Jurisdictional comparison of national security and FDI screening regimes
United Kingdom
The UK’s National Security and Investment Act 2021 (NSIA) applies to transactions from November 12, 2020. For the NSIA regime to apply, the undertaking does not have to be present in the UK, but the relevant activity that brings the transaction into scope should take place within the UK. Under the NSIA, transport is one of 17 mandatory sectors, covering key transport infrastructure in maritime, aviation and air traffic control, specifically ports and harbors, airports and en route air traffic control services. Furthermore, transactions relating to Border Force vessels and owning or operating onshore terminals may also be covered under the “Suppliers to the Emergency Services” and “Energy” sectors respectively. Therefore, as currently drafted, transactions involving shipping or container companies are unlikely to come under the radar of the NSIA, unless also involved in the infrastructure of the supply chain.
The scope of the transport sector is further limited by thresholds for qualifying entities and activities. For example, owners/operators of ports handling at least 1 million tonnes of cargo in the preceding year will be qualifying entities, allowing the NSIA to focus solely on key national security risk areas while also encouraging investment in the UK.
According to the NSIA Annual Report 2023/24 and 2022/23, only 1% of all mandatory notifications given in 2023/24 and 2% in 2022/23 corresponded to the transport sector. None of the 2023/24 notifications were issued call-in notices and they were subsequently cleared at the first review period. However, these statistics do not represent a definitive approach as it is also possible for the government to call in transactions on its own accord.
European Union
While the EU member states have separate FDI screening regimes, the EU adopted the FDI Screening Regulation 2019/452/EU as a framework for screening investments from third countries to address risks to member states and strategic EU programs. The framework sets out minimum requirements for FDI regimes in member states and a cooperation mechanism for coordinating screening across member states. The FDI proceedings take place before the national authorities and are governed by the relevant national FDI laws. A transaction can be subject to FDI filing requirements in different member states and there is no centralization of proceedings at the EU level (unlike, for example, in merger control).
Under the EU regime, transport falls under “critical infrastructure,” covering a wide range of physical and virtual assets and services, sensitive facilities, and land and real estate crucial for the use of transport infrastructure such as air carriers, airports, ports, and inland, sea and coastal passenger and freight water transport companies. In 2023, transport accounted for 4% of all notifications submitted by member states to the EU Commission under this regime.
In early 2024, the EU Commission published a proposal to make it mandatory for all member states to implement a national screening mechanism; this targets jurisdictions that do not yet have an FDI regime in place (specifically, Croatia, Cyprus and Greece). The proposal also requires member states to ensure that their FDI regimes review foreign investments prior to completion for targets established in their territory that are involved in certain EU trans-European transport infrastructure projects and have activities in “areas of particular importance for the security or public order of the EU.” This includes certain critical technologies that are also used in transport.
Austria, Germany and France
These member states classify transport as part of “critical infrastructure” or “essential services to the country.”
Under the Austrian regime, certain acquisitions of an Austrian undertaking active in the transport sector by a foreign person fall under the national FDI screening regime. In 2023, transport was one of the top three sectors with the highest number of completed reviews, highlighting that under the Austrian definition of critical infrastructure, a considerable number of supply chain businesses fall within its scope.
Under the German regime, transport is one of seven subsectors under “critical infrastructure” that are considered to be especially critical. (It is also worth noting that, in addition to critical infrastructure, there are more than 30 sector groups that can trigger a filing requirement in Germany.) The regime applies only to direct or indirect acquisitions of voting rights and/or assets of a German company, and the scope of the sector encompasses both transport and traffic, including infrastructure and services. This includes air, rail, maritime transport services and roads, including airports, ports, maritime and inland water transport, shipping companies, freight railway operators, as well as supply chain and logistics hubs.
The French regime encompasses acquisitions by foreign undertakings falling within “sensitive sectors” that may affect national security. In this regard, it oversees activities relating to infrastructure, goods and services that are essential to safeguard public order and public security, including the integrity, security and continuity of energy and water supplies, and it considers transportation networks and services to be “sensitive activities.” Therefore, under this regime, transport is deemed an essential service. The main aim of protecting the transport sector is to ensure the security of the supply of energy and critical raw materials within France. In France, 63.7% of authorized investments in 2023 were in infrastructure, goods or essential services, compared to 51.9% in 2022.
United States
Under the U.S. regime, transactions involving the transport sector may fall under the jurisdiction of the Committee on Foreign Investment in the United States (CFIUS). Generally, CFIUS has jurisdiction to review transactions involving a U.S. business that may result in foreign control, certain covered investments (e.g., where a foreign person receives so-called “trigger rights” like an observer seat or access to sensitive information) and covered real estate transactions, including a focus on certain ports and military installations.
Certain transactions are subject to mandatory filing requirements, but CFIUS can also initiate reviews unilaterally for transactions that may raise potential national security concerns. There is also a voluntary filing option available to obtain a “safe harbor” from CFIUS review post-closing.
In the transport sector, CFIUS has shown interest in “critical infrastructure” and “critical technology,” encompassing activities related to airports, maritime ports, rail corridor networks, supply chain support and logistics companies and certain export-controlled items.
In 2023, about 5% of non-real estate notifications were related to transportation, primarily involving support activities, with no notifications for air or rail transportation. This trend aligns with President Biden’s Executive Order 14083 from September 2022, which directs CFIUS to consider a transaction’s effect on supply chain resilience and security.
As a result, businesses that own or operate strategic ports or terminals should conduct thorough assessments in anticipation of CFIUS scrutiny. Additionally, investments impacting the supply chain with respect to semiconductor chips and related technologies are increasingly facing heightened review. CFIUS is expected to maintain greater scrutiny of transactions that affect the resilience of critical U.S. supply chains and impact national security, particularly within the defense, manufacturing, critical mineral and critical technology sectors.
Practical guidance
Businesses should be mindful that where a transaction is notified or called in for further investigation, it does not automatically mean it will be blocked. In fact, obtaining clearance from government authorities provides certainty and the process tends to be straightforward as long as all relevant data, including full ultimate beneficial ownership data, is provided by the parties. Therefore, parties must account for national security assessments within their transaction timeline so that business timeframes are not affected.
Parties should consider and be transparent about the transaction purpose, post-acquisition plans and why the transaction does not pose a national security concern. It is also essential to ensure consistency of facts and arguments across filings and proceedings, including across different jurisdictions and even multiple notifications. Where a national security risk is foreseeable, it is important to consider solutions to alleviate the concern, possibly by setting up systems to protect confidential/sensitive information.
Concluding remarks
National security and FDI screening regimes have a very delicate balance to achieve in relation to transportation and the supply chain, as these services are essential to the global economy. The key takeaway with respect to FDI regimes is that the actual activities covered by the transport sector may vary drastically across jurisdictions. Excluding the UK, all jurisdictions discussed classify transport under critical infrastructure instead of as a standalone category. Particularly, with respect to critical infrastructure and essential services, businesses should be mindful that while one jurisdiction may consider them as critical infrastructure, necessitating a notification, another may not.
How national security risks are assessed within jurisdictions will also dictate the way businesses respond to investment and acquisition opportunities or even structure their transactions. It is important that businesses understand the rules and regulations to ensure transparency and compliance. However, national security regimes should not create unnecessary burdens for businesses, such that business deals fail even before they reach completion.
