A proposal for a Union Act on the Screening of foreign investment in strategic sectors (B8-0302/2017) was tabled by ten Members of International Trade Committee (INTA) at the European Parliament (EP) in accordance with rule 46(2) Rules of the Procedure of the EP. After a presentation in INTA on 19 June 2017, INTA Coordinators decided to produce a report in the form of a Legislative Initiative (INL) with Mr Frank Proust as the EP leading rapporteur.
In the meantime,
following the vital political discussions within International Trade
Committee and the various calls by Member States for European
Commission (EC) for follow up action, the EC urgently prepared a
legislative proposal and announced it at the State of the Union 2017,
as a part of a trade and investment package for Europe. When
addressing the annual State of the Union in September 2017 in
Strasbourg, President Jean-Claude Juncker stated “if a foreign,
state-owned, company wants to purchase a European harbour, part of
our energy infrastructure or a defence technology firm, this should
only happen in transparency, with scrutiny and debate. It is a
political responsibility to know what is going on in our own
13 September 2017
a proposal for a regulation establishing a legal framework for the
screening of FDI inflows into the EU. Parliament’s Committee INTA
adopted its recommendation report to the EC proposal on 28
together with the
the first reading legislative negotiations with Council as
on the INTA report
of Mr Proust.
direct investment (FDI) is an important source of economic growth in
the EU but sometimes it can be a valid concern to our citizens. This
can be the case if the investor from a third country is an only
state-owned enterprise, or if the investment is in strategic
infrastructure projects, communications or key future technologies.
The EU has one of
the world’s most open investment regimes, and collectively EU Member
States have the fewest restrictions in the world on foreign direct
investment (FDI). The OECD expressly acknowledged this in its FDI
Regulatory Restrictiveness Index that measures statutory barriers
against foreign investment in over 60 countries in the world. The
EU has no single foreign direct investment
mechanism comparable to well-established schemes such
Australia, Canada, Japan, and the USA etc.
Currently, only 13 out of the 28 Member States have a
screening mechanism on grounds of security or public order. The
systems vary widely and countries do not coordinate their approaches
even when foreign direct investment might affect multiple Member
States in the EU.
EU competition law addresses unfair competition, and asymmetric
market access between the EU and third countries may be tackled
through investment protection provisions in international agreements,
the issue of security or public order falls outside the scope of
these partnership or free trade agreements. The cross-border effects
of acquisitions by non-EU investors in certain sectors may cast doubt
on the effectiveness of the EU’s decentralised and fragmented
system of monitoring FDI inflows to respond adequately to new
challenges. FDI screening is the responsibility of EU Member States
under EU law, and national security exceptions are under
international law formulated under Article 4 (2) of the Treaty on
European Union TEU and Article 346 (1) b) Treaty of the Functioning
of the European Union (TFEU). Up to now, no formal coordination among
Member States and between Member States and the EC exists in this
field. FDI screening is conducted independently from merger control
reviews under EU competition law at EU and Member State levels.
on 20 November 2018, after 15 months of negotiations and legislative
deliberation, the European Parliament (EP) trade negotiators agreed
with the Council and the European Commission (EC) on a mechanism to
screen foreign direct investment in a transparent and
non-discriminatory manner and to enhance cooperation between Member
States and the EC. The hard-achieved compromise provisional
the text’s approval by the Committee
of Permanent Representatives
has been lastly endorsed
the INTA Committee with 30
5 abstentions on 10 December 2018
in the EP.
The definition of foreign investor has been enlarged in order to make
clear that the ultimate investor is still included. The list of
factors which should be taken into consideration in order to evaluate
the impact of the foreign investment in the European Union has also
The structure of
the legislation is divided between a cooperation mechanism in
relation to foreign direct investment undergoing screening and a
cooperation mechanism in relation to foreign direct investment not
undergoing screening. In both cases the system foresees the exchange
of information among Member States and the possibility for the EC to
issue a non-binding opinion.
The Member State
where the foreign investment is planned or has been completed shall
give due consideration to the comments of the other Member States and
the opinion of the Commission. The decision to refuse a foreign
investment remains entirely in the hands of a Member State.
Nevertheless, the exchange of information among the different actors,
Member States and the Commission is substantially increased.
Commission issues an “opinion” on the foreign investment it will
simultaneously inform all the Member States. Member States can
provide comments to the Member State where the foreign direct
investment is planned. Member States which consider that an FDI in
their territory not undergoing screening is likely to affect their
security or public order might request the EC for follow-up action.
The handling of all the information shall be done with utmost
attention to its potential sensitivity and the highest levels and
standards of protection information has to be guaranteed. In case of
foreign direct investments likely to affect projects or programmes of
Union interest, the same procedure applies but in end the Member
States where the investment is planned or completed must take outmost
account of the comments and the opinion.
A third scenario
has been introduced, where one third of MS have presented comments on
the foreign direct investment, the EC shall issue an opinion where
justified. Moreover, a specific article on international cooperation
has been included permitting Member States and the EC to cooperate
with the authorities of the third countries. The list of factors that
may be taken into consideration in determining whether a foreign
direct investment is likely to affect security or public order has
been extended – under pressure of the EP – to include: energy
storages, water, health, media electoral infrastructure etc. A
specific article on international cooperation has been included
permitting Member States and the Commission to cooperate with the
authorities of third countries. The group will exchange information,
best practices and analysis on foreign direct investments, and it
will discuss issues of common concern, such as subsidies and other
practices by third countries facilitating strategic acquisitions. In
parallel, the Commission should start a detailed analysis of the
foreign direct investment flows into the EU and set up a coordination
group with Member States to help identify joint strategic concerns
and solutions in the area of foreign direct investment.
The new regulation will apply 18 months after the entry into force of the Regulation and both Member States and the Commission cannot make comments or issue an opinion respectively later than 15 months after the foreign direct investment has been completed.
The inter-institutional “provisional” agreement is going to be voted by the full House of the EP on the 14th of February 2019, closing the legislative procedure on the regulation. Therefore, the conference timing is a great opportunity to address effectiveness as well as practical challenges of the mechanism foreseen in the regulation on framework for screening of foreign direct investment.