Investment screening put to the test of the Covid-19 Pandemic: typology, legality and externality

ABSTRACT The Covid-19 Pandemic has introduced or revived a concern in the foreign direct investment (FDI) context that was less emphasized pre-Pandemic, namely public health. This article discusses the typology of Covid-19 related FDI screening, expounds on the legality of these measures in the context of both national investment law and international investment law, and identifies the potential negative externalities to foreign investors and to the host state. Newly promulgated FDI screening measures intensify governmental intervention and scrutiny in cross-border takeovers in the health sector and beyond to protect domestic companies from being taken over by predatory foreign buyers. FDI screening during Covid-19 has become more comprehensive and inclusive in its scope than what was already considered a system capable of excessive and arbitrary use pre-Pandemic. FDI screening on grounds of public health may be justified for its legality under both national and international investment law, nonetheless certain conditions need to be satisfied. The negative externality of FDI screening during Covid-19 pertains to a concern that, if applied aggressively in practice, FDI screening might potentially result in a deterrence effect on the cross-border capital flow that is much needed for market revival after a global economic shutdown.