The European Commission issued on September 13th 2017 a Proposal for a Regulation establishing a framework on the screening of foreign direct investments (FDI) into the EU. The objective of this proposal is two-fold: pushing third countries to open their domestic markets to EU investments, and protecting EU assets against foreign takeovers detrimental to the essential interests of the EU or of its Member States.  The Commission proposes to achieve this by introducing information and coordination mechanisms between the Member States’ FDI screening schemes, and giving new powers to the Commission itself to screen some FDI with EU impact. The EU Member States’ ability to screen FDI would be harmonized, and would have to be based on grounds of security and public order.

Coordination of Member States and new powers to the Commission

The proposal sets up a mechanism whereby the Member States’ authorities are required to exchange information about FDI and adopt opinions within set deadlines. A Member State will be able to provide comments on any FDI occurring in another Member State.

The proposal also gives powers to the European Commission to screen FDI that are likely to affect listed projects or programmes of Union interest on the grounds of security or public order. The result of the Commission’s screening will be consigned in opinions that will not be binding but that Member States will be required to take into due consideration.  The proposed EU non-binding consultative process would be different than US reviews of inbound FDI via the Committee on Foreign Investment in the United States.  The US process occurs at the federal level without the input of the state in which the entity receiving the investment is located, and if the Committee does not clear the transaction to proceed, the parties will most likely abandon the transaction.

Setting common criteria and standards in considering FDI

The Commission and the Member States would be required to review the potential effects of FDI on a – non-exhaustive – list of common factors:

– Critical infrastructure, including energy, transport, communications, data storage, space or financial infrastructure, as well as sensitive facilities;

– Critical technologies, including artificial intelligence, robotics, semiconductors, technologies with potential dual use applications, cybersecurity, space or nuclear technology;

– The security of supply of critical inputs; or

– Access to sensitive information or the ability to control sensitive information.

When reviewing the effect of FDI, consideration may be given to the degree of control exercised by the third country’s government on the foreign investor.

Broad definition of FDI

The proposed Regulation covers a broad spectrum of FDI, including all investments establishing or maintaining lasting and direct links between foreign investors and undertakings carrying out economic activity in a Member State.

Transparency and non-discrimination

When completing FDI screening, Member States and the Commission will be required to ensure transparency and non-discrimination between third countries, and provide the possibility for investors to seek judicial redress against screening decisions. To that end, timelines must be determined by Member States, as well as standards setting the circumstances, grounds and procedural rules for screening.

What’s next?

The proposal will be submitted to the approval of the European Parliament and the Council pursuant to the ordinary legislative procedure, which requires a qualified majority at the Council. Accordingly, the text will be adopted if it is supported by at least 55% (currently 16) of the Member States representing 65% of the total population of the Union. A blocking minority of 35% of the whole Union population could prevent the text from being adopted. In this regard, some Baltic and Scandinavian countries, Greece and the Netherlands have already expressed their disagreements with the proposal. It is interesting to note that these countries only represent 12.43% of the Union population and therefore could not oppose the adoption of the Commission’s proposal, which is supported by France, Germany, Italy and Spain, amongst other Member States.

On another note, the European Parliament might be reluctant to welcome the proposed Regulation as such, in view of its call for proposal dated March 2017, whereby it has foreseen a common instrument binding on all Member States. The European Parliament has considered a regulation mirroring the current US system which sets up an ex ante evaluation of FDI by an independent body, such as the Committee on Foreign Investment in the United States (CFIUS).

View Original Source
Photo of Guy Soussan Guy Soussan

Guy Soussan advises clients on various aspects of EU and French export control regulations, including controls and licensing regimes for both military and commercial products and technologies. His export practice covers compliance development and implementation, internal investigations, and enforcement matters, including voluntary disclosures. He also provides advice and assistance with EU economic sanctions targeting specific countries such as Iran, Libya, Syria, and most recently, Ukraine and Russia. His experience covers a wide range of industries, including manufacturing, energy, telecommunications, banking and insurance, petroleum and petro-chemicals, aerospace, and defense. He has conducted internal compliance audits, provided assistance on company compliance programs, and counseled clients on the application of the rules to specific transactions.

Read Guy’s full bio.

Photo of Yves Melin Yves Melin

Yves Melin focuses on trade remedy investigations, customs laws and procedures, export controls and sanctions, conflict minerals, World Trade Organization (WTO) dispute settlement, and data protection. He has represented clients before the EU Courts in more than 20 disputes relating to international trade and customs laws and has represented companies in more than 100 trade remedy proceedings across a wide range of industries. Yves is one of the founders of Green Lane, an alliance of European customs and international trade law firms through which Steptoe provides seamless advice and representation everywhere in Europe. Yves lectures at the University of Lille (France) and at the European Law Academy (ERA) in Trier (Germany) and is a member of the editorial board of Kluwer’s Global Trade & Customs Journal.

Read Yves’ full bio.

Photo of Stephen Heifetz Stephen Heifetz

Stