News By/Courtesy: Gunjan Dayal | 06 Jun 2020 22:52pm IST

HIGHLIGHTS

  • FDI hit hard.
  • Change at its peak.
  • Big decisions in several countries.

Coronavirus has impacted every sector and foreign investment has been largely impacted among them. Despite, the G20 commitment during COVID-19 to keep foreign direct investment (FDI) and trade going, some countries are placing restrictions on incoming investment. For them, a primary concern is the strategic industries such as health care. Although investment screening initiatives aren't new, their expansion scope is. Before the pandemic, a study analyzing FDI-screening measures established three justifications for these measures — the fear of becoming dependent on a foreign company for delivering critical goods and services, the desire to ensure that domestic technology and expertise remain within national borders, and the prevention of surveillance or sabotage of essential services. To these insecurities, the pandemic has added new dimensions that will have global implications for FDI and trade flows. The European Union issued updated FDI screening guidelines at the end of March 2020, encouraging member states to support European public safety by shielding "companies and vital properties" from international buyouts in health-related industries including medical devices, protective equipment, medical science, and biotechnology. Subsequently, EU Competition Policy Head Margrethe Vestager suggested that countries should consider taking ownership stakes in undertakings threatened by takeover, especially by Chinese companies, if necessary. Several other countries have taken action as well. As of 29 March 2020, Australia announced temporary measures to reduce investment review thresholds to zero for all sectors of the economy. Similar steps have been taken in France, which has lowered the investment screening threshold to 25%, and Spain, which has placed a 10% cap on non-European FDI flows and has released guidelines to protect public safety, order and health. India has also tightened its FDI regulations, worried about the prospect of a Chinese takeover of critical companies. Canadian policy-makers issued a similar policy statement on COVID-19 and FDI on April 18, 2020. The federal government has tightened up FDI reviews for public health corporations and those involved in critical goods and services supply chains. It also reduced the FDI approval threshold made by international state-owned companies to zero. This aligns with Canada's commitment to critical infrastructure protection, including "services essential for Canadians' health, safety, security or economic well-being," under the Investment Canada Act. While FDI screening in the U.S. does not appear to have changed due to COVID-19, before the pandemic, the country had already enhanced the protection of critical FDI technologies, including health care and biotechnology-related items. But legal experts predict that COVID-19 could lead the country's Committee on Foreign Investment to a more stringent review of health-care-related investment. There is a trend towards rising FDI screening mechanisms stringency, with increasingly extreme restrictions on investment in strategic industries. Health care might just be one of them. This concern has been expressed in particular about Chinese firms, those which are state-owned. While the fear is not new (in Australia, Canada, and the U.S., for example), the EU is considering taking additional measures to screen investments by state-owned companies. The rise in political attempts to interfere with free trade in essential goods is more worrying. One example is the U.S. attempt which ultimately failed. The administration of President Donald Trump to block the flow of 3M protective masks into Canada. Finally, improvements are likely in the supply chain locations of critical sectors as more countries try to return business operations to domestic soil. Anxiety in the US and EU over their dependency on drugs developed in China during COVID-19 illustrates this. Governments may also give companies opportunities to diversify supply chains away from China, as is the case with Japan. That means the COVID-19 crisis could hasten the U.S.-China disengagement, particularly in strategic industries. As a consequence, it appears the current crisis is accelerating the process of deglobalization. UNCTAD, the key agency of the United Nations dealing with trade, investment, and development issues, estimates that global FDI flows may drop by 40% in 2020-21 and that cross-border mergers and acquisitions will continue to decline. The extent of the decline will depend on how binding the restrictive FDI measures become, and supply chains will be relocated to home markets. One result is that multinationals are likely to face rising levels of social and political instability that will demand sophisticated corporate diplomacy, almost certainly. There was indeed widespread recognition even before COVID-19 that large firms should embrace a more stakeholder-oriented model — one that pays attention to multiple stakeholders, including communities, customers, and employees, that are affected by the activities of particular firms.

THIS ARTICLE DOES NOT INTEND TO HURT THE SENTIMENTS OF ANY INDIVIDUAL, COMMUNITY, SECT, OR RELIGION ETCETERA. THIS ARTICLE IS BASED PURELY ON THE AUTHOR'S PERSONAL VIEWS AND OPINIONS IN THE EXERCISE OF THE FUNDAMENTAL RIGHT GUARANTEED UNDER ARTICLE 19(1)(A) AND OTHER RELATED LAWS BEING FORCE IN INDIA, FOR THE TIME BEING. 

Section Editor: Pushpit Singh | 06 Jun 2020 23:07pm IST


Tags : #whatelsein2020

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