Finding clarity amidst protectionist trends

While the arc of the global marketplace has bent towards openness and freer trade in recent decades, these days investors looking to enter foreign markets often need to navigate an opaque array of new investment regimes as well as authorities with broad powers, which can massively impact potential deals, says Sima Ostrovsky, an antitrust and foreign investment counsel at Linklaters.

“Countries are increasingly showing protectionist trends, with particular focus on critical infrastructure,” commented Ostrovsky, noting that burgeoning ideas of “free trade, peace, love, and camaraderie” have been impacted by geopolitical events since 2016.

Now based in London, Ostrovsky has practised competition law in the UK, South Africa and the United States, and advises on complex M&A deals, foreign investment, and various competition law issues in many sectors across the globe. For African matters, her Linklaters team often works closely with colleagues at leading African law firm Webber Wentzel, as part of a long-term collaborative alliance between the two firms.

Along with national security, Ostrovsky says technology, health, food security and critical infrastructure (including energy) are increasingly becoming key areas of focus for governments when it comes to how they regulate foreign investment, whether by way of standalone foreign investment regimes or specific sectoral regulation.

“On the remedy side, we’re seeing a bit of consistency in terms of the kind of powers that a lot of authorities gain as part of these various legislative instruments,” Ostrovsky pointed out. “Most authorities have the power to prohibit a particular transaction and impose structural and behavioural types of remedies. A lot of these regimes are suspensory as well, so the parties cannot close a transaction until they receive clearance.”

Ostrovsky highlighted global examples of governments and regulators using new powers to control foreign investment in key sectors. In July and August, powers under the new UK national security and investment legislation were used to prohibit a dual-use technology licensing agreement between a British university and a Chinese technology company, then the acquisition of a UK technology company by a Hong Kong-based investor. Failing to obtain foreign investment clearance prior to closing can result in sanctions, for example a fine of the full value of the transaction in Spain, or up to five years’ imprisonment in Germany.

Significant reforms were made to South Africa’s regime under the Competition Amendment Act signed into law in 2019, including changes to merger control rules, the public interest assessment, and the introduction of a national security clearance requirement for certain deals involving foreign investors (although this provision is not yet in force).

Ostrovsky noted that foreign businesses looking to invest in Africa need to be keenly aware of changing rules and regulations, and their potential impact on deal timetables and costings. Globally, notification thresholds were lowered in some countries during the pandemic, and new sectors added to regimes.

“You’re constantly scanning for new rule changes,” says Ostrovsky. “It is also very hard to predict the type of remedies that would be imposed, as the authorities aren’t always transparent, which can impact deal certainty.”

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