Screening of FDI - EU and national developments

Currently, certain European Union ('EU') Member States (see the map below) maintain screening mechanisms for foreign direct investment ('FDI'). FDI can be described as non-EU persons or entities setting up or purchasing (parts of) EU businesses.  FDI screening mechanisms allow EU Member States to monitor foreign investments in companies/sectors considered of strategic importance. 

Sources: Rasmussen Group and European Commission (2017).

Depending on the legislative framework of the EU Member State concerned, such monitoring can have different characteristics such as:

• ex-ante/ex-post; 
• voluntary/mandatory notification;
• general/sectoral coverage; 
• companies/assets;
• etc.

In response to a rapidly evolving FDI landscape, various EU Member States as well as the EU seek to introduce and/or enhance FDI monitoring.

Developments FDI screening by EU Member States

On 11 June 2018, changes to the United Kingdom ('UK') investment screening mechanism were adopted. The main element of this legislative change is that certain "takeover target" companies in the UK with a turnover of £ 1 million or more can be subject to UK investment screening, instead of the prior threshold of £ 70 million.  

In the Netherlands, a legislative proposal for ex-ante as well as ex-post investment screening in the telecom sector was recently submitted to the Dutch Council of State (which is to further advise the Dutch government). Provided that this proposal will be adopted in the (near) future, the Netherlands will join the EU Member States having enacted a screening mechanism for FDI (although - for now - limited to the telecom sector).

Developments FDI screening on EU level

The European Commission ('Commission') has proposed a Regulation which establishes a framework for screening FDI into the EU.  This regulation does not require EU Member States to adopt or maintain a FDI screening mechanism. It does however require EU Member States with a national screening mechanism to provide the Commission with annual reports on investment screening, while EU Member States without national screening mechanisms should report annually FDI events to the Commission having taken place on their territory.

Besides notification and information requirements, the proposal provides for the possibility for EU Member States to express their views on proposed and completed FDI in a specific EU Member State if this is likely to affect its security or public order. In addition, the Commission can express its view on proposed and as well as completed FDI likely to affect the security or public order of one or more EU Member States. In providing for this possibility, the proposal aims to increase awareness, in particular amongst EU Member States who do not have FDI screening mechanisms of their own, regarding the importance of FDI screening.

Another important modality is that the Commission may perform own screening of FDI which is likely to affect projects or programmes of EU interest on the grounds of security or public order. This concerns ex-ante as well as ex-post screening. 

It should be stressed that Commission's screening involves issuing a non-binding opinion to the EU Member State where the FDI is planned or has been completed. The non-binding opinion will also be distributed to the other EU Member States. The EU Member State concerned should take utmost account of the Commission's non-binding opinion and provide an explanation to the Commission in case its opinion is not followed.

Sensitive sectors

When screening FDI on the grounds of security or public order, EU Member States and the Commission may consider the potential effects on some of the following sectors and elements: 

• critical infrastructure, including energy, transport, communications, data storage, space or financial infrastructure, as well as sensitive facilities;
• critical technologies, including artificial intelligence, robotics, semiconductors, technologies with potential dual use applications, cybersecurity, space or nuclear technology;
• the security of supply of critical inputs; or
• the access to sensitive information or the ability to control sensitive information.

EU Merger Regulation

Screening decisions of EU Member States on public interests other than public security, plurality of the media and prudential rules must be communicated to the Commission following the EU Merger Regulation.  It follows from recital (23) of the Commission's proposed Regulation that the Commission will ensure consistency on the application of the proposed Regulation and screening based on (article 21(4) of) the EU Merger Regulation. 

Conclusions and remarks on EU FDI screening proposal

It should be stressed that the proposal cannot be compared with the United States (US) system of CFIUS, which allocates a veto power to the Committee on Foreign Investment in the United States. It is to be noted, however, that the possibility for the Commission to issue non-binding opinions related to planned or completed FDI in the EU can be considered as the most essential feature of the proposal. As the opinions are non-binding, it remains to be seen whether and to what extent the EU Member States take these opinions into account when making their assessments on FDI, provided that the EU Member State concerned actually has its own FDI screening mechanism in place.

At this stage, we can report that the Commission's proposal was reviewed and amended by the European Parliament resulting in a position at first reading (published on 5 June 2018). The Committee on International Trade (INTA) – being the European Parliament's responsible committee for this file – decided to enter into negotiations on this position with the Commission and the Council of the EU (i.e. the so-called 'trilogue' meetings). 

On 13 June 2018, the EU ambassadors agreed on the EU Council's position as well as starting the trilogue as soon as possible. The investment screening proposal is considered as a priority on which an agreement should be reached before the European Parliament's elections in May 2019. 

In sum, the proposal delivers a clear message that EU Member States should be aware of the impact of FDI that may threaten their security or public order as well as enable EU Member States to strengthen their ability to scrutinise FDIs. It remains to be seen whether or not the Commission proposal represents a first step towards the future establishment of a more comprehensive and binding EU-driven FDI screening mechanism for all EU Member States.

We are of course tracking the legislative process and will report on any progress.