Foreign Direct Investment

On 20 November 2018, the European Parliament, the Council and the Commission reached a political agreement on the proposed EU framework for screening of foreign direct investments (FDIs).

The proposal, put forward by the Commission in September 2017, aims at protecting key strategic industries and assets in Europe whilst maintaining the EU’s appeal to foreign investors.

While other countries such as Australia, Canada, China, India, Japan and the US, as well as 12 of the 28 EU Member States[1] already have FDI screening mechanisms in place, it is the first time that such a mechanism is introduced at the EU level.

The proposal is a response to growing concerns in the EU – especially from France, Germany and Italy – that state-owned or state-controlled foreign investors, notably from China, are increasingly acquiring control over high-tech companies and critical infrastructure in Europe.

The EU framework will not impose an obligation on Member States to establish FDI screening mechanisms but rather sets out common rules for Member States that already have such mechanisms in place or that are willing to create them. In any case, the prohibition of FDIs on security or public order grounds will still be decided at the national level.

Formal approval of the proposed Regulation by the European Parliament and the Council is expected by March 2019, ahead of the upcoming EU elections in May 2019.

What Triggered the Creation of the EU Framework for Screening of FDIs?

 The EU has greatly benefitted from FDIs over the years and the Commission is clear in acknowledging their importance as a source of growth, jobs and innovation. In its 2017 Communication ‘Welcoming Foreign Direct Investment’ the Commission pointed out that the EU is the world’s leading source and destination of FDIs with an inward flux of foreign investment of over EUR 5.7 trillion, compared to the EUR 5.1 trillion in the US and EUR 1.1 trillion in China.

However, a recent increase in foreign investments by state-owned or state-controlled companies or private firms with governmental links in companies with cutting-edge technologies – such as artificial intelligence, robotics and nanotechnologies – or in ‘critical infrastructure’ led to the realisation that a common EU-wide screening mechanism of FDIs was necessary in order to safeguard the EU’s key interests.

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