a legal framework under EU law with regard to investment control procedures, which will remain the sole responsibility of the respective member states. In the future, the BMWi will take over the tasks of the “National Control Authority”, which is to be established in all member states. The main task of this control authority will be the administration and management of the planned exchange between the EU member states with regard to their national investment control procedures. Consequently, the AWG will also be amended to the extent that in the future not only the public order and security of the Federal Republic of Germany can be used as the sole criteria for examining an acquisition transaction, but also the public order and security of any other EU member state as well as effects on certain projects or programs of EU interest (e.g., Horizon 2020, GNSS programs Galileo and EGNOS). With regard to the adaptation to the EU Screening Regulation, however, the procedural adaptations within the framework of the AWV are likely to be more interesting, especially, for example, with regard to the timing of the procedure at European level and thus also of the overall procedure.

Far more incisive, however, is the proposal of the draft bill regarding the adjustment of the scope of risk within the framework of the German investment control procedure. Whereas up to now an actual threat to public order or security was necessary for an intervention of the BMWi, the draft bill now provides for a mere “probable impairment”. In connection with the extension of the geographical scope of the interests to be taken into account, this results in a considerable expansion of the BMWi’s decision-making scope. The adaptation of the scope of risk follows the requirements of the EU Screening Regulation and leaves the actual criterion itself—public order or security—basically unchanged. However, it is already conceded in the explanatory memorandum of the draft bill that a lower scope of risk will suffice in the future to order acquisition-restricting measures. In the context of this explanatory memorandum, the term “Germany’s technological sovereignty” is again used in connection with “critical technologies”, a term that was also already provided for in the “Industrial Strategy 2030”. It remains to be seen to what extent these considerations will actually be legally justifiable with regard to public order or security and not rather politically motivated procedures, which must then be assessed in detail in each individual case. Furthermore, the question to which extent this “scope of risk” meets constitutional requirements must also be kept in mind.

A further significant but logical change is the blocking of the execution of the acquisition for all acquisitions subject to reporting obligations. Thus, irrespective of the existence of a sector-specific or cross-sectoral procedure, a pending invalidity of the purchase agreement underlying the planned acquisition takes effect, provided that such acquisition triggers a reporting obligation under the AWV. Furthermore, the draft bill further aligns responsibilities for cross-sectoral and sector-specific investment control procedures. Thus, in both of these procedures the BMWi will in the future always decide in agreement with the German Federal Foreign Office, the German Federal Ministry of Interior, Building and Community and the German Federal Ministry of Defence, whereas only the prohibition of the approval in the cross-sectoral investment control procedure will continue to require the additional approval of the German Federal Government.

In addition to the aforementioned amendments to the AWG, the draft bill also provides for the adaptation of the German Satellite Data Security Act (SatDSiG). In the context of the SatDSiG, there has been a special investment control procedure, which was carried out outside the general regulations of the AWV. The draft bill now provides for the deletion of this special legal procedure. Instead, these cases should in future also be covered and assessed by the provisions of the AWG and the AWV, resulting in an equal level of protection in both cases. The operators of high-quality earth remote sensing systems—which were, in case of a possible acquisition by a foreign buyer, previously subject to the special legal investment control procedure according to the SatDSiG—are to be included in the list of particularly security-relevant companies in the AWV in the future.

It therefore remains to be seen what adjustments the BMWi plans to make to the AWV in order to fully assess the exact extent of this two-stage reform. However, the direction has been clear not only since Altmaier’s “Industrial Strategy 2030” and will lead to a further tightening/extension of the examination possibilities within the investment control procedure. The framework conditions for non-European investments in Germany will therefore continue to tighten, whereby the BMWi emphasizes several times in its draft bill that these tightenings will take place with a sense of proportion and in awareness of the importance of foreign direct investments for the economic development in the Federal Republic of Germany.