The report criticises the Department for International Trade’s inability to set out “even basic lines of policy” on investment agreements. The Department told the Committee that it was prevented from formulating such a policy until after Brexit, but the report finds no credible legal basis for this argument.
Given the importance of cross-border investment for the UK, which is both a leading source of and destination for overseas investment, the report expresses the MPs’ “alarm” that the Government does not have a policy at this stage.
The report outlines a number of areas – including investment liberalisation and protection, and investment regulation – where there is little clarity on the Government’s position.
The new Prime Minister, Boris Johnson, has indicated that the UK will leave the EU without a deal on 31 October 2019 if one cannot be reached before then, leaving the Department with potentially only a few months to establish a policy.
Commenting on the report, Chair of the Committee Angus Brendan MacNeil MP said:
“Outside the EU, the UK Government will have the responsibility of negotiating deals governing British investments abroad and overseas investments in the UK. International Investment Agreements have been hugely controversial in recent years – not least because of provisions relating to investment protection.
“Despite describing the value of investment to the UK as “phenomenal”, the Minister for Investment could tell us surprisingly little about the Government’s approach to international investment agreements after Brexit. This is urgent, given that we could leave the EU without a deal in a matter of months, and if that happens the UK will take back responsibility for negotiating such agreements. My Committee’s report makes an unequivocal recommendation to the Government to adopt a policy on this as soon as possible.”
Clearer data needed to accurately measure overseas investment
Statistics on international investment are contentious given controversy about whether Brexit has had a negative impact on investment coming into the UK. The report outlines significant concerns that the data collected by the Department for International Trade on international investments is limited and possibly unreliable, which could hamper the Department’s ability to devise appropriate and effective policies. For instance, Government data on Foreign Direct Investment (FDI) does not monitor closures of companies associated with inward investment or downsizing by such companies.
Additionally, the report suggests that the Government’s citing of statistics from various sources risks it giving the impression of “cherry-picking” data to give a favourable impression of UK inward FDI. The Committee urges the Department to work with the Office for National Statistics (ONS) on reconciling data collected by the two departments and suggests that the approach taken by the US Bureau of Economic Analysis (distinguishing between different categories of FDI in statistics) might be a possible model to follow. The report also suggests commissioning the ONS, or another appropriate body, to produce analysis and synthesis of the various statistical data-sources on UK FDI, to give the fullest possible picture of trends and developments.
Policy position needed on investment liberalisation and protection
Investment liberalisation (lifting restrictions on overseas investors) and investment protection (protecting investors against the risks of investing in other countries) are key questions in the formulation of investment policy. Provisions relating to both feature in a range of international agreements that regulate the terms under which international investment takes place. The Committee was disappointed that the Minister for Investment and the senior official responsible for International Investment Agreements could only say a limited amount about the Government’s policy in this area.
The Government argued that it cannot formulate policy on International Investment Agreements until it is no longer bound by the “duty of sincere cooperation” which the UK is currently under as an EU Member State. However, the report finds no discernible legal basis for this claim, and notes that the Government is already taking steps to formulate a post-Brexit trade policy. The Committee urges the Government to adopt a policy on International Investment Agreements, so the UK is ready to strike deals in the event of a no-deal Brexit – which could occur as soon as 31 October 2019.
Government must publish investment promotion and facilitation strategy
The report notes that the Government has not anywhere set out its current overall approach to investment promotion and facilitation – whereby the Government encourages and enables FDI. The Committee calls on the Government to publish an overarching strategy summarising the different aspects of its work in this area and explaining clearly how they fit together in a coherent and unified way. It warns the Government needs to do more to ensure it does not claim credit for inward investment successes that would have happened without official involvement. And it recommends that the Government should, in collaboration with partner organisations, develop devolved-nation and regional targets for investment.
Additionally, the Committee criticises the cuts made to overseas representation, which plays a major role in promoting inward and outward investment; and calls on the Government to dedicate appropriate resources to such activities.
Investment screening regime needed to safeguard national security and assets
The UK's inward investment market has long been highly open and liberalised, and the possibility of placing restrictions on the UK market is contentious. The report argues that there is a need for some degree of regulation in respect of inward investment that risks economic harm or damage to national security (as is alleged in the case of Huawei’s potential involvement in the UK’s 5G network). The report highlights the Government’s failure to act on a Conservative manifesto promise to deal with the issue of investment that is associated with activities such as “asset-stripping” and tax avoidance. To balance promotion of inward investment with safeguarding national security, the report recommends that the Government set out in detail what the role of the Department for International Trade will be in the planned new investment screening regime and identify which Cabinet minister will take the ultimate decision on whether to block an investment.