Foreign direct investment in the EU

As the EU Foreign Direct Investment (FDI) Screening Regulation (Regulation 2019/452 or the “EU FDI Regulation”) entered into force in March 2019, few could have predicted the important role it would play due to the COVID-19 crisis. The purpose of the FDI Screening Regulation is to create an EU-wide mechanism that enables a coordinated screening of foreign direct investments from third countries that could affect the security or public order of a Member State. To this end, the Member States are obliged to exchange information between themselves and with the Commission.

The EU FDI Regulation has yet to come fully into force and the deadline for transposition into national legislation is set to 11 October 2020. Nevertheless, with the economic decline in Europe due to the COVID-19 crisis, critical infrastructure has been deemed vulnerable to hostile foreign takeovers at significantly lower prices. In a Guidance document published in late March, the Commission urged all Member States to make full use of all relevant FDI screening mechanisms “to avoid the current crisis leading to loss of critical assets and technology”. The scope of the Member States’ screening mechanisms has been expanded in some cases to explicitly include operators in the tech and telecoms sector.

Ahead of the October deadline for implementation of the EU FDI Regulation, 14 Member States are reported to have screening mechanisms in place, including the following:

• Spain: In March, Spain issued two royal decrees (RDL 8/2020 and RDL 11/2020) on urgent extraordinary measures to address the social and economic impact of COVID-19. These decrees make screening mandatory for foreign direct investments acquiring more than 10% (or controlling interest) in entities in certain sectors such as healthcare, technology and critical infrastructure in general.
  
  
• Hungary: Among the emergency laws passed which address issues related to COVID-19, the Governmental Decree 86/2020 (IV.5.) was issued. This decree does not itself extend existing restrictions on FDI but provides exclusive competence for the Ministry of Defence to specify new national critical infrastructure. The Decree also sets out a fast track administrative procedure during the state of emergency.
  
  
• Czech Republic: A bill was submitted which establishes an FDI screening mechanism making it possible to monitor relevant transactions, evaluate the risks and in exceptional cases limit specific investments by setting conditions under which the investment may be carried out. In extreme cases, investments may be banned or cancelled retroactively.
  
  
• Germany: A reform process has been accelerated with the introduction of a draft bill for an amended draft act to the Foreign Trade and Payments Act (Außenwirtschaftsgesetz–AWG). If passed the act will set lower thresholds for investments that may be reviewed; investments may also be reviewed if they are deemed a threat to public policy or the security of another Member State in relation to EU projects. The draft act, which may still change, is expected to be passed by the summer.
  
  
• Poland: A draft act to amend the current Act of 24 July 2015 (concerning the control of certain investments) has been prepared by the Polish government to further tighten the FDI restrictions. Among the proposed measures is an obligation to notify the Polish Competition Authority of foreign investments into entities considered strategic. The acquisition may be refused if deemed to pose a potential threat to public policy.

At the time of writing governments in Finland and Slovakia had also presented draft legislation implementing the EU FDI Regulation, with proposals from other Member States expected in the coming months.

For further information, contact Gabriel Ingerdahl Kobus.