Multi-jurisdiction guide for screening foreign investments

1. Country: European Union (EU)

2. Indicate five biggest FDI countries of origin (indicate percentage if available)

According to the “Second Annual report on the screening of foreign direct investments into the Union” (2021 Report), published by the European Commission (EC) in September 2022, that covers the 2021 period and provides an overview of foreign direct investment (FDI) trends and screening in the EU, the five biggest FDI countries of origin into the EU were the following:

1. USA (40%)
2. UK (10%)
3. China (7%)
4. Cayman Islands (5%)
5. Canada (4%)

3. Legal Framework in Force

Regulation (EU) 2019/452 of the European Parliament and of the Council of 19 March 2019 (the Regulation) establishes a framework of cooperation for the exchange of information among EU Member States’ authorities and the EC regarding the screening of foreign investments. 

4. Last revision of the Legal Framework

The Regulation entered into force on 10 April 2019. In 2021, the EC launched a study on the FDI cooperation mechanism whose objective is to assess the articulation between the screenings carried out by the national authorities and the EC, as well as to identify any significant efficiency of effectiveness issue in light of the policy goals of the Regulation. This study, that was expected to be concluded in summer 2022, could result in a proposal to revise the Regulation in 2023.

5. Contextualization of the Legal Framework (Historical or other)

The adoption of the Regulation is linked to concerns expressed by certain EU Member States, namely France, Germany and Italy, that foreign investors – in particular state-owned enterprises investing as part of a strategic industrial policy – may acquire critical assets and key technologies from EU companies, especially when there are no reciprocal rights to invest in the country from which the FDI originates.

6. Scope - Screening Mechanism – origin of FDI

(review of intra- or extra-EU FDI)

Are there any loopholes?

The Regulation is aimed at establishing a comprehensive framework at the Union level ensuring coordination and cooperation on the screening of FDIs likely to affect security and public order, while at the same time ensuring that EU Member States have the necessary flexibility to screen FDIs on grounds of security and public order taking into account their individual situations and national specificities.

With respect to the screening mechanisms of the EU Member States, Art. 3 of the Regulation provides, among others, that:

• Rules and procedures related to screening mechanisms, including the relevant timeframes, shall be transparent and not discriminate between third countries;
• EU Member States shall apply timeframes under their screening mechanisms. The screening mechanisms shall allow EU Member States to take into account the comments of other EU Member States (referred to in Articles 6 and 7 of the Regulation) and the opinions of the EC (referred to in Articles 6, 7 and 8 of the Regulation);
• Foreign investors and the undertakings concerned shall have the opportunity to seek judicial redress against screening decisions of the national authorities;
• Although the decision is left to the EU Member States as to whether to introduce FDI screening mechanisms, they must notify the EC of any existing or newly introduced FDI screening mechanism. The EC regularly publishes an updated list of the existing screening mechanisms within the EU; and
• EU Member States are obliged to submit annual reports to the EC that not only include information on the FDIs that took place in their territory in the preceding year and any requests received by other EU Member States in the context of the cooperation mechanism, but also on the operation of their national screening mechanism.

7. Scope - screening thresholds

Please indicate notably whether it covers solely controlling investments or also portfolio investments.

The Regulation covers “a broad range of investments which establish or maintain lasting and direct links between investors from third countries including State entitities, and undertakings carrying out an economic activity in a Member State”. The Regulation does not, however, provide for any specific thresholds which is left to the discretion of the EU Member States.

8. Scope - sectors covered

The Regulation lists a number of sectors that may trigger an FDI review, namely:

• critical infrastructure (e.g., energy, transport, water, health, communication or defence);
• critical technologies and dual-use items (e.g., artificial intelligence, robotics, semiconductors, cybersecurity, nuclear technologies and nanotechnologies);
• supply of critical inputs (e.g., raw materials and food safety);
• access to sensitive information (including personal data) or the ability to control such information; or
• freedom and pluralism of the media.

The above list is non-exhaustive and EU Member States may have rules for additional sectors depending on national specificities. At the same time, the terms used by the Regulation (e.g., critical infrastructure, artificial intelligence and robotics) are very broad and leave ample room for interpretation. In other words, EU Member States may take into account several factors in assessing and FDI into their territory.

9. Design of FDI Screening Mechanism

Please indicate notably the following:

(a) pre-authorisation vs. ex-post screening of FDI? Other?

(b) Covers solely controlling investments or also portfolio investments?

(c) Mandatory or voluntary nature?

The FDI screening mechanisms provided by the EU Member States are different in terms of scope and procedure, as they reflect the objectives and concerns of the single EU Member State with respect to FDI.

10. Design – reciprocity?

The issue of reciprocity is not addressed in the Regulation.

11. Design – Procedures and Deadlines

 Art. 6 of the Regulation provides that EU Member States must notify the EC and the other EU Member States of any FDI that is undergoing screening in their territory, by providing the information mentioned in Art. 9 of the Regulation, as soon as possible.

Under Art. 6 of the Regulation, EU Member States who consider that the notified FDI is likely to affect their security or public order, or that have relevant information to share with the EU Member State undertaking the screening, can provide comments and ask questions. Similarly, where the EC considers that an FDI subject to screening is likely to affect security or public order in more than one EU Member State, or has relevant information in relation to that FDI, it may issue an opinion addressed to the EU Member State conducting that screening. 

EU Member States and the EC shall notify the EU Member State undertaking the screening of their intention to provide comments or to issue an opinion within 15 calendar days following the receipt of the information. Such notification may include a request for additional information. Comments and opinions shall be addressed to the EU Member State undertaking the screening within 35 calendar days following receipt of the infomation. If additional information was requested, comments and opinions shall be issued no later than 20 calendar days following receipt of the additional information.

