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Summary
- The National Security and Investment Bill can allow the government to review and if necessary, restrict foreign investments and takeover bids in British businesses of strategic importance
- There is a risk of cutting-edge research and development going on at UK Universities and high-tech companies falling into the hands of foreign competitors
The UK government will table the National Security and Investment Bill in the lower house of the British parliament later this week. The bill was introduced to give enhanced powers to the government to review and if necessary, restrict foreign investments and takeover bids on British businesses of strategic importance.
The bill which was first promised during the Queen’s speech in December 2019 has over the period become politically sensitive over concerns of Chinese ownership of key strategic businesses of the British economy. The proposed bill would also provide the country with a proper legislative setup to protect commercially and strategically important intellectual property out from the country, which is very crucial for the country’s trade competitiveness.
It is worth noting here that the UK had blocked 5G telecommunication equipment supplied by Chinese equipment manufacturer Huawei on concerns that they can be used by foreign intelligence agencies for espionage. British telecom sector and dual use military technology companies are two of the critical areas where this proposed legislation seeks to enhance government oversight.
Need for a legislation
The pandemic outbreak has had a deeply damaging effect on the British economy. There are several companies which are of strategic importance to the country and are now under deep financial stress and in dire need of funds. Most companies have a wide revenue base and for a foreign company from the same industry and in a better financial position, they present a valuable addition to its portfolio. (REPHRASE)
Also, the currently depressed market conditions thus represent a good opportunity for the international companies to buy out controlling stakes in these companies when they are available at a discount. The situation, however, will not be a conducive one for the British economy, which does not want to lose control over its strategic businesses.
Thus, to address this heightened risk of hostile takeover threat, the British government is bringing about the legislation that will make it difficult for foreign companies to make hostile bids for British companies. The legislation will also be helpful in reducing the UK’s dependence on foreign manufactured equipment. If the government is successful in blocking foreign companies from acquiring British companies, this would prevent the companies from flooding the market with cheap imported components.
The national security concerns
Nuclear energy production, military technology and the country’s telecommunication networks are the three areas that are critical from the national security point of view. Any slackness in regulation in these three sectors will leave the country open to major harm.
Chinese companies have previously been accused of intellectual property theft and several Chinese nationals have also faced prosecution in such cases in the US and other countries. The recent spat of the British administration with the Chinese administration over Hong Kong has led to an unpleasant diplomatic relation between the two countries. A trade war and imposition of mutually destructive sanction like scenario, which happened between the US and China last year, is best to be avoided by the UK.
Industrial knowhow leakage
The biggest threat, however, to the British economy is the passing on of sensitive technological knowhow to foreign companies which is critical to its competitive advantage. Several British industries enjoy technological and business know-how advantage over their foreign counterparts. The cutting-edge research that British universities and high-tech companies are conducting is critical to maintaining the country’s future competitive excellence.
At this time, when these universities and companies are cash strapped, foreign companies could try to acquire some of these important technologies by either research partnership or acquisition. In either case, there will be a loss of time and resources spent by the country and precautionary measures must be taken to protect the long-term interests of the country.
Political risk
Overdependence on a single foreign trading partner makes a country politically vulnerable in the hands of that country. In the recent past, there have been several instances when China has superimposed itself on Australia on several matters. Though the Australian government has contested the Chinese stance, on every occasion but its economic over-dependence on that country makes it vulnerable to the latter’s whims. It would be in the UK’s interest to avoid getting into such a situation with China or any other country.
Cheaper imports from China have led to several skilled jobs and industries being shut down in the United Kingdom. A sudden blockage in the inflow of these goods would cause severe business activity loss in the country, a situation that it had witnessed when the Covid-19 broke out. The new National Security and Investment bill will have an enlarged scope in protecting the business and international trading interest of the country than just the national security aspect.
