The German government is considering enacting legislation preventing foreign investment that it deems a threat to national security or public order. A first draft for an amendment to the Foreign Trade Act and its implementing ordinance was circulated to the federal ministries for comments at the end of October 2007. The amendment would empower the Federal Ministry of Economics and Technology (the Ministry), in consultation with the Foreign Office, to examine whether the acquisition of a domestic company, or a stake in such a company, by a foreign investor affects Germany’s public order or security. If the Ministry concludes this to be the case, then it would be empowered to prohibit or restrict the acquisition, as it deems necessary, to maintain national security or public order.

The proposed legislation primarily aims to prevent indirect takeovers of German companies by foreign states. Chinese, Russian and Middle Eastern statecontrolled funds are increasingly keen to invest in Germany, and the German government is concerned about divestiture of strategically important industries. The overall assets of such state-controlled funds are estimated to be around $2.5 trillion. The proposed amendment is not expressly limited to state-controlled foreign fund deals however – the wording is wide enough to bring in acquisitions by foreign private funds.

There are though doubts about whether the proposed legislation is in line with EU law. The German government is therefore reportedly considering restricting the legislation to funds that are not controlled by member states of the EU.