FDI update
On 5 March 2019, the Council of the EU approved a new framework to screen foreign direct investments (“FDI”) coming into the EU. This concluded a legislative process that began in 2017. The newly adopted Regulation aims to protect the EU’s strategic critical assets against investments that are detrimental to the legitimate interests of the Union or its Member States. It aligns with more ambitious efforts by France and Germany to shape a European industrial strategy, which acknowledges FDI screening as a key component.
THE NEW ENABLING FRAMEWORK
The Regulation does not establish EU-level screening nor does it harmonise existing screening mechanisms or obligate Member States to create an FDI screening mechanism. Instead, it confirms that Member States may maintain, amend or adopt FDI screening mechanisms on grounds of security or public order under the conditions spelled out in the Regulation. It also acknowledges that Member States will retain their final decision-making power on FDI.
The Regulation seeks to set in place a framework that will enable structured cooperation between the European Commission (EC) and the Member States, while allowing decentralised FDI investment screening by the Member States.
To that end the new framework will:
- Create a cooperation mechanism where Member States and the EC will exchange information and raise concerns related to specific investments; this includes a notification obligation of the Member States towards the EC and other Member States regarding FDIs that are subject to their screening
- Allow the EC to issue opinions when an investment poses a threat to the security or public order of more than one Member State, or when an investment could undermine a project of EU interest
- Encourage international cooperation on investment screening, including sharing experiences, best practices and information on issues of common concern
- Set certain requirements for Member States who wish to maintain or adopt a screening mechanism at the national level
- Take into account the need to operate under short business-friendly deadlines and strong confidentiality requirements
The Regulation covers a broad range of investments which aim to establish or maintain lasting links between a non-EU investor (including state entities) and an undertaking carrying out economic activity in a Member State.
It sets out an indicative list of factors which the Member States / EC should consider when determining whether an investment is likely to affect security or public order. This includes effects of the investment on critical infrastructure, critical technologies, supply of critical inputs (e.g. energy or raw materials), access to sensitive information or the ability to control information, and the freedom and pluralism of the media.
THOUGHTS
While the EU will remain an open economy for investments, the new FDI screening is anticipated to increase scrutiny of foreign acquisition. Currently 14 Member States have FDI screening mechanisms in place, while several others are in the process of reforming them or adopting new ones.
In Central Eastern Europe, Austria, Hungary and Poland have FDI screening mechanisms. It is anticipated that the new EU-level screening framework will accelerate the convergence of existing FDI review rules, but also may encourage the adoption of new laws in those countries which currently do not foresee FDI screening.