It’s always a pleasure to be praised as strategically important. But when looking at the European Commission’s current proposal for screening foreign direct investments, many entrepreneurs ask: what is the strategy? Thilo Brodtmann explains.
Thilo Brodtmann is executive director of the mechanical engineering association VDMA, representing more than 3,200 mainly small and medium-sized companies.
After the State of the European Union address, the Commission presented its proposal for a screening procedure that encourages member states to control and possibly block acquisitions by investors from outside the EU.
This initiative aims at preventing foreign states, particularly China, from acquiring assets of the so-called “strategic interest” in Europe. That may be infrastructure, or companies providing technologies such as artificial intelligence or robotics, as well as technologies with potential dual-use applications. Particularly the latter would involve many machinery companies.
Politicians reason that this is to protect important sectors – but industries which could be affected are opposed to this kind of protection. As a representative of 3,200 mechanical engineering companies, VDMA is rather worried that an intensified investment screening will put the good investment climate in Europe at risk and therefore harm the European economy.
Fighting China – by politicising the EU economy
First, the idea of investment screening implies that institutions can ultimately differentiate good from bad investment. But on what grounds would these decisions be made? Who is to say which company is of strategic importance for Europe? The same problem arises with any definition of a good or bad investor. Given these circumstances, it will be impossible to get predictable decisions by national ministries.
The same problem arises with any definition of a good or bad investor. Given these circumstances, it will be impossible to get predictable decisions by national ministries.
In fact, widened investment screening opens the door for governments to meddle with the corporate sector at will. If vetoing an acquisition is rather a matter of personal views, decisions are exposed to a range of factors, such as public opinion or the current relationship with the bidder’s country.
What European industry really needs is a level playing field and therefore better market access in China. But by politicising its own economy, the EU will instead give Chinese authorities fresh reasons to keep their own trade barriers.
Second, calls for actions are partly based on a lopsided image of Chinese buyers. The concern that investors will make off with European technologies or destroy European jobs is in clear contrast with the predominantly good experiences that the mechanical engineering industry has had with investors from China in recent years.
On the contrary, European companies benefit when foreign investors put their capital into the EU economy and offer new potential on their respective home markets. The European Commission is well aware of the importance of investments for companies, since it is actively trying to boost investment in Europe these days, with its EFSI fund.
To me, there is a contradiction between complaining about the lack of investment in Europe on the one hand, and making it difficult for local companies to access foreign capital on the other.
No impact assessment, no public consultation
Member states already have the authority to veto certain acquisitions by foreign investors. Under the German foreign trade regulation (AWV), the government is entitled to prevent a third country investor from buying a producer of defence technology, for instance.
Most likely, member states will take the Commission’s recent proposal as an invitation to look at a wider range of investments in future. Germany, France and Italy have celebrated the proposal in a joint statement as a basis “to intervene in individual cases of foreign direct investment in strategic assets, in particular if carried out by state-controlled or state-financed enterprises.”
It is no secret that German and European politicians were alarmed when Chinese company Midea pushed forward the acquisition of the German robotics company Kuka, which is also a member of ours. In the end, the German Ministry for Economic Affairs had to accept the deal, since it saw no threat to security or public order. My question is: will the next case comparable to Kuka see a comparable decision by the State?
Naturally, I cannot give a foolproof answer. But neither can the Commission.
There would have been the chance, however, to get better insights on the effects of the proposal for screening foreign direct investments if the Commission had conducted an impact assessment or a public consultation before issuing its initiative. Unfortunately, it chose to do neither.
Therefore, industry is left feeling exposed to some strategy governments might have for whatever reason – and without being properly consulted beforehand.