The EU Member State conducting the screening shall give due consideration to the comments of the other EU Member States and to the opinion of the EC. In any case, the final screening decision shall be taken 

12. Design – Transparency and Information requirements (Filing Forms?)

The Regulation provides that a EU Member State’s framework for the screening of FDIs should lay down the essential elements in order to allow investors, the EC and other EU Member States to understand how such investments are likely to be screened. In particular, those elements should include timeframes for the screening, as well as the possibility for foreign investors to seek judicial review against screening decisions. Rules and procedures relating to screening mechanisms should be transparent and should not discriminate between third countries.

As regards the information requirements, Art. 9 of the Regulation provides that EU Member States shall ensure that the information notified pursuant to Art. 6 or requested by the EC and other EU Member States pursuant to Articles 6, para. 6 and 7, para. 6 be made available to the EC and the requesting EU Member States without undue delay. Such information includes: (i) the ownership structure of the investor; (ii) the value of the FDI; (iii) the business operations of the investor and the target (including the EU Member States in which they operate); (iv) the funding of the investment and the source of funding; and (v) the closing date.

13. Design – Range of decisional outcomes (such as blocking, unwinding, notably), so as to distinguish between the purely screening from the mechanisms aimed at interfering with FDI.

According to the Regulation, the final decision in relation to any foreign direct investment undergoing screening or any measure taken in relation to a foreign direct investment not undergoing screening remains the sole responsibility of the EU Member State where the FDI is planned or completed.

14. Interaction with other legal frameworks (ex: merger control)

The Regulation is consistent with and without prejudice to other notification and screening procedures set out in sectoral Union law.

15. Design – Grounds for blocking, if applicable (such as “public security”, “vital interests”). Please indicate whether those grounds are based on WTO definitions or not. Also, please indicate what is the degree of discretion of the authority to apply the legal criteria in question.

The Regulation empowers EU Member States to review investments within its scope on the grounds of security or public order, and to take measures to address specific risks. In order to assess such risks, the factors indicated in Art. 4 of the Regulation may be considered.

The FDI screening should comply with the requirements for the imposition of restrictive measures on grounds of security and public order in the WTO afreements, including Articles XIV(a) and XIVbis of the GATS. 

16. Judicial Review

Please specify timeline, competent courts and standard of judicial review.

Under Art. 3, para. 5 of the Regulation, “Foreign investors and the undertakings concerned shall have the possibility to seek recourse against screening decisions of the national authorities”.

17. Publication in Official Gazette or other

The Regulation was published in the Official Journal of the EU: OJ L 791, 21.3.2019, p. 1-14.

18. Relevant Examples of application

If applicable and publicly available, please indicate the number of vetoes in the overall number of reviews and also the number of successful appeals for the last 5 years.

According to the 2021 Report, in 2021, 1,563 requests for FDI authorisations were made at the national level (including ex officio cases). Approximately 29% of the cases were formally screened and approximately 71% of the national applications were deemed ineligible or did not require formal screening due to lack of impact on security and public order.

The majority of the cases formally screened in 2021 by the EU Member States (approx. 73%) were unconditionally cleared, whereas 23% of the decisions involved conditions or the adoption of mitigating measures. National authorities blocked only 1% of all decided cases and 3% of transactions were ultimately abandoned by the parties.

At the EU level, in 2021, 13 EU Member States submitted a total of 414 notifications pursuant to Art. 6 of the Regulation. Five EU Member States (Austria, France, Germany, Italy and Spain) were responsible for more than 85% of the notifications in 2021. The five sectors with the highest number of transactions were ICT (36%), manufacturing (25%), financial activities (9.5%), wholesale and retail (8.5%) and construction (4%).

Out of the 414 cases notified in 2021, 86% were closed in Phase I (i.e., within the initial 15 calendar days), and the remaining 11% were closed in Phase II with additional information being requested from the notifying EU Member State. Please note that 3% of those cases were still ongoing at the cut-off date of the Report (i.e., not yet closed in Phase I or 2). The main sectors subject to Phase II were manufacturing (76%), ICT (32%) and financial activities (10%).

19. Stakeholders views on the Legal Framework

The “Second Annual Report on the screening of foteign direct investments into the Union”, published in September 2022, confirms the added value of the Regulation and the cooperation mechanism which has been proven to be a valuable and efficient tool. There have been no negative feedback regarding notifications, opinions or other actions under the Regulation. 

The EC has received three positions in the framework of its public consultation of stakeholders organised from September to December 2017:

• The Federation of German Industries (BDI) expressed its opposition to the extension of the scope of the German FDI screening mechanism in mid-2017, emphasising that clear definitions are needed to delineate the scope of the future regulation in various areas;
• The Austrian Chamber of Commerce (WKÖ), inter alia, stressed the need to take the principle of reciprocity into account; and
• The Federation of European Private Port Operators and Terminals (FEPORT) advocated eliminating the inconsistencies of the current patchwork of national regulatory frameworks, thus enhancing certainty.

20. Interplay with the future EU Regulation

Please indicate notably whether the existing national legislation will have to be amended so as to comply with the EU one.

N/A

21. Other relevant information

Based on Art. 11 of the Regulation, each EU Member State shall establish a contact point for its implementation. EU Member States and the EC shall involve those contact points on all issues relating to the implementation of this Regulation.

Finally, Article 12 of the Regulation provides that the group of experts on the screening of FDI into the EU, created in 2017, will continue to advise the EC and the EU Member States on the implementation of the Regulation. This group of experts, which is chaired by the EC and composed of representatives of the EU Member States, does not advise on individual FDI screening cases but instead shares best practices and lessons learned, and exchanges views on trends and issues of common concern relating to FDI.

Contacts: Richard Sterneberg and Alessia Varieschi

Last updated June 2023