‘Strategic assets’ is a relatively new concept that arose in connection with the fast-forward development of economic globalization in the 20th c. and a new wave of the economic cold war that has been leashed by the change in economic power centers more recently and the reorganization of economic, political and strategic alliances connected with it.
By strategic assents we mean generally any tangible or intangible asset or concern of significant value in a given economy, state, or nation. Strategic assets are central to the development and security of a country, holding them provides an advantage to the owner both because of the raw force and power of their usage and the implicit persuasive power that they hold.
Pakistan is today embroiled in armed conflict with stateless and state-related enemies who will resort to unprecedented tactics, both kinetic and/or non-kinetic, in sum hybrid warfare, to achieve their extreme goals. The economic weapon is among the most powerful assets that the federal government possesses in protecting national security and freedom of development. All the more reason for Pakistan to define and maintain control over our strategic assets.
China’s National People’s Congress recently passed a new Foreign Investment Law (FIL), coming into effect on January 1, 2020
Considering globalization to be a risk to national security and thinking that globalization opens economy to malicious foreign investment the US government has taken to greater scrutiny to economic transactions involving strategic assets: the US federal government has enacted laws to protect American farmland, airlines, telecommunications, and defense-related corporations from adverse foreign investment. Potential strategic assets include oil and energy. Experts contend that in the absence of any crisis also those considered non-strategic assets, because of their abundance and ready availability in global markets, could be subject.
Shortages -or even market fluctuations, this could convert them into strategic assets. In deciding what strategic assets one can reasonably afford us to sacrifice, a nation, one must not only consider the asset’s value to it. Any asset holding strategic value is important to the country holding that asset. Strategic assets have national security implications because of their tactical value, in weighing the sale of a strategic asset a country must consider the extent and severity of the sale’s national security implications.
The EU is only reluctantly and partly following this road. Given the internal problems, the EU has (for instance between the west and eastern European countries) the implementation of the new EU legislation that is defining a framework for all member states as to how to deal with FDI is going to take time and effort. For the time being the new legislation seems to be mainly directed against Chinese foreign investment mainly under the pressure of the US-China trade war.
Chinese access to assets in sectors such as energy and power utilities will be affected if the new framework (that has the character of a recommendation only) would be implemented. EU member states react touchily to external pressure that prevents them from exercising their national sovereignty. This vulnerability might threaten the EU’s security, economic health, and diplomatic freedom of action, allowing other powers to impose their preferences on it.
China’s National People’s Congress recently passed a new Foreign Investment Law (FIL), coming into effect on January 1, 2020. China other than the US in the past had considered almost all sectors of its economy ‘strategic’ and protected. This new document now will govern foreign investment in China and step by step open up certain sectors to FDI. The new FIL seeks to address common complaints from foreign businesses and governments, such as by explicitly banning forced technology transfers.
It will govern the activities of all individual foreign investors and foreign-invested enterprises (FIEs), which include both wholly foreign-owned enterprises (WFOEs) and Sino-foreign joint ventures (JVs). It replaces three previous laws, namely the Wholly Foreign-Owned Enterprises Law (also known as the Foreign-Capital Enterprises Law), the Sino-Foreign Equity Joint Ventures Law, and the Sino-Foreign Contractual Joint Ventures Law. Despite concerns over the vague wording and the potential selective implementations, the new FIL is in many ways a step to the right direction – a unified and standardized FIL to address long-existing issues in foreign investment.
“Next-generation information technology,” previously ranked second, now tops the list of ‘strategic emerging industries’ (SEI). This industry’s coverage is broad, spanning upstream to integrated circuits and downstream to network equipment and software. Newcomers include big data services, artificial intelligence, and cyber-security products and services.
Two entire sectors are wholesale additions. The first is “digital innovation.” This sector includes “digital cultural innovation” technology, software, and content; “new media services”; and industrial and environmental “design services.” Second, the new catalog includes “related services” including research, standardization and financial services. Potential foreign investors should expect additional scrutiny from Chinese regulators who could be keen to protect these sectors from foreign control and competition.
Despite the exposure and example of Reko Diq, we have learnt no lessons. Has anyone questioned why our Supreme Court (SC) ruling has been so bluntly set aside?
China’s Negative List is a comprehensive list of restrictions on foreign investment determined by the State Council, China’s cabinet. These two negative lists enumerate the industries where foreign investment will either be prohibited or restricted. In terms of managing foreign investment, Article 4 means that foreign investors will be treated at par with domestic investors during the initial stages of setting up. The new law also contains measures (for example, Article 20) to guard foreign investments from arbitrary expropriation. Under special circumstances, however, the law says that the State may expropriate or requisition the investment of foreign investors for the public interest.
One vital part of the new law is stating that foreign investments could be expropriated under “special circumstances” and “for the public interest” and are subject to broad national security reviews gives the Chinese government a statutory basis to retaliate against a foreign company in the event of an international dispute. Consider the way we have been scammed in REKO DIQ. Such a law is a necessity particularly for developing countries like ours that cannot afford smart lawyers and own “smarter” arbitrators.
The bottom line is that the Chinese government very rightly secures strategic industries intentionally from foreign influence and keeps its options open as to what all comes under it. Given the safeguards the US, the EU, and China have put in place to guard their strategic assets, we in Pakistan must create a mechanism to not only define strategic assets and their connotation with national security but to define a clear-cut policy how to deal with FDI in those areas. Because we are hungry for FDI we will be less choosy.
Despite the exposure and example of Reko Diq, we have learned no lessons. Has anyone questioned why our Supreme Court (SC) ruling has been so bluntly set aside? Considering that despite their alliances, neither the US or EU will allow each other’s control of strategic assets we should also devise a policy in this regard. Given that we are much more economically vulnerable it is our fundamental duty to ensure that our strategic asset do not end up with either friend or foe, however lucrative the commercial bait that is dangled.
Remember that we have been previously sold out cheap, it is high time we put in place a mechanism to secure strategic assets under a national security blanket. We must exercise unambiguous oversight over the process. We can never allow either friend or foe have control or any strategic asset that can influence our actions (this is the second part in a two part series on this most important and sensitive aspect by the defense and security analyst).
Ikram Sehgal, author of “Escape from Oblivion”, is Pakistani defence analyst and security expert. He is a regular contributor of articles in newspapers that include: The News and the Urdu daily Jang. The article was first published in Daily Times and has been republished with the author’s permission. The views expressed in this article are the author’s own and do not necessarily reflect Global Village Space’s editorial policy.