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COVID-19 crisis inspires global tightening of Foreign Investment Screening

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Global Publication June 30, 2021

In October 2020, EU Regulation 2019/452 (the FDI Regulation) entered into effect, creating a new framework for screening foreign direct investments (FDI) into the European Union (EU). Under the FDI Regulation, EU Member States and the European Commission (EC) itself now cooperate in FDI screening. Although the host country has the final say, Member States and the EC may issue comments and opinions on transactions involving FDI in another Member State’s territory, and the host Member State must give those comments and opinions “due consideration.” In the case of investments deemed to be of “Union interest,” the EC will have greater authority, as host Member States will have to take “utmost account” of EC opinions and explain any non-compliance.

The FDI Regulation represents a bold step, inserting the EC into a hitherto jealously guarded area of Member State authority. Member States are not required to maintain FDI screening mechanisms, but those that do must ensure than any such regimes comply with FDI Regulation requirements. They will have to be transparent and not discriminate between third countries, and Member States will have to set out the circumstances triggering the screening, the grounds for screening and detailed procedural rules. Member States will have to establish timeframes for issuing screening decisions that will allow them to take into account the comments and opinions of Member States and the EC. Confidential information, including commercially sensitive information, made available by foreign investors and other parties will have to protected, and foreign investors and other parties concerned will need to have the possibility to seek judicial redress against screening decisions of the national authorities.

The FDI Regulation sets out a uniform set of factors to be used by the EC and Member States. These include potential effects on:

  • critical infrastructure, including energy, transport, water, health, communications, media, data processing or storage, aerospace, defense, electoral or financial infrastructure, as well as sensitive facilities and investments in land and real estate crucial for the use of such infrastructures;
  • critical technologies and dual use items, including artificial intelligence, robotics, semiconductors, cybersecurity, quantum, aerospace, defense, energy storage, and nuclear technologies, nanotechnologies and biotechnologies;
  • supply of critical inputs, including energy or raw materials, as well as food security;
  • access to or the ability to control sensitive information, including personal data; and
  • freedom and pluralism of the media.

This list indicates the wide range of sectors covered by the framework. In response to the COVID-19 crisis, the EC published guidance (the Guidance) calling for particular attention to the healthcare sector.

Unlike in the merger control arena, the EC has not published internal structures and procedures on the implementation of the FDI Regulation.

The FDI Regulation also covers all investments conferring “direct participation in management,” which is much broader than the EU merger regulation concept of “control.” The Guidance notes that acquisitions of qualified shareholdings that confer certain rights under national company law (e.g. 5 percent) might be of relevance in terms of security or public order. The regulation is not subject to any minimum turnover or other size-based test.

Also unlike the EUMR, the FDI Regulation applies not only to proposed investments, but also to investments that have already been completed. The Guidance notes that “a foreign investment completed now (March 2020) could be subject to ex post comments by Member States or opinions by the Commission as from October 11, 2020 (date of full application of the Regulation) and until June 2021 (15 months after completion of the investment).”



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