The current rules in France concerning the control over foreign direct investments arose from the deregulation of international capital flows which occurred worldwide, and especially in the United States and the European Economic Community (after 1993, the European Union), in the 1980s and are therefore rather flexible. Before the mid-80s, the entry of foreign capital into France was viewed more as a threat rather than as an important social and economic issue. One need only recall that in the 60s, numerous foreign investment projects, including those of General Motors or Volkswagen, had been refused by the French authorities. The borders open to capital notwithstanding, beginning in 2014, successive governments in France have made inroads into these flexible rules to restore a more thorough investment screening system in order to protect the key sectors of French economy including the Government of Edouard Philippe. At least, this is what one can infer from the recent announcement of Prime Minister Philippe.
The rules governing the control over foreign direct investments in France are provided for in Articles L. 151-1 and R. 153-1 et seq. of the Code monétaire et financier (the French Monetary and Financial Code; the “Code”). In its Article L. 151-1, the Code currently provides that “financial relations between France and abroad are free”. However, Article L. 151-2 of the Code tempers this principle in providing that the government can, “in order to insure the defense of national interests (…) subject to a declaration, a prior authorization or a control (…) the constitution and liquidation of foreign direct investments in France”. Moreover, Article L. 151-3 of the Code specifies that “are subject to prior authorization of the Minister of the Economy the foreign investments in an activity in France which (…) participates to the exercise of public authority or concerns” the “activities which could impair public order, public security or national defense interests” and “activities of research, production or commercialization of weapons, ammunition, explosive powders and substances”; a decree approved by the Council of State defines the nature of the above-mentioned activities.
It is the list of the activities (Article R. 153-2 of the Code) that require prior authorization for foreign investment from the Minister of the Economy which the government is currently contemplating to extend. In the wake of the “Montebourg Decree” (Decree no. 2014-479 of 14 May 2014 related to foreign investments subjected to prior authorization), which had notably extended the list of activities to include those related to the “integrity, security and continuity of supply of electricity, gas, oil or other energetic sources” or to the “integrity, security and continuity of supply of water in accordance with the standards set forth in the interest of public health”, Prime Minister Philippe’s government would like to add to Article R. 153-2 of the Code, activities related to the fields of artificial intelligence, data protection, nanotechnologies, aerospace or financial infrastructures. It should be noted that this enlargement could only be carried out within the limits of the principle of free movement of capital provided for in Article 63 of the Treaty on the Functioning of the European Union (the “TFEU”), which principle could only be waived by Member States on grounds of public policy or public security (see Article 65.1 b) of the TFEU).
Moreover, on 16 February 2018, the Prime Minister also announced his intention to reinforce the penalties for investors who do not comply with commitments taken in exchange of a prior authorization issued by the Minister of Finances. More specifically, the Prime Minister would like to add to the penalties already provided for in Article L. 151-3 III of the Code, new financial penalties more adapted to the different investors as well as a mechanism of suspension of their voting rights in case of violation of their commitments.
Finally, the Prime Minister would like to extend the possibility for the State to resort to “golden shares”, which would give it specific prerogatives regarding decisions such as those related to the investment in a company by an investor who is deemed dangerous, or to certain transfers of shares, or to establishing operations outside France.
In the light of these new provisions, which are expected to be detailed in the government’s “Plan pour la Croissance et la Transformation des Entreprises” (Plan for Growth and Transformation of Companies) and to be discussed by the Parliament in the spring of 2018, one might wonder whether the Government would not like to establish, without prejudice to the TFEU, a system of rules similar to the American CFIUS system, which authorizes the U.S. President to prohibit operations entailing a risk for American national security, even if the risk is indirect or remote. Even though the CFIUS system is strongly criticized in Europe because of its extraterritorial application, it is fair to wonder whether France would not like, in fine, to be vested with the same powers.