European Commission proposes non-binding screening of foreign investments

A new EU framework for screening foreign investments in EU member states was announced by Commission president Jean-Claude Juncker last week in his annual state of union speech. The new framework enables the Commission and member states to screen foreign direct investments on grounds of security or public order. Member states will still keep the last word in the screening.

While restrictions to capital movements between member states and third countries are prohibited, concerns have been raised about foreign investors, notably state-owned enterprises, taking over European companies with key technologies or energy networks for strategic reasons.

The new mechanism, which is not binding on member states, aims at ensuring transparency and predictability for investors and national governments and thereby preventing investments which may threaten EU’s common interests. It will allow a member state to raise concerns as regards a foreign direct investment in another member state and to provide comments.

According to the proposed regulation, member states will be able to maintain, amend or adopt screening mechanisms for foreign direct investments on grounds of security or public order but it does not oblige them to do so. This reflects the fact that 12 member states already have some type of screening mechanism in place, although characterized by differences in scope and procedure.

“The EU is and will remain one of the most open investment regimes in the world,” Vice-President Jyrki Katainen said at a press conference (14 September). “Foreign direct investment is an important source of growth, jobs and innovation. However, we cannot turn a blind eye to the fact that in certain cases foreign take-overs can be detrimental to our interests.”

He declined to comment on whether specific cases in the past would have gone through in the screening, as for example the acquisition of the Piraeus Port in Greece and the only remaining steel plant in Serbia by Chinese companies. “No analysis has been made. Anyway the decisions lie in the hands of the member states.”

Both deals might have been financially sound from a business point of view and in the best interests of the member states concerned but raised other issues which apparently are not covered by the new screening mechanism such as adherence to EU’s common foreign policy and possible violation of labour law.

The Commission also announced that it will carry out an in-depth analysis of foreign direct investment flows into the EU by the end of 2018, focusing on strategic sectors (such as energy, space, transport) and assets (key technologies, critical infrastructure, sensitive data) whose control may raise concerns for security or public order reasons.

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