Background

EU institutions have completed the co-legislative lifecycle for the text of the regulation on the screening of foreign direct investment into the EU (the "Regulation").   The Regulation comes at a critical point, seeing as the EU is the main destination for foreign direct investment ("FDI") globally, with €6 295 billion of foreign investment stock held by third country investors in the EU at the end of 2017.

The Regulation will establish a cooperation mechanism where EU member states and the Commission will be able to exchange information and raise concerns related to specific investments.  In this context, the Commission will issue opinions when an investment threatens the security or public order of more than one member state, or when an investment could undermine a project or programme of interest to the whole EU.  Certain requirements for the adoption of screening mechanisms on a national level will also be in place.

Member states will need to be transparent as to the circumstances in which FDI will trigger a review, as well as the procedure to be applied. At the same time, screening regimes should not discriminate against third countries, protect confidential and commercially sensitive information and allow foreign investors a right of appeal against decisions.

Screening criteria

Whether FDI poses a risk to security or public order will be determined by taking into account, inter alia, the impact of the investment on:

  • critical infrastructure, whether physical or virtual, including energy, transport, water, health, communications, media, data processing or storage, aerospace, defence, electoral or financial infrastructure, and land and real estate that is crucial for the use of such infrastructure
  • critical technologies, such as energy storage, artificial intelligence, robotics, semiconductors, cyber security, quantum, aerospace, defence, nanotechnologies, biotechnologies and nuclear technologies
  • the supply of critical inputs (such as energy, raw materials and food security)
  • access to, and ability to control, sensitive information including personal data
  • the freedom and pluralism of the media.

EU member states will also be able to take into account:

  • whether the investor is controlled (directly or indirectly) by the government of a third country
  • whether the investor has previously been involved in activities affecting the security or public order of an EU member state
  • whether the investor is considered to be at serious risk of engaging in illegal activities.

Information sharing and cooperation

On deciding to screen FDI, a member state will have to provide certain information to the Commission and the other member states, including providing a list of member states whose security or public order is deemed likely to be affected by the FDI.

Information shared will comprise:

  • the ownership structure of the investor
  • the value of the investment
  • the business operations of both the investor and target
  • the sources of funding of the investment
  • the date of completion.

The said information could be requested by the Commission or other member states, on justifying grounds, even where the member state concerned opts not to screen the investment.

The Commission and member states will be able to comment on FDI in a member state, irrespective of whether the member state receiving the investment has chosen to screen the FDI.

Member states will be required to give "due consideration" to such comments but will be the final decision-makers on the investment concerned.  However, member states will need to take "utmost account" of the Commission's opinion in relation to FDI that the Commission views serves the EU as a whole and represent an important contribution to its economic growth, jobs and competitiveness.

While the Regulation will not prejudice the operation of the EU merger control regulation, member states would nevertheless indicate whether the investment concerned is likely to require notification under the said regulation.