“A new authority that nobody needs”
By Verena Parzer-Epp, Samuel Rutz, and Marco Salvi, courtesy of Avenir Suisse
Around the globe, the instrument of investment control is currently experiencing a revival. Proponent argue investment controls are necessary to safeguard national security and economic interests, for example as protection against takeovers by emerging state-owned companies.
Switzerland has also called for a tightening of investment controls as part of various parliamentary initiatives. But is “free trade in the investment field” really naive, as we hear over and over in the political discourse? And which interests and industries are particularly worthy of protection in Switzerland? It is also unclear how investment controls would be given teeth, who would be responsible for implementing them and how they would relate to other legal norms such as antitrust concentration control.
Superfluous “Homeland Security”
This year’s competition policy workshop — Avenir Suisse’s eleventh! — intensively discussed whether Swiss companies actually have to be protected against takeovers by foreign investors. Skepticism prevailed among the speakers and participants, albeit for different reasons.
Simon Jäggi, Deputy Director of Economic Policy Directorate at Seco, recalled that in practice, “national interest” is far too advanced for “homeland security” purposes and that investment control could also send a chilling signal to all foreign investors. For example the EU, which is said to have a tendency to over-regulation, has for a long time seen no need for investment controls. Only at the insistence of larger Member States, such as France and Germany, was the “Foreign Direct Investment Review Regulation” (valid from October 2020) adopted this year, which formulates certain requirements for national investment controls, but which under no circumstances obliges each Member State to introduce such rules.
Meanwhile a motion is currently pending in the Swiss parliament which proposes investment controls based on foreign models. Jäggi reminded the audience of the position of the Federal Council, which describes the openness of the Swiss economy as a proven element of prosperity. Moreover, in Switzerland critical infrastructure is typically in the hands of the public authorities, and therefore require no additional protection. Foreign experience suggests that investment controls would primarily focus on industrial policy. The result would be a lot of bureaucracy and hardly any benefits, and it would therefore be neither effective nor necessary.
Daniel Daeniker, senior partner at Homburger, also warned against raising new barriers. There has always been skepticism about foreign investors, he recalled, with only the countries in question changing. At the beginning of the 2000s everyone worried about investments by so-called “Sovereign Wealth Funds,” but today it is Chinese takeovers that make headlines.
Direct investment creates jobs
However, practical experience has shown one thing above all else: openness has always paid off for Switzerland. Technological cooperation has led to innovation, free trade and foreign direct investment has created jobs. In addition, Switzerland’s role as an international mediator has often given local companies “first mover” advantages — as in China. Daeniker also recalled that almost all SMI companies are already de facto majority foreign-owned.
Prof. Andreas Heinemann, President of the Competition Commission (Weko), emphasized the problems to be expected with the implementation of investment control, especially if it was to be entrusted to the Competition Commission. This would not simply be “appended” to classical antitrust merger control, as virtually no points of contact exist between merger and investment control: the intervention criterion of “national security” has nothing to do with the antitrust objectives (intended to ensure effective competition).
Abuse of antitrust law
This is also confirmed by a glance into the surrounding foreign countries, where investment controls are almost never (with the prominent exception of Great Britain) lodged with the competition authorities. In this context it was also pointed out that the lawyers and economists of the Competition Commission would not have the technical expertise to audit investment projects based on “national security.” In general, Heinemann warned of the growing danger that antitrust law would be abused for all sorts of protectionist aims.
Avenir Suisse research director Marco Salvi also warned against throwing the baby out with the bathwater by emphasizing some economic facts. Within the OECD, Switzerland is one of the most important investment destinations: the stock of foreign direct investment increased from less than 10% of GDP in 1985 to almost 130% of GDP in 2015. The vast majority, nearly 80%, of these capital flows come from Europe. When “threats” by foreign investment are spoken of, however, these are mostly from non-European investment, such as from China.
The bare numbers, however, show that the “Asian danger” is much smaller than it seems. Even the “myth of wide-open Switzerland” is misleading: critical infrastructure is already reviewed by the federal government in nine sectors, and “systemically important” companies are subject to special rules. The real estate market is also regulated by the “Lex Koller”, hedging against unwanted takeovers, which also offers domestic owners legal protection in the form of the special statutory stock corporation. The instruments for testing or preventing unwanted investments are therefore already well – some would even say too well – established.
Dr. Verena Parzer-Epp is Head of Communications and Production at Avenir Suisse. Dr. Samuel Rutz is a Senior Fellow and Head of Program Planning & Research, focusing on privatization, competition and regulatory issues. Dr. Marco Salvi is Senior Fellow and Research Manager Opportunity Company at Avenir Suisse and deals, among other things, with the labor market, tax and fiscal policy, gender equality and regional policy issues in Latin Switzerland.