The European Parliament (“Parliament”) recently intensified its activity on the Commission’s proposal for a Regulation establishing a framework for screening of foreign direct investments (“FDI”) into the EU (the “Proposal”). On 23 January 2018, the Parliament’s Committee for International Trade held a hearing, including contributions from both stakeholders and experts on similar measures in other countries. Opening the hearing, EU Commissioner for Trade Cecilia Malmström stressed that the proposal aims at enhancing cooperation and coordination between Member States rather than harmonizing foreign investment screening.
At present, FDI screening is a decentralized process and is an exclusive responsibility of EU Member States. To date, no formal coordination among Member States and between the Commission and Member States has been introduced. According to a Commission’s Communication “Welcoming Foreign Direct Investment while Protecting Essential Interests”, 12 Member States, including France and Germany, have adopted a legislative framework for FDI screening. EU Member States’ screening mechanisms may significantly vary in their scopes of application. Furthermore, Member States have different concepts of “national security” and take diverging views whether economic security belongs to this concept. France has introduced review mechanisms for transactions made from EU-based investors in the field of defense and activities relating to dual-use goods and technologies. However, takeovers by investors from third countries are subject to review if the French target exercises activities related to the protection of public health and the integrity, security and continuity of operation of transport networks and services. The French legislation applies an extensive approach to the concept of “national security” and “public order” as it provides for screening mechanisms to activities beyond the defense and security sector. Similarly, under the Austrian Foreign Trade Act, energy supply, telecommunications and water supply belong to the field of public order and public safety. These approaches diverge from the practice of the Committee on Foreign Investment in the United States (“CFIUS”) which does not apply a sectorial prohibition and assesses transactions on a case-by-case basis.
The Proposal establishes a coordination mechanism between Member States and the Commission rather than introducing a unified review process. It provides that Member States may “maintain, amend or adopt mechanisms to screen foreign direct investments on the grounds of security or public order”. The Proposal grants the Commission the power to screen FDI that are “likely to affect projects or programs of Union interest on the grounds of security or public order” which involve a substantial amount or a significant share of funding by the European Union or which are subject to EU legislation on critical infrastructure, critical technologies or critical inputs. Under the Proposal, Member States authorities as well as the Commission will be empowered to consider the potential effects of investments by non-EU investors on critical infrastructure (including energy, transport, and communications); critical technologies (including artificial intelligence and cybersecurity) or access to sensitive information or the ability to control sensitive information. To be able to determine whether a FDI may affect a Member State’s security or public order, the Commission and the other Member States should take into account relevant factors, including a transaction’s effects on critical infrastructure and inputs which are essential for maintaining public order.
The Proposal further provides that Member States should set timeframes to adopt screening decisions. Member States will be requested to notify to the Commission their existing screening mechanisms 30 days after the entry into force of the proposed Regulation. After that, they should also notify any amendments to existing review mechanisms or any newly adopted mechanisms within 30 days. Member States who do not introduce screening mechanisms should provide the Commission with an annual report covering FDI on their territory.
Finally, the Proposal sets up a cooperation mechanism between Member States and the Commission. If a Member State considers that a FDI planned or completed in another Member State may affect its security or public order, it may provide comments to the Member State concerned and forward them to the Commission. Finally, Member States will have to appoint FDI screening contact points which will be in charge of all matters related to the implementation of the new framework.
The European Economic and Social Committee is expected to discuss an opinion on the matter: a public hearing took place at the end of February, and is followed by a vote on 18/19 April 2018. The vote at the Parliament’s Committee for International Trade is scheduled for 17 May 2018.