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Ambiguity harms our security and prosperity

19 January 2021

The Foreign Affairs Committee today publishes its Report Striking the balance: Protecting national security through foreign investment legislation.

The UK remains an open, stable and attractive environment for foreign investors but the open investment regime, combined with the attractiveness of its businesses, leaves Britain vulnerable to exploitation from those whose investments may be more than a simple bet on future growth and are in reality a national security risk.

The Committee therefore welcomes the introduction of the National Security and Investment (NSI) Bill, which will bring the UK into line with its major economic competitors and partners who have already taken measures to strengthen the national security screening powers within their foreign investment legislation.

Lacking clarity

This report found that in line with the request for comment by the Minister responsible, Nadhim Zahawi, the Bill could be clarified in places, particularly in relation to the types of transactions that might be captured under the new regime and the decision-making process behind this. The term ‘national security’ is not defined in the Bill. The Committee heard the arguments against providing a comprehensive definition, due to the dynamism of the threats faced by the UK and the consequent need for flexibility in responding to them but considered the importance of clarity greater.

How national security will be interpreted will be important for the effective implementation of the new business regime and without this there is a risk of nugatory reporting making the system unworkable. It is evident that some of the concerns outlined in this report can, at least in part, be mitigated by greater clarity on how “national security” is to be understood in the context of this law.

This would help to ensure that foreign investment decisions are made only on the basis of national security as is the Bill’s intended remit, as well as improving clarity for UK businesses and their investors, while also providing a level of flexibility that permits responses to unforeseen events or developments. The report outlines that this is what the Bill should be aiming to achieve in order to protect the UK’s security without deterring foreign investment.

The Committee has therefore tabled an amendment to the Bill at report stage, outlining the set of issues and considerations that the Secretary of State should take into account when assessing foreign investments on national security grounds.

Chair of the Foreign Affairs Select Committee, Tom Tugendhat MP, said:

"Many invest in the UK because of our stability and openness. We all welcome that international support for our innovation and ideas but we need to be careful. State-backed enterprises are now changing investment decisions from looking for financial to strategic returns. If the Government is not more coordinated and long-term in its approach, we risk losing our most innovative companies overseas, undermining our national security.

Our strategic competitors, notably China, have a track record of using foreign investments to gain access to important technologies and information. We’ve witnessed too many of our country’s brilliant tech firms disappear abroad with potentially significant economic and foreign policy implications.

The Bill in its current form would benefit from guidance on how national security should be understood to target application of the new law and prevent the reporting system being overwhelmed and deterring legitimate approaches, with adverse repercussions for the UK’s national security and economy.

That is why we have tabled an amendment to the Bill, outlining the issues that the Secretary of State should consider when assessing foreign investments on national security grounds.

The Government’s open and discursive approach has been hugely important which we welcome. We will work with the Minister to clarify those areas that would improve this important Bill."

Further information

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