Recent discussions have shifted perceptions of economic openness, now seen as less wise due to factors like the pandemic, skepticism towards China, and geopolitical tensions. Switzerland’s national security focus has led to new regulations on foreign acquisitions, particularly targeting state-affiliated investors. Proposed legislation aims to enhance oversight of takeovers, reflecting a growing trend in Europe towards state investment controls, despite concerns about legal complexities and the existing barriers for foreign investments.
Shifting Perspectives on Economic Openness
In contemporary discourse, the concept of economic openness is increasingly viewed as naïve rather than prudent. Central to this shift are various factors, including the lessons learned from the pandemic, growing skepticism towards China, the ongoing conflict involving Russia, and the unpredictability surrounding the United States’ policies.
Switzerland’s Changing Economic Landscape
The emphasis on national security has notably influenced Switzerland’s approach, impacting both military and economic strategies. Recently, Parliament prohibited the Federal Council from privatizing the Ruag subsidiary, Beyond Gravity, which specializes in space technology, despite its limited role as a supplier for the Swiss military.
Back in 2020, Parliament instructed the Federal Council to develop legislation aimed at regulating foreign acquisitions of Swiss companies, particularly targeting state-affiliated investors from China. What initially began as “Lex China” has now expanded to encompass concerns regarding Russia and, more recently, the United States.
In January, the Biden administration categorized Switzerland as untrustworthy, leading to restrictions on its access to specific computer chips. With the new administration, the rhetoric has escalated, causing further unease among democratic nations.
Although the Federal Council perceives more drawbacks than benefits from imposing state investment control, it has complied with Parliament’s directive. The proposed legislation aims to establish a control framework primarily for acquisitions of Swiss firms by state-controlled foreign investors in critical sectors, such as arms manufacturing and energy production, targeting companies with annual revenues of 10 million francs or 50 full-time employees. Additional sectors, such as central hospitals and major banks, will require oversight for acquisitions involving an annual turnover or gross profit of 100 million francs.
The National Council has since broadened this legislative proposal, now intending to cover all company takeovers exceeding specific thresholds, rather than just those involving state actors in sensitive sectors. This modification is estimated to increase the number of required reviews from just a handful to approximately 30 or 40 annually.
The principle of state investment control continues to gain traction in the Council of States. Recently, a coalition of left and center parties voted 29 to 16 to advance this legislative initiative, despite the Economic Commission’s recommendations against it. The proposal will undergo further examination by the commission.
Proponents argue that many European nations have established state investment controls, with the U.S. taking a notably protectionist stance. The deteriorating geopolitical climate has heightened the risks associated with state-directed investments, which could adversely affect Switzerland. Without these controls, Switzerland risks facing additional restrictions, such as those imposed by the U.S. on access to advanced computer chips.
On the other hand, opponents contend that Switzerland already imposes higher barriers for foreign investments compared to the average of industrialized nations, and there have been no significant takeover incidents that jeopardized public safety or order. They assert that critical infrastructure is predominantly state-owned, and countries like Austria, despite having state investment controls, are also viewed as untrustworthy by the U.S. The proposed legislation could introduce legal uncertainties and bureaucratic complexities.
Some advocates express concerns that the National Council’s decision is overly expansive, preferring a legislative approach more aligned with the Federal Council’s original proposal, which would restrict controls to state or state-funded foreign buyers.
A report from the EU Commission indicates that by 2024, 24 of the 27 EU member states will implement state investment controls, with the remaining three poised to establish similar systems. In 2023, nearly 500 company takeover reviews were reported, with 85 percent receiving approval without complications, 10 percent approved with conditions, and only 1 percent rejected.
Research conducted by the Institute for the World Economy in Kiel, covering 2007 to 2022, reveals that state investment controls in EU and OECD countries within affected sectors resulted in a 12 to 16 percent reduction in cross-border company acquisitions. The authors suggest that these controls may also deter potentially beneficial takeovers.