Lawyer warns of possible repercussions of move to tighten investment rules

French parliamentary recommendations to tighten restrictions on foreign investment in European defence interests could spark a "showdown" between US and international trade bodies, observers warn.

A French parliamentary report proposes the formation of a committee made up of representatives of the interior ministry, the ministry of economy and ministry of defence, similar to the US Committee on Foreign Investment in the US (CFIUS), to oversee investment in key industries, including aircraft and arms manufacturers. The committee would also cover computer, tele­communications, electronics and biotechnology support industries under the proposals.

Winston Maxwell, a partner in law firm Hogan & Hartson, advised the report's authors on parallels with the US scheme and says he hopes the proposed rules will be "user friendly and transparent and will not impede foreign investment". However, rules that could impede the sale of assets could be of concern to investors, he says. "Investors invest with one goal in mind – their exit." He adds: "Every country has to look out for its national defence interests."

Maxwell points out that one of the advantages of the proposed legislation would be to "set out clear rules of the game" for government involvement in investment.

He stresses that the proposed legislation was not designed to prevent foreign investment, merely to regulate it. For example, new rules could mean the French government is entitled to first refusal if assets belonging to a foreign investor are subsequently sold, or could put in place conditions on keeping research and development interests in France.

The parliamentary report also highlights the benefits of investments from parties such as US-based private equity funds, including the possibility that US shareholders would give European companies a foothold in the US market.

The "Exon-Florio" rules on foreign investments in the USA could serve as a template for European rules, according to the French parliamentary report. But Maxwell warns that "there will be highly complex legal hurdles to clear in defining precisely which industries will be affected and how".


Source: Flight International