As described in a previous article in this series, the National Security and Investment Act requires acquirers of entities operating in any of 17 “sensitive areas” of the economy to notify the Government of their intention and allows the Government to scrutinise and intervene in the proposed transaction if it believes it could be detrimental to the UK’s national security.
This note looks at one of those sensitive areas – “Advanced Materials” – and what the Act means for operators of businesses in this sector and their potential investors.
If the qualifying entity that you are acquiring carries out any of the following relevant activities in relation to Advanced Materials, you are required to submit a mandatory notification:
- development or production
- development or production of anything designed as an enabler
- development or production of anything designed to be used for the purpose of production
- the provision of qualified or certified designs, materials, parts or products
- owning, creating, supplying or exploiting intellectual property
- the provision of know-how or services of enablers
- recycling or re-using.
What are Advanced Materials?
“Advanced Materials” are defined as “completely new materials and materials that are developments on traditional materials, where such materials provide any of the following –
- targeted properties;
- advantageous properties;
- outstanding structural properties; or
- outstanding functional properties.”
Thankfully, the government’s guidance further clarifies that Advanced Materials offer “significant benefits to military capability, through increased functionality, improved survivability, enhanced maintainability and reduced through-life cost” . This guidance makes clear that Advanced Materials will not necessarily be developed with military or defence capability in mind. However, Advanced Materials, by their nature, will often have a secondary military or defence application alongside the primary use in the field for which they were developed.
Schedule 1 of the Regulations is called “Advanced Materials”. However, while activities relating to Advanced Materials (as described below) are within the remit of the category, the provisions of the Act are not limited to those materials which meet the statutory definition of an Advanced Material.
The entire list of “Advanced Materials” provided in the Regulations is long and beyond the scope of this article. However, the government’s guidance advises that, generally, Advanced Materials will cover:
- advanced composites
- metals and alloys
- engineering and technical polymers
- engineering and technical ceramics
- technical textiles
- photonic and optoelectronic materials and devices
- graphene and related 2D materials
- critical materials
- other materials.
These categories of Advanced Materials are clearly set out at a very high level. However, there are legislative definitions of each of these categories as well as illustrations sort of specific sub-categories the Act is intended to catch. For example, “technical textiles” means textiles (and their processes and enablers) specifically developed for their functional performance including additional functionality (such as integrated computing, processing or data transmission), 3D architectures, protection against blast and ballistic events but does not include sportswear or clothing that is ordinarily available to consumers or household goods.
There are also some interesting sci-fi sounding Advanced Materials described in the Regulations including: “textile-based wearable electronics with potential to enable subtle integration of electronics with the human body for human-machine interfacing” and “nanomachines or nanoscale robots either with physically moving parts or capable of physical movement”. However, there are also some broader sub-categories of broader applicability to be aware of, including the “extraction, refinement, processing, production and end of life recovery” of a number of materials including activated carbon, boron, cobalt, graphite, lead and platinum, to name but a few.
As noted above, not all the activities covered by the Advanced Materials provisions of the Act and the Regulations, in fact, relate to materials that would meet the definition of Advanced Materials. In particular, the Advanced Materials section of the Regulations also appears to cover “materials, the expert or transfer of which is controlled by virtue of their being specified in” Schedule 2 to the Export Control Order 2008 and Annex I and Annex IV to Council Regulation (EC) No 2009/428, notwithstanding that these items do not, on the face of it, meet the statutory definition of an Advanced Material.
The Export Control Order relates to military, security and para-military goods, software and technology and arms, ammunition and related material, while Annex I of Regulation (EC) No 2009/428 relates to dual-use controls. Furthermore, the items in both these pieces of legislation are caught by one of the other 17 categories, the “military and dual-use” category, of the Act and the reason for the duplication under the Advanced Materials category is unclear. Annex IV of Regulation (EC) No 2009/428 lists a number of dual-use items including items of stealth technology, cryptography, missile technology control regime technology, and chemical weapons convention items, none of which appear to satisfy the definition of an Advanced Material.
What do businesses and investors need to consider?
As set out above, there are serious potential penalties for non-compliance with the Act. If your business is working on acquisitions that may relate to the categories of materials set out above, then you should consider carefully whether these are Advanced Materials within the meaning of the Act and follow the notification process.
A full list of the activities caught by the Advanced Materials provisions of the Act can be found in the following places:
- Paragraph 3 of Schedule 1 of the Regulations
- Schedule 2 to the Export Control Order 2008
- Annex I and Annex IV to Council Regulation (EC) No 2009/428
Read the other articles in the series:
 Schedule 1 of the National Security and Investment Act 2021 (Notifiable Acquisition) (Specification of Qualifying Entities) Regulations 2021 (the “Regulations”)