Issue Brief No. 02/2008

Foreign Trade and Investment Act (AWG)

The News

Both Chambers of the German Parliament, the Bundestag and the Bundesrat, passed a bill to reform the Foreign Trade and Investment Act (AWG) on February 13 and March 6, respectively. During the process of parliamentary negotiations, the original draft of the Federal Government had been slightly attenuated. Thus, it will now be easier for foreign investors from non-EU or non-EFTA countries to receive an official security clearance certificate from the authorities.

The Background

Under the reformed act, the acquisition of 25 % (or more) of the voting rights of a German company by a non-EU investor may now be subject to an audit. In case this acquisition threatened the internal law and order or the security of the country, the investor could be forced to comply with certain conditions or the acquisition could be prohibited entirely. Investors located inside the EU or the EFTA may also be audited if at least 25% of their share capital belongs to a shareholder outside the EU or EFTA. More details:

• A security clearance certificate is regarded as issued when an audit had not been opened within a month after the acquisition.
  
• It is voluntary to procure such a certificate.
  
• The prohibition of an investment or acquisition has to be approved unanimously by the Federal Government.
  
• The auditing process itself must not exceed a duration of 2 months.
  
• During the audit process, the business operates on condition that the acquisition may be prohibited.
  
• The reform act has a cross-sectoral impact, i.e., the new AWG is not limited to single branches.

The law expressly refers to Art. 46 and Art. 58 of the EU Treaty, allowing restrictions on the free movement of capital or services on grounds of public policy or public security. With this amendment, the Federal Government reacts to the growing involvement of non-EU state-owned investment funds in the European Union. These so-called Sovereign Wealth Funds (SWF) invest surpluses like foreign-exchange reserves or revenues from oil production on a world wide basis. Recently, concerns have been voiced that investments in energy, aviation or aerospace programmes could be misused to serve political or strategic goals. During the drafting process, however, German deputies have argued that SWFs could, on the contrary, have a stabilising effect in view of the chronic lack of equity capital of many German companies.

The law received an ambiguous echo. The liberal Democrats from the Free Democratic Party (FDP) criticised it for hampering investments whereas the German Green Party (Alliance '90/ The Greens) doubts that the law would sufficiently transpose European directives. The coalition government of Christian Democrats and Social Democrats, however, defended the law and denied allegations that it was intended to keep investors away.

The Milestones

As the bill has passed both Chambers of the German Parliament, the Bundestag and the Bundesrat, it came into effect on 24 April 2009.

Last update: 5 May 2009