The regulation of the European Parliament and of the Council establishing a framework for screening of foreign direct investments ("FDI") into the European Union ("EU") was adopted on March 5, 2019. This new regulation ("FDI Regulation") is based on a proposal by the European Commission ("Commission") presented in September 2017 following an initiative for investment reviews at the EU level by the French, German and Italian governments from February 2017. The FDI Regulation will come into force on the 20th day following its publication in the Official Journal of the EU, hence, presumably sometime in April. It will, however, only apply 18 months after entry into force, thereby giving the EU member states ("Member States") enough time to take necessary measures for its implementation.
The FDI Regulation establishes an EU-coordinated cooperation among Member States and is the result of the EU's efforts to strike a balance between the opportunities globalization offers and the potential cross-border impact of FDI inflows on security or public order of the Member States and the EU as a whole.
By establishing a common framework for screening by Member States and for a mechanism for cooperation on EU level concerning FDI, the FDI Regulation seeks to provide legal certainty for Member States' screening mechanisms on the grounds of security and public order (by, e.g., expressly determining critical infrastructure, critical technologies, supply of critical inputs, access to sensitive information, and freedom and pluralism of the media as factors that may be taken into consideration in national screening decisions) and to ensure EU-wide coordination and cooperation on the screening of FDI likely to affect security or public order.1 The creation of designated contact points and the regulated exchange of information at an EU level is aimed to increase transparency and awareness on FDI likely to affect security or public order. The FDI Regulation also provides the Members States and the Commission with the means to address such risks to security or public order. The Commission may issue an opinion and the other Member States may provide comments which are both non-binding but shall be given due consideration by the Member State where the FDI is planned or has been completed. Where an FDI is likely to affect projects and programs of EU interest (regarding areas such as research, space, transport and energy), the Member State concerned will even have to take utmost account of the Commission's opinion and provide an explanation to the Commission if its opinion is not followed. The FDI Regulation neither aims to harmonize national screening mechanisms (which currently exist in 14 out of 28 Member States), nor does it replace national screening mechanisms with a single EU screening mechanism, i.e., it does not create a European one-stop shop solution. The FDI Regulation also does not oblige Member States without screening mechanisms in place to establish one. The decision whether to set up a screening mechanism, or to screen a particular FDI, remains the sole responsibility of the Member State concerned.2 Any maintenance, amendment or adoption of a screening mechanism, however, needs to be in line with the provisions of the FDI Regulation.3
Even though the FDI Regulation stresses that Member States without screening mechanisms are not required to create one, the mere existence of a screening framework at the EU level may nonetheless increase the likelihood of more Member States establishing a national screening mechanism - examples being Hungary, which has introduced a national screening mechanism in January 2019, as well as Sweden and the Czech Republic which may follow suit in the near future. The establishment of a screening framework will also have an impact on currently existing screening mechanisms, most of which will have to be adjusted to allow for the integration of the new EU cooperation process. It is likely that besides extending time frames, national screening rules may be tightened (further), as it is for instance expected in the case of Germany. The developments in Europe can be seen as part of a global trend towards more awareness and scrutiny of foreign investments.
Prior to the FDI Regulation, there was no comprehensive framework at EU level for the screening of FDI on the grounds of security or public order. No formal coordination was in place, neither between the Commission and the Member States nor amongst the Member States themselves. When the Commission presented its draft proposal for the FDI Regulation in September 2017, only 12 out of 28 Member States had a national mechanism for screening of FDI in place; meanwhile 14 Member States screen FDI, namely Austria, Denmark, Germany, Hungary, Finland, France, the Netherlands, Latvia, Lithuania, Italy, Poland, Portugal, Spain, and the United Kingdom. These national FDI screening mechanisms are not aligned and may differ widely in their scope and design.
Key Aspects of the FDI Regulation
A key aspect of the FDI Regulation is the establishment of a formal mechanism for cooperation between the Member States, and between Member States and the Commission, which takes on an active role. The cooperation mechanism is enabled through the following instruments:
Designated Contact Points. All Member States (regardless of a national screening mechanism being in place or not) and the Commission have to establish a contact point for the implementation of the FDI Regulation.4 Such contact points should be appropriately placed within the respective administration, and have the qualified staff and the powers necessary to perform their functions under the coordination mechanism and to ensure a proper handling of confidential information.5 Direct cooperation and exchange of information between the contact points shall be supported through a secure and encrypted system provided by the Commission. The Member States (and the Commission alike) need to ensure the protection of confidential information acquired in application of the FDI Regulation in accordance with EU law and their national law. It also needs to be ensured that classified information shared under the FDI Regulation is not downgraded or declassified without the prior written consent of the originator.6 The foregoing confidentiality obligations are particularly important to protect and avoid misuse of commercially sensitive information. The FDI Regulation further stipulates that personal data has to be processed in accordance with EU data protection laws and only to the extent necessary for screening of FDI by the Member States and for ensuring the effectiveness of the cooperation provided for in the FDI Regulation, and may only be kept for the time necessary to achieve the purposes for which it was collected.7 Group of Experts. A group of experts on the screening of FDI into the EU was set up by Commission decision of November 29, 2017.8 The group of experts consists of representatives of the Member States and is chaired by a representative of the Commission's Directorate General for trade. It functions as a second institutional coordination body - next to the envisaged FDI screening contact points - and provides advice and expertise to the Commission on matters relating to FDI into the EU.9 The group of experts provides a forum to discuss issues relating to the screening of FDI, share best practices and lessons learned, and exchange views on trends and issues of common concern relating to FDI.10 International Cooperation. The FDI Regulation encourages international cooperation by expressly stating that the Member States and the Commission may also cooperate with the responsible authorities of (like-minded) third countries on issues related to the screening of FDI on grounds of security and public order.11 Other Stakeholders and Interest Groups. Albeit not directly invited to share their viewpoint (and somewhat hidden in the recital), economic operators, civil society organizations, and social partners such as trade unions may convey relevant information in relation to FDI likely to affect security or public order to the Member States and the Commission, which might consider such information.12 Active Role of the Commission. The Commission is now equipped with the competence to request information and share its opinion on FDI that are likely to affect (i) projects and programs of EU interest on grounds of security or public order, or (ii) security and public order in more than one Member State which allows it to play an active role in the cooperation mechanism. The Member State where the FDI is planned or has been completed needs to give due consideration to the Commission's opinion, or, in case of projects and programs of EU interest likely being affected, is...