New EU FDI framework and cooperation mechanism approved
On 5 March 2019, the European Council approved the Regulation establishing a framework for the screening of foreign direct investments ("FDI") into the EU. Member States have until the end of 2020 to align their national FDI screening regime with the Regulation's minimum standards and to adopt the mechanism for enhanced cooperation and coordination. The Regulation stops short from creating an overall EU FDI screening regime and Member States that do not have an FDI screening regime will not be required to develop one.
Traditionally, the EU and its Member States have been open to FDI. However, the recent influx of FDI from non-western countries – and especially from state owned entities with strategic goals – has resulted in the tightening of existing FDI screening regimes. Some EU Member States have introduced or will introduce new regimes. Currently, 14 out of the 28 Member States (i.e. Austria, Denmark, Finland, France, Germany, Hungary, Italy, Latvia, Lithuania, the Netherlands, Poland, Portugal, Spain and the United Kingdom) have some form of FDI screening regime in place. The Regulation will help to harmonise the currently fragmented various national regimes. In particular, it addresses the potential cross-border impact of FDI on security and public order.
Security and public order
Member States that have an FDI screening regime typically assess the effects of FDI on their national security and public order. The Regulation does not provide a uniform definition of 'security' or 'public order', but suggests that the following sectors may be considered relevant for security and public order: critical infrastructure (e.g. energy, transport, telecommunications, data processing or storage), critical and dual use technologies (e.g. semiconductors, cybersecurity, aerospace, defence, artificial intelligence, robotics), supply of critical inputs (e.g. energy or raw materials, food security), access to sensitive information and the freedom and pluralism of the media.
The main practical consequences of the Regulation are (i) the introduction of minimum requirements for Member States' national FDI screening regimes (the 'screening framework'); (ii) the ability for the European Commission ("EC") to provide non-binding opinions to Member States; and (iii) the formalisation of cooperation mechanisms between Member States.
(i) Screening framework
The Regulation imposes minimum requirements on Member States that have an FDI screening regime in place. This includes requirements of non-discrimination between foreign investors, transparency of procedures and timing, protection of confidential information and judicial redress. Furthermore, Member States have to report on the inflow of FDI and have to notify their FDI screening regime and any planned amendments to the EC and provide annual reports on their application.
(ii) EC non-binding opinions
The Regulation provides the option for the EC to issue opinions on FDI screening assessments in Member States, or the lack thereof. The EC may issue an opinion in cases where the planned investment affects (i) more than one Member State or (ii) projects and programmes of EU interest on grounds of security and public order or where it has relevant information regarding the planned investment. EC opinions are not binding on Member States.
(iii) Cooperation mechanism
The Regulation provides a mechanism for Member States' comments on FDI screening assessments in other Member States, or the lack thereof. Member State comments are not binding on the Member State concerned. The Regulation also provides for the exchange of (confidential) information between Member States and the EC.
FDI screening regime in the Netherlands
The Netherlands has a very open investment policy with a limited FDI screening regime for the electricity and gas sectors. In these sectors, acquisitions have to be notified and can be prohibited on the basis of security of supply and public order considerations. The duty to notify is triggered by all changes of control, but will be used to screen FDI. In the coming months, the Dutch parliament will discuss a proposal for a similar FDI screening regime in the telecommunications sector.