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EU fram­ework for scre­e­ning fo­rei­gn direct in­vest­ments

EU fram­ework for sc­re­e­ning fo­rei­gn direct in­vest­ments

Foreign direct in­vest­ment in­to the European Union (EU) ma­de by third country com­pa­ni­es or in­di­vi­du­als has be­come incre­a­singly com­mon, taking the form of mer­gers, ac­qui­si­tions, jo­int ven­tu­res or new bu­si­nes­ses. It has in re­cent mont­hs come to the European Commission’s at­ten­tion that so­me EU Member States are con­cer­ned about cer­tain fo­rei­gn in­vest­ments, which may ha­ve a sig­ni­fi­cant eco­no­mic im­pact becau­se of their lar­ger than ave­rage si­ze and their focus on high-te­ch­no­lo­gy sectors. As a re­spon­se to a growing de­mand from the Member States for gui­dan­ce on how fo­rei­gn direct in­vest­ment should be hand­led, the European Commission has pro­po­sed a new draft re­gu­la­tion for scre­e­ning such in­vest­ments.

Some Member States ha­ve al­re­a­dy star­ted their own scre­e­ning pro­ces­ses, for ex­amp­le Austria, Denmark, France and Germany, whi­le ot­hers ha­ve not. All Member States ha­ve ho­wever re­cog­ni­sed that the­re are secu­ri­ty con­cerns that need to be ad­d­res­sed. The pro­po­sed re­gu­la­tion is ai­med at cer­tain in­vest­ments, in par­ticu­lar from sta­te-ow­ned en­ter­pri­ses in­ve­sting in stra­te­gic are­as. Even though the­se in­vest­ments are ge­ne­ral­ly al­lo­wed in the EU, the­re are of­ten no re­ci­procal rights to in­vest in the third country from which the in­vest­ment ori­gi­na­tes.

Proposed re­gu­la­tion

Foreign in­vest­ments may ha­ve an im­pact on secu­ri­ty and pub­lic in­te­rests, but are at the sa­me ti­me im­por­tant sour­ces of eco­no­mic growth, jobs and in­no­va­tion. Although the be­ne­fits brought to the EU by such in­vest­ments are not to be dis­re­gar­ded, the European Commission has found it ap­pro­pri­a­te to establish a scre­e­ning pro­cess fram­ework for the pur­po­se of incre­a­sing le­gal cer­tain­ty and pre­dicta­bi­li­ty, both in re­la­tion to in­ve­stors as well as the Member States.

The pro­po­sed re­gu­la­tion do­es not in­clu­de any requi­re­ment for Member States to ad­opt scre­e­ning me­cha­nisms; it merely ena­bles them to main­tain their al­re­a­dy ex­is­ting me­cha­nism of scre­e­ning or to ad­opt such me­cha­nisms to re­vi­ew fo­rei­gn in­vest­ments on the grounds of secu­ri­ty or pub­lic or­der. In ad­di­tion, the pro­po­sal aut­ho­ri­ses the Commission to of­fer an opi­ni­on on the im­pact of in­vest­ments that are li­kely to af­fect pro­jects or pro­gram­mes of EU in­te­rest. The re­gu­la­tion al­so sets out ob­li­ga­tions for the Member States to sha­re in­for­ma­tion on fo­rei­gn in­vest­ments through a network of con­tact points, both in re­la­tion to each ot­her and the Commission. This is in­ten­ded to incre­a­se co­or­di­na­tion op­por­tu­ni­ti­es re­gar­ding the risk as­sess­ment.

Main sco­pe

In the scre­e­ning pro­cess, factors such as cri­ti­cal in­frastructu­re (in­clu­ding ener­gy, trans­port, spa­ce or fi­nan­ci­al in­frastructu­re), cri­ti­cal te­ch­no­lo­gi­es (in­clu­ding A.I, ro­bo­tics, spa­ce or nu­clear te­ch­no­lo­gy), the secu­ri­ty of sup­p­ly of cri­ti­cal in­puts or ac­cess to or con­trol of sen­si­ti­ve in­for­ma­tion, may be con­si­de­red. If the in­ve­s­tor is con­trol­led by the go­vern­ment of a country out­si­de the EU, this may al­so be ta­ken in­to ac­count. The pro­po­sed fram­ework is ac­cor­dingly fair­ly bro­ad and ap­pe­ars not to be li­mi­ted to ac­qui­si­tions of con­trol.

There are cer­tain ru­les for the scre­e­ning pro­cess set out in the pro­po­sal. First, the me­cha­nisms for scre­e­ning should be trans­pa­rent, non-di­scri­mi­na­ti­ve and pre­dictab­le. Circumstances which ha­ve trig­ge­red the scre­e­ning, the grounds for scre­e­ning and the pro­ce­du­ral ru­les should be set out. Second, the Member State should establish a ti­me­frame for the de­ci­sion to be ma­de. Third, con­fi­den­ti­al in­for­ma­tion about the in­ve­s­tor which might be com­mer­ci­al­ly sen­si­ti­ve should be pro­tec­ted. In ad­di­tion, the pro­po­sal sets out that in­ve­stors should ha­ve the pos­si­bi­li­ty to se­ek ju­di­ci­al re­vi­ew against the de­ci­sions ma­de.

Timeline

The con­tents of the draft pro­po­sal must now be ne­go­ti­a­ted and amen­ded be­fo­re it can be ap­pro­ved by the European Parliament and the Member States. This pro­cess can be ex­pec­ted to ta­ke between one and one and a half ye­ars, and the new ru­les can be ex­pec­ted to en­ter in­to for­ce in la­te 2018 or ear­ly 2019.

Consequences

The pro­po­sal is me­ant to com­ple­ment and not af­fect ot­her Union po­li­ci­es and ini­ti­a­ti­ves. According to the Commission the pro­po­sal will not af­fect the free mo­ve­ment of ca­pi­tal and free­dom of establish­ment.

The re­gu­la­tion do­es not dis­tin­gu­ish between countri­es, as it is non-di­scri­mi­na­to­ry, ho­wever it will ha­ve an ef­fect on ma­ny in­vest­ments ma­de by sta­te-ow­ned en­ter­pri­ses. These are of­ten Chinese in­ve­stors ac­qui­ring European as­sets, but al­so in­ve­stors from the United States, Canada, Brazil and ot­her top fo­rei­gn in­ve­stors in­to the EU may now need to con­si­der whet­her Europe should be their cho­ice of in­vest­ment des­ti­na­tion and al­so which ty­pe of as­sets they wish to in­vest in.