Since the enactment of the Foreign Investment Risk Review and Modernization Act of 2018, the Committee on Foreign Investment in the United States (or CFIUS or the Committee), has enjoyed some of its broadest authority since its establishment almost fifty years ago. Tasked with screening cross-border transactions that ‘threaten to impair the national security of the United States’, the Committee has discretion to define ‘national security’, and historically the definition has evolved with, among other elements, the geopolitical tenor of the day. Most recently, the Committee’s focus has been mostly on foreign investment in U.S. businesses involved with sensitive personal data, critical technologies or critical infrastructure.

Does international law impose constraints on States adopting, implementing or maintaining investment screening measures (ISMs)? Is the sovereignty of States in respect of whose investments and what types of investments to ‘permit’ into their territories unfettered? Or does that sovereignty only exist insofar as it is compatible with the (national) security exceptions provided for in many instruments of international economic law, as encompassing both international trade law and international investment law? These are the main questions that this contribution seeks to answer. ISMs have increased both in number and in scope in the past decades and the fact that they are included in the regulatory toolbox of many States raises questions as to the compatibility of these mechanisms, and the manner in which they are applied in specific instances, with norms of international law. The relevant norms are found, for example, in the World Trade Organization’s (WTO) General Agreement on Trade in Services (GATS) and in international investment (protection) agreements (IIAs). This contribution assesses the international legal norms that ISMs need to be compatible with if they are implemented and applied by host States seeking to exercise control over inward foreign investment on the basis of (national) security considerations. Thereto, after an Introduction (Section 1), the contribution sets out in Section 2, the key considerations in terms of sovereignty and international law, and the relationship between international legal norms and the desire to safeguard the domestic (legal) order from unwanted foreign influence. Thereafter, in Section 3, the contribution discusses the key considerations under the GATS in terms of ISM, and, in particular, the need to grant services and service suppliers of WTO Members treatment no less favourable than that is granted to the like services and like service suppliers from any other country. In addition, Section 3 examines potential considerations in respect of the Market Access and National Treatment obligation of the GATS, as well as the possibilities of relying upon the (security) exceptions in Articles XIV and XIVbis GATS to justify otherwise GATS-inconsistent ISMs. Finally, in Section 4, the contribution considers norms of international investment law that may restrict the ability of host States to implement or apply ISMs.

After decades of investment liberalisation, the attitude towards foreign direct investment (FDI) has changed. FDI is nowadays perceived more and more as a threat to the national interests owing to the risks associated with it. In order to address and mitigate these risks, various countries have adjusted their existing FDI screening mechanisms and created new ones. While so far legislators and regulators have been focused mainly on inbound FDI, the US National Critical Capabilities and Defense Act (NCCDA), a bipartisan proposal, is meant to address the risks associated with outbound FDI. Taking into account the current geopolitical environment and the risks associated with it, it is necessary that the EU and its Member States also consider screening outbound FDI. In doing so, valuable lessons can be drawn from the US NCCDA proposal.

China formally adopted its national security review regime of foreign investment in 2011, which has been updated by the ‘Measures for National Security Review of Foreign Investment’ in 2020. The review mechanism has been developed in the context of China’s attempt at, and practice of, a radical reform of its foreign direct investment (FDI) regulatory regime at large and market access liberalisation in particular, inter alia, a transition from the previous case-by-case review of all foreign investment to currently a principled national treatment in the pre-establishment phase. As a result, the regulatory system has evolved from a generic and catch-all review, to all foreign investment based on implicit and unspecified regulatory objectives, to a review only towards those foreign investment projects that may pose a threat to national security, thus showing more deference to the rule of law. However, this transformation is accompanied by residual ambiguities and vagueness in the current national security review system, some of which may seriously impede an effective enforcement of the review system or give leeway for circumvention of the review. To that end, revision proposals are provided in this article to further clarify the law in order to reduce those procedural ambiguities that go against the fundamental principles of the rule of law.