Investment Screening Mechanisms Under the Investment Treaty Law: The Case of the UK’s National Security and Investment Act

Investment screening has become a popular tool in “derisking” efforts from the People's Republic of China (China) and protecting strategic interests from Chinese influence or acquisition through investment. A notable example of such an investment screening mechanism is the National Security and Investment (NSI) Act 2021 in the United Kingdom (UK). The NSI Act allows the government to screen both foreign and domestic investments in a “qualifying” entity or asset for national security risks. If risk is discovered, the UK government can issue orders to mitigate national security risks. These orders can vary from imposing performance conditions on the acquisition to completely blocking the acquisition. Seven deals have been blocked or reversed so far under the NSI Act, either with a Chinese or Russian connection. This chapter will focus on 5 cases with a Chinese connection that enable examination of the NSI Act’s interaction with the UK’s investment treaty regime. These cases involve direct acquisitions by mainland Chinese investors as well as indirect acquisitions through non-Chinese companies based in Hong Kong and the Netherlands. Given the huge network of international investment agreements (IIAs) signed by the UK, a conflict may arise between the UK’s drive towards national security and its obligations towards investors as a host State under its IIAs. This chapter will assess whether risk for such a conflict exists and, if yes, how the UK should respond. The first part of the chapter will briefly examine the details of the NSI Act and the orders issued under it. The second part will examine whether these cases fall under the scope of a UK IIA. If yes, it will explore if there is a risk that the investment screening orders violate UK’s obligations as a host state and whether the UK can justify its actions under international investment treaty law. The chapter will then conclude with broad lessons that can be derived from the UK’s example. It will also highlight some of the best practices the UK has already adopted (e.g., its country-neutral design of the NSI Act and its approach in the UK-Australia FTA). Further, the UK’s investment screening mechanism and national security approach will be contextualised within the broader discussion on investment screening and investment treaty law.