The M&A Perspective

Liberal Switzerland Considers State Control of Foreign Investments


Today, Switzerland is very liberal with respect to foreign investments. Although sector-specific regulations and a merger control regime have been in place for many years, Switzerland has not (yet) instituted a comprehensive screening of inbound foreign investments. There are also no capital controls. Consequently, inbound M&A transactions do not generally face government scrutiny. Still in 2005, some emotional public debate surrounded the sale of Switzerland's iconic flag carrier Swiss(air) to Lufthansa. Since then, a foreign investment-friendly mindset has prevailed. Until recently.

Of course, it did not go unnoticed that there is a growing trend towards geopolitical investments by state-controlled foreign entities and subsequent transfers of technology and jobs to emerging countries. Also, Switzerland noted that in response to that many states around the globe, including the United States (with CFIUS), Canada, the EU (with the EU FDI Framework Regulation of March 2019), several EU member states and most recently Japan, have been toughening up or expanding the scope of review of foreign investment. Advocates for the institution of a tighter regime in Switzerland received a boost when ChemChina took over the Swiss agrochemical group Syngenta in a CHF 43.7 billion transaction and the Chinese conglomerate HNA Group acquired the Swiss aviation service groups Gategroup, Swissport International and SR Technics over in the years 2015 to 2017.

Against this backdrop, in February 2018, a motion was filed in the Swiss Council of States, one of the two chambers of the Swiss Parliament, in an effort to prompt the government to prepare a draft bill regarding foreign direct investment controls, including the creation of a new licensing authority. The Swiss government opposed the motion and published a comprehensive report, which pointed to the merits of the current open industrial policy and concluded that existing measures were sufficient to protect critical industries and important infrastructure. Despite the government's resistance, the Swiss Council of States approved the motion in June 2019. And now this week, the Swiss National Council, the second chamber of the Swiss Parliament, approved the motion as well. This means that - although it does not suit its plans - the government is now compelled to prepare a draft bill on direct foreign investments.

The legislative process will take months, if not years. At this point, its outcome is uncertain given the relative strength of promoters and opponents within the Swiss Parliament. The new law, if and when passed by the Swiss Parliament, might even face a public referendum. The net result is that, for the time being, Switzerland remains open for foreign investments, but the clock may be ticking.


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