What are the effects of foreign investments
Germany benefits significantly from international economic integration. This strong integration is reflected not only in German exports but also in the stocks of German direct investments (Foreign Direct Investment, FDI) abroad, which have increased almost sixfold to around 1.2 trillion euros since 1990. Through their successful engagement abroad, the companies use location advantages and thus secure jobs and competitiveness at home in Germany. Through the stakes in over 38,000 companies associated with its foreign investments, the German economy realizes an annual foreign turnover (2017: 3.1 trillion euros), which more than doubles its exports (2017: 1.3 trillion euros) (Deutsche Bundesbank, 2017). FDI thus ensure that Germany remains competitive. They also help to establish high labor and social standards in developing countries.
Foreign investments in Germany: fuel for jobs and prosperity
However, the success of German industry is increasingly based on investments from abroad. FDI are fuel for growth, prosperity and jobs in Germany. Foreign companies operate production facilities through their holdings and strengthen business relationships with German partners. Such investments secure and create jobs. The figures from the Deutsche Bundesbank show how important FDI are for the German economy. Foreign investors invested 534 billion euros in Germany in 2017. They are involved in around 17,000 companies in Germany and are responsible for around 3.1 million jobs in this country. Foreign investors generated a turnover of 1.6 trillion euros in Germany in 2017.
However, less and less direct investment is flowing into industrialized countries around the world. In contrast, the growth markets of the major emerging countries are becoming more and more attractive. In 1990 around 17 percent of the world's investment flows went to developing and emerging countries. In 2018 it was already 54 percent. In particular, the appeal of Europe as a location will decline in the long term. In 1990 the EU still held 47 percent of the world's FDI stocks, but by 2018 the importance of Europe had halved with a share of 21 percent. That is why Europe must work to become more attractive to investors. Against this background, German industry welcomes the fact that the interest of Chinese investors in the location has increased in recent years. Even if FDI from China is rightly politically controversial, this is proof of the trust international investors have in Germany.
Tightening of investment controls
Unfortunately, it has been observed over the last few years that more and more countries are restricting foreign direct investment more and more. In 2018, 55 countries adapted their foreign investment laws. More than a quarter of these measures resulted in new restrictions - the highest number in two decades. A spiral of investment protectionism has started. State investment controls to protect national security (investment screening) were of particular importance. Such measures have been introduced by eleven countries since 2011, and 41 countries have tightened their instruments.
This trend can also be observed in Germany. The increase in Chinese investments fueled the political discussion about whether the current state intervention options in the activities of foreign investors are sufficient. Proponents of stricter government investment controls see the innovative strength and future viability of the German and European economy endangered by strategic and often state-sponsored investments from abroad in high-tech providers. On the other hand, by strengthening their own rights of intervention, other states should be encouraged to further open their markets (“reciprocity”).
This is why the federal government tightened controls on foreign investments in both 2017 and 2018. A further, comprehensive extension of the state's rights of intervention is planned for 2020. In addition, in early 2019 the European Union passed a regulation on the harmonization of investment controls in the EU. The BDI supports political precautionary measures to protect public order and national security. It must also be prevented that state-subsidized investments from abroad lead to market distortions in Germany and Europe or undermine the market economy. At the same time, it must be ensured that foreign investments are welcome in Germany and that investment controls do not become an instrument of industrial policy. The BDI rejects foreign trade law that blocks investments more and more.
Secure investment freedom and open markets with BITs
In order to maintain the openness for German investors abroad, they must be protected against political risks. That is why the BDI advocates a high level of protection for future investment promotion and protection agreements (Bilateral Investment Treaty, BIT). The aim is to guarantee freedom of investment and secure open markets. At the same time, the right of states to regulate in the public interest must be protected in such contracts. The EU's more recent trade agreements with Singapore, Vietnam and Canada contain investment protection chapters that meet the most modern standards. The agreement with Canada, CETA, has yet to be ratified by some EU member states; the approval of the German Bundestag is still pending. Due to the close investment relationship with China, the conclusion of the BIT negotiations with China, which have been ongoing since 2013, would also be important. The establishment of a multilateral investment court (MIC), as proposed by the European Commission, could also counter criticism of the private arbitration tribunals that are common today.
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