Since the embrace by many governments of the tenets of the Washington Consensus, openness to foreign direct investment (FDI) has been a hallmark of sound policy. Such investments not only inject capital into host economies, they are associated to differing degrees with the transfer of technology and managerial know-how, wage premia for employees, productivity spillovers to local firms, and greater competition in local markets. Cross-border mergers and acquisitions, a prominent form of foreign direct investment, also play a key role in shifting resources within national economies towards higher value-added sectors and away from under-performing ones.

Moreover, “international investment helped economies recover from the global financial crisis of 2008/2009,” suggesting that FDI has short-term macroeconomic as well as long-term structural payoffs (OECD 2020a). Consequently, “for decades, government perceptions of the benefits of international investment has led them to progressively open their economies to foreign capital” (OECD 2020a).

While openness to FDI has not been rejected outright, in recent years a large number of governments have established or strengthened mechanisms to review foreign direct investment in their jurisdictions.3 The most common justification for doing so has been on grounds of national security.4 No longer satisfied with limits on establishment by foreign firms or on screening proposals by foreign firms to acquire local rivals on competition law grounds, numerous governments have set up institutional mechanisms to review the ongoing operations and strategic choices of foreign firms already established in their jurisdictions. Departures from National Treatment principles on market access as well as regulation of conduct after establishment or acquisition are now possible.

This change in the treatment of FDI has coincided with the COVID-19 pandemic, leading some to link the two. Given that the governments of certain large economies instituted tougher FDI screening in the wake of the Global Financial Crisis, there are certainly precedents to point to (Heinemann 2012)5. If these events are indeed linked, then it holds out the heartening prospect that recovery from COVID-19 could result in recent FDI screening measures being scrapped or falling into disuse – going some way to restoring the favourable climate for FDI.

But can analysts, business decision-makers, and policymakers be so sanguine? What if longer term, harder to reverse factors are at work? Those factors could include the combined impact of the growing dependence of business models on digital technology, associated technology races and the intellectual property and harder-to-value intangible wealth created, as well as greater geopolitical or geo-economic rivalry. The purpose of this chapter is to identify, characterise, and assess the root causes of the resurgence in FDI screen witnessed in recent years.