Legal Protection Requirements

A prerequisite for covering your foreign direct investment is to ensure a sufficient legal protection in the host country. This is generally guaranteed through the large number of existing bilateral investment promotion and protection treaties (BIT) (see overview of the bilateral investment promotion and protection treaties of the Federal Ministry of Economic Affairs and Climate Action) which offer a dense network of binding regulatory protection schemes for German companies investing abroad. 

The applicability of a BIT may partly dependent on the existence of certain approvals and permissions, which must be submitted by when applying for an investment guarantee (see Country Cover Policy).

As the Treaty of Lisbon entered into force in December 2009, the competence for the protection of foreign direct investments has changed over from the EU member states to the European Union (EU). Since then, the EU commission negotiates regularly on investment protection in free trade agreements and other agreements on behalf of the EU and its member states. Henceforth, the EU member states are no longer permitted to enter into new negotiations on BIT or to conclude negotiations already begun, without authorization from the EU commission. The EU and its member states plan to replace the current bilateral BIT between the member states and the respective host countries through EU agreements.   

So far, the Federal Government has assessed the occurrence of a political risk under the investment guarantee based – besides on general principles of German law –on public international law. In this context, the protectionary provisions of the individual BIT were of particular importance. Once a BIT of the Federal Republic of Germany is replaced by an agreement between the EU and its member states, the Federal Government will consult the protectionary standards of the respective agreement.   

The new treaties between the EU and its member states provide German investors with a similarly high level of protection as the outgoing BIT. The Federal Government has already decided that the prerequisite of sufficient legal protection in the host country is also ensured by these new planned BIT contracted by the EU. The Federal Government will thus continue to provide the policyholders with beneficial investment guarantees as well as a comprehensive diplomatic support to prevent losses.  

In the absence of a BIT as well as an agreement by the EU and its member states with the host country, in exceptional cases the host country's national legal system can be considered as sufficient legal protection.