Screening framework for foreign direct investments

SUMMARY OF:

Regulation (EU) 2019/452 establishing a framework for the screening of foreign direct investments into the European Union

WHAT IS THE AIM OF THE REGULATION?

It provides a European Union (EU) framework for the screening of direct investments from non-EU countries on the grounds of security or public order. It establishes:

a possibility for EU Member States to have transparent, predictable and non-discriminatory mechanisms for examining foreign direct investments (FDIs)*, on the grounds of security or public order;
cooperation procedures between the Member States and the European Commission on FDIs likely to affect security or public order;
the possibility for the Commission to issue opinions, and for the Member States to issue comments, on these investments.

KEY POINTS

The legislation does not harmonise national screening* systems. Nothing prevents a Member State from deciding whether or not to have a national screening mechanism, or whether or not to screen a particular FDI.

Member States:

may maintain, amend or adopt FDI screening mechanisms*;
can decide whether to have FDI screening mechanisms, and if so, they must:
- ensure that these mechanisms are transparent, do not discriminate between non-EU countries, protect confidential and commercially sensitive information and operate within deadlines,
- allow foreign investors and companies to appeal against screening decisions,
- have the necessary measures in place to identify and prevent circumvention of the screening mechanisms and screening decisions,
- notify the Commission of their existing screening mechanisms by 10 May 2019, and report any new ones within 30 days from when they apply;
must annually submit details of the FDI on their territory during the previous calendar year to the Commission by 31 March;
must appoint contact points to implement the legislation, in the same way as the Commission.

In their assessment of FDIs on the grounds of security or public order, Member States and the Commission may consider the potential effect of FDIs on:

critical physical or virtual infrastructure, ranging from energy, transport and defence to electoral, financial and other infrastructure;
critical technologies and dual-use items, such as artificial intelligence, robotics, energy storage and biotechnologies;
critical supplies, such as energy or raw materials, and food security;
access to sensitive information, including personal data;
freedom and pluralism of the media; and
whether the foreign investor:
- is directly or indirectly controlled by a non-EU government, including state bodies or armed forces,
- has already been involved in activities affecting the security or public order of a Member State,
- poses a serious risk of being involved in illegal or criminal activities.

When a Member State screens an FDI, the cooperation mechanism stipulates that:

the Member State conducting the screening must notify the Commission and other Member States as soon as possible;
other Member States may submit comments if they consider that the FDI is likely to affect their security or public order;
the Commission may issue an opinion if it considers that the FDI is likely to affect security or public order in more than one Member State;
the Commission must inform other Member States when comments have been submitted or an opinion has been issued.

If an FDI is not screened by its host Member State, another Member State may submit comments if it considers that the FDI could have an impact on its own security or public order. The Commission may issue an opinion if it considers that more than one Member State could be affected.

The Commission may issue an opinion to a Member State where the FDI is planned or in place, if it considers that projects and programmes of EU interest could be affected on the grounds of security or public order. The current list, which the Commission can amend through a delegated act, identifies the following projects or programmes to be of EU interest:

European global navigation satellite system programmes (Galileo and the European Geostationary Navigation Overlay Service)
Copernicus
preparatory action on preparing the new EU Govsatcom programme
space programme
Horizon 2020
Horizon Europe
2021–2025 Euratom research and training programme
trans-European networks for transport
trans-European networks for energy
trans-European networks for telecommunications now replaced by Connecting Europe Facility
digital Europe programme
European defence industrial development programme now replaced by European Defence Fund
preparatory action on defence research
permanent structured cooperation
European Joint Undertaking for ITER and the Development of Fusion Energy
EU4Health programme.

Member States must provide the following details without undue delay when they notify the screening of an FDI, or receive an information request from the Commission or another Member State:

ownership structure of the foreign investor;
approximate value of the FDI;
products, services and business operations of the foreign investor and of the target undertaking;
Member States in which the recipient company does business;
source of the investment funding;
date when FDI is planned or has been completed.

The Commission:

keeps an up-to-date list of national screening mechanisms;
may access advice from an expert group specialising in FDI screening;
provides an annual report to the European Parliament and EU governments (the first annual report was published in 2021);
reports to the Parliament and the Council of the European Union its overall evaluation of the legislation’s effectiveness by 12 October 2023, and every 5 years thereafter;
has the power to adopt delegated acts.

FROM WHEN DOES THE REGULATION APPLY?

It has applied since 11 October 2020.

BACKGROUND

Following the COVID-19 outbreak and the introduction of measures to cope with the impact of the crisis, the European Commission adopted guidance to the Member States concerning FDI and free movement of capital from non-EU countries, and the protection of Europe’s strategic assets.
In response to Russia's unprovoked and unjustified military aggression against Ukraine, supported actively by Belarus, on 5 April 2022, the Commission published guidance for Member States on assessing and preventing threats to EU security and public order from Russian and Belarusian investments.

For further information, see:

EU foreign investment screening mechanism becomes fully operational (European Commission)
Investment screening (European Commission).

KEY TERMS

Foreign direct investment. Investment by a foreign investor in an EU-based operation that could lead to lasting and direct links, including management participation or even control of the company.

Screening. A procedure to assess, investigate, authorise, condition, prohibit or unwind FDIs.

Screening mechanisms. Laws and regulations setting out the terms and conditions under which screening takes place.

MAIN DOCUMENT

Regulation (EU) 2019/452 of the European Parliament and of the Council of 19 March 2019 establishing a framework for the screening of foreign direct investments into the Union (OJ L 79 I, 21.3.2019, pp. 1–14).

Successive amendments to Regulation (EU) 2019/452 have been incorporated in the original text. This consolidated version is of documentary value only.