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EU fram­ework for scre­e­ning fo­rei­gn direct in­vest­ments

EU frame­work for screen­ing for­eign di­rect in­vest­ments

Foreign di­rect in­vest­ment in­to the European Union (EU) made by third coun­try com­pa­nies or in­di­vid­u­als has be­come in­creas­ing­ly com­mon, tak­ing the form of merg­ers, ac­qui­si­tions, joint ven­tures or new busi­ness­es. It has in re­cent months come to the European Commission’s at­ten­tion that some EU Member States are con­cerned about cer­tain for­eign in­vest­ments, which may have a sig­nif­i­cant eco­nom­ic im­pact be­cause of their larg­er than av­er­age size and their fo­cus on high-tech­nol­o­gy sec­tors. As a re­sponse to a grow­ing de­mand from the Member States for guid­ance on how for­eign di­rect in­vest­ment should be han­dled, the European Commission has pro­posed a new draft reg­u­la­tion for screen­ing such in­vest­ments.

Some Member States have al­ready start­ed their own screen­ing process­es, for ex­am­ple Austria, Denmark, France and Germany, while oth­ers have not. All Member States have how­ev­er recog­nised that there are se­cu­ri­ty con­cerns that need to be ad­dressed. The pro­posed reg­u­la­tion is aimed at cer­tain in­vest­ments, in par­tic­u­lar from state-owned en­ter­pris­es in­vest­ing in strate­gic ar­eas. Even though these in­vest­ments are gen­er­al­ly al­lowed in the EU, there are of­ten no rec­i­p­ro­cal rights to in­vest in the third coun­try from which the in­vest­ment orig­i­nates.

Proposed reg­u­la­tion

Foreign in­vest­ments may have an im­pact on se­cu­ri­ty and pub­lic in­ter­ests, but are at the same time im­por­tant sources of eco­nom­ic growth, jobs and in­no­va­tion. Although the ben­e­fits brought to the EU by such in­vest­ments are not to be dis­re­gard­ed, the European Commission has found it ap­pro­pri­ate to es­tab­lish a screen­ing process frame­work for the pur­pose of in­creas­ing le­gal cer­tain­ty and pre­dictabil­i­ty, both in re­la­tion to in­vestors as well as the Member States.

The pro­posed reg­u­la­tion does not in­clude any re­quire­ment for Member States to adopt screen­ing mech­a­nisms; it mere­ly en­ables them to main­tain their al­ready ex­ist­ing mech­a­nism of screen­ing or to adopt such mech­a­nisms to re­view for­eign in­vest­ments on the grounds of se­cu­ri­ty or pub­lic or­der. In ad­di­tion, the pro­pos­al au­tho­ris­es the Commission to of­fer an opin­ion on the im­pact of in­vest­ments that are like­ly to af­fect projects or pro­grammes of EU in­ter­est. The reg­u­la­tion al­so sets out oblig­a­tions for the Member States to share in­for­ma­tion on for­eign in­vest­ments through a net­work of con­tact points, both in re­la­tion to each oth­er and the Commission. This is in­tend­ed to in­crease co­or­di­na­tion op­por­tu­ni­ties re­gard­ing the risk as­sess­ment.

Main scope

In the screen­ing process, fac­tors such as crit­i­cal in­fra­struc­ture (in­clud­ing en­er­gy, trans­port, space or fi­nan­cial in­fra­struc­ture), crit­i­cal tech­nolo­gies (in­clud­ing A.I, ro­bot­ics, space or nu­clear tech­nol­o­gy), the se­cu­ri­ty of sup­ply of crit­i­cal in­puts or ac­cess to or con­trol of sen­si­tive in­for­ma­tion, may be con­sid­ered. If the in­vestor is con­trolled by the gov­ern­ment of a coun­try out­side the EU, this may al­so be tak­en in­to ac­count. The pro­posed frame­work is ac­cord­ing­ly fair­ly broad and ap­pears not to be lim­it­ed to ac­qui­si­tions of con­trol.

There are cer­tain rules for the screen­ing process set out in the pro­pos­al. First, the mech­a­nisms for screen­ing should be trans­par­ent, non-dis­crim­i­na­tive and pre­dictable. Circumstances which have trig­gered the screen­ing, the grounds for screen­ing and the pro­ce­dur­al rules should be set out. Second, the Member State should es­tab­lish a time­frame for the de­ci­sion to be made. Third, con­fi­den­tial in­for­ma­tion about the in­vestor which might be com­mer­cial­ly sen­si­tive should be pro­tect­ed. In ad­di­tion, the pro­pos­al sets out that in­vestors should have the pos­si­bil­i­ty to seek ju­di­cial re­view against the de­ci­sions made.


The con­tents of the draft pro­pos­al must now be ne­go­ti­at­ed and amend­ed be­fore it can be ap­proved by the European Parliament and the Member States. This process can be ex­pect­ed to take be­tween one and one and a half years, and the new rules can be ex­pect­ed to en­ter in­to force in late 2018 or ear­ly 2019.


The pro­pos­al is meant to com­ple­ment and not af­fect oth­er Union poli­cies and ini­tia­tives. According to the Commission the pro­pos­al will not af­fect the free move­ment of cap­i­tal and free­dom of es­tab­lish­ment.

The reg­u­la­tion does not dis­tin­guish be­tween coun­tries, as it is non-dis­crim­i­na­to­ry, how­ev­er it will have an ef­fect on many in­vest­ments made by state-owned en­ter­pris­es. These are of­ten Chinese in­vestors ac­quir­ing European as­sets, but al­so in­vestors from the United States, Canada, Brazil and oth­er top for­eign in­vestors in­to the EU may now need to con­sid­er whether Europe should be their choice of in­vest­ment des­ti­na­tion and al­so which type of as­sets they wish to in­vest in.