On the one hand investments in enterprises, which are relevant for public security and services, are an important source of growth, jobs and innovations. On the other hand such investments can be detrimental to the security of supply for the community members – for example, when a state owned enterprise, which is located in a third state, gets control over the only electricity station in a Member State because of an investment. That poses the questions, which entity has the power to adopt protecting rules for those cases pursuant to the Union law and which legal frame conditions are grounded there.I
risks of investments in enterprises which are relevant for public
security and services, depend on their source and their form. Direct
investments are more dangerous than portfolio investments, which are
only aimed at short-term (interest rate) profits. This is because
direct investments enable the investor to exert influence on the
enterprise and its market strategy. Furthermore, third states
investments are more dangerous than investments from other Member
States of the EU because there is no common law system with mutual
345 TFEU is not applicable to legal provisions of the EU or the
Member States which deal with screening mechanisms because it only
excludes privatization from the treaty and not the following steps.
Art. 346 para. 1 lit. b) TFEU enables the Member States to deviate
from Union law, when it’s necessary for their essential national
interests. Thus, this provision allows national measures to protect
arms factories, if they correspond to the preconditions of Art. 346
para. 1 lit. b) TFEU – at least in an interpretation which is in
accordance with Union law.
I. Screening Mechanisms in National (Member State) Law
screening mechanisms for direct
investments out of third states in enterprises
that are relevant for public security and services have to meet the
requirements arising from fundamental freedoms. In such cases, the
European Court of Justice (ECJ) applies the freedom of establishment
because of the investor’s objective to exert influence on the
enterprise. Thus, the freedom of movement of capital is not
applicable and investors from third states normally can’t invoke
fundamental freedoms because the freedom of establishment doesn’t
apply to non-EU parties.
207 para. 2 TFEU gives the EU an exclusive competence to establish a
screening mechanism on direct investment due to Arts. 2, 3 para. 1
lit. e) TFEU. Thus, in this field national provisions can get in
conflict with Art. 207 para. 2 TFEU. Normally, exceptions will only
apply where the Union empowers the Member States in a manner which is
concrete enough to preserve the unity in exercise of exclusive
competences across the Union.
overcome this restriction it is suggested that the effects of
exclusive competences should start “ex nunc”, but it is unclear
as of which time that would be, although the ECJ affirms an exclusive
competence for the common commercial policy since the middle of the
1970ies. Another proposal classifies Arts. 52, 65 TFEU,
which allow the member states a special treatment on grounds of
public policy, or public security,
as caveats for national competences. But this proposal seems to
negate that there is a difference between positive integration
through Union law and negative integration through the fundamental
freedoms. Some authors want to limit Art. 207 TFEU to the contractual
common commercial policy, although the wording of Art. 207 para. 1
TFEU only restrains the law of trade in goods and services in this
appropriate way to explain the existence of national screening
mechanisms is to involve Art. 64 paras. 2, 3 TFEU,
which give the Union the power for measures on the movement of
capital from third countries involving direct investment. These
competences are shared between the Union and the member states
pursuant to Art. 2 para. 2 TFEU. They can be used for adopting
secondary law, although the freedom of capital movement is not
applicable in third state cases, because of the explicit wording of
Art. 64 paras. 2, 3 TFEU. Further it is to mention that the barrier
effects of the freedom of establishment are limited to the negative
integration and do not refer to the positive integration through
secondary law. As far as the scope of Art. 207 TFEU and of Art. 64
paras. 2, 3 TFEU overlap, the shared competences (based upon Art. 64
paras. 2, 3 TFEU) override Art. 207 TFEU, because the structure of
the treaty shows that the exclusive competence in the field of
direct investments from third states is subordinated to these shared
accordance with the jurisdiction of the ECJ, national screening
mechanisms which deal with direct investments from other member
states have to be measured against the freedom of establishment. If
these rules are not directly based on the nationality of the
investor, they can be justified by a compelling reason relating to
the general interest. In matters of the protection of enterprises
relevant for public security and services, especially the rights
which are mentioned in Arts. 52 para. 1 TFEU
could be taken into consideration. Furthermore Art. 14 TFEU and Art.
11 para. 2 EFRC, which save services of general economic interest and
the pluralism of the media, can be relevant to justify national rules
dealing with direct investments.
ECJ interprets the principle of proportionality in the case of direct
investments very strictly. Thus, a prior checking of the share
purchase is usually not possible. Instead, the member states have to
establish provisions after the share purchase that refer to concrete
decisions of the enterprises which are relevant for public services
and security. These entities can protect themselves by raising
objections when such a decision compromises service security. By way
of this jurisdiction, the ECJ deprives the Member States of the
possibility to take into account prognostic elements in their
national screening mechanisms.
investments can be only measured against the freedom of movement of
capital. They are within the scope of protection and are already
impaired when the Member States establish a screening mechanism
whose application causes an expenditure of time – which is no doubt
the case with most of the governmental control systems. Insofar,
portfolio investments from third states and other Member States are
threatened equally. These impairments can be justified by the same
reasons which have been taken into consideration above, but they are
not invoked, because portfolio investments by definition have no
enduring effect on the market strategy of enterprises. Thus, they are
only justifiable by reasons relating to the balance of payments or
Screening Mechanisms in the Law of the Union
Union has to abide by the principle of conferral for measures dealing
with direct investments from third states. Art. 207 para. 2 TFEU
requires a framework for implementing the common commercial policy.
Its objective is to enable the Union to create regulations with
abstract general benchmarks in order to represent the overall
interest of the Union and not the individual interest of each Member
State against the relevant trading partners.
64 paras. 2, 3 TFEU allows the Union to adopt measures dealing with
direct investments out of third states, too. The freedom of
establishment does not block this provision because of its explicit
wording and as being a part of positive integration. The Union can
use Art. 64 para. 2 TFEU if a positive effect on the internal market
is aspired, and Art. 64 para. 3 TFEU if the measure constitutes a
step backwards in Union law as regards the liberalisation of the
movement of capital. If Art. 207 para. 2 TFEU is also applicable,
this provision remains in force besides Art. 64 para. 2 TFEU, and
Art. 64 para. 3 TFEU has to step back because of its less democratic
standards on the level of the Union.
Union may use its competences only in accordance with the principle
of proportionality. In order to treat the competences of the Member
States with appropriate care, it must be distinguished between
decision-making competences of the Union and those of the Member
States in the field of direct investments.
basic rights of the investors have to be taken into account, too.
Arts. 15, 16 EFRC,
which refers to the freedoms to choose an occupation and to conduct a
business, are applicable even if the investors have their registered
office in a third state but give a larger margin of appreciation than
the fundamental freedoms. Thus, the Union can use prognostic elements
at the time of the share purchase – for example in matters of the
governmental origin of the investment or factual pressure because of
Union is authorized to create provisions for direct investments from
other Member States referring to Art. 53 para. 1 TFEU, which gives
the right to adopt directives for the coordination of the provisions
laid down by law in Member States. Insofar, a positive effect on the
internal market is needed.
This depends on the designs of the national screening mechanisms.
Other measures, especially those for portfolio investments can be
based on Art. 64 paras. 2, 3 TFEU (if applicable) and Art. 114 para.
which allows the approximation of national laws, if any gaps remain.
But in those cases a justification for possible impairments of the
basic rights of the investor would be hard to find.
The outcome of this analysis emphasizes that the national authorities are mainly allowed to adopt rules dealing with direct investments out of third states. The competences of the Union are reaching further, but have to take into account the wording of the concrete competence and the basic rights of the investor.