The new EU framework for the screening of foreign direct investments has officially entered into force on 10 April 2019.
The new framework is based on proposal tabled by the European Commission in September 2017 and will be instrumental in safeguarding Europe’s security and public order in relation to foreign direct investments into the Union.
President of the European Commission, Jean-Claude Juncker said: “This new framework will help Europe defend its strategic interests. We need scrutiny over purchases by foreign companies that target Europe’s strategic assets. I want Europe to remain open for business, but I have said time and again that we are not naïve free traders. The adoption and entry into force of this proposal in an almost record time shows that we mean business and that when it comes to defending Europe’s interests we will always walk the talk.“
The new framework will:
- create a cooperation mechanism where Member States and the Commission will be able to exchange information and raise concerns related to specific investments;
- allow the Commission to issue opinions when an investment poses a threat to the security or public order of more than one Member State, or when an investment could undermine a project or programme of interest to the whole EU, such as Horizon 2020 or Galileo;
- encourage international cooperation on investment screening, including sharing experience, best practices and information on issues of common concerns;
- set certain requirements for Member States who wish to maintain or adopt a screening mechanism at national level. Member States also keep the last word whether a specific investment operation should be allowed or not in their territory;
- take into account the need to operate under short business-friendly deadlines and strong confidentiality requirements.
Starting today, EU Member States are required to notify their national investment screening mechanisms to the Commission. At present, 14 Member States have national screening mechanisms in place. Several Member States are in the course of reforming their screening mechanisms, or adopting new mechanisms.
Over the next 18 months, the Commission and EU Member States will take the necessary steps to make sure that the EU can fully apply the Investment Screening Regulation as of 11 October 2020. These steps concern, in particular, the setting up of the new EU-wide mechanism for cooperation, enabling Member States and the Commission to exchange information and raise concerns related to specific foreign investments. Upcoming tasks include:
- Creating formal contact points in each Member State and in the Commission to allow for the exchange of information and analysis;
- Establishing secure channels between Member States and the Commission to exchange information on FDI transactions;
- Putting in place the necessary procedures for Member States and the Commission to react quickly to FDI concerns and to issue opinions;
- Pursuing policy cooperation on FDI screening with relevant partner countries.
The proposal to create the first EU-wide framework for the screening of foreign direct investments was presented by President Juncker during the 2017 State of the Union address. Following its adoption by the European Parliament and by the Council on 19 March 2019, the new EU legislation has now entered into force.
The EU has one of the world’s most open investment regimes, as acknowledged by the OECD in its investment restrictiveness index. The EU is the main destination for foreign direct investment in the world: foreign direct investment stocks held by third country investors in the EU amounted to €6,295 billion at the end of 2017, providing Europeans with 16 million direct jobs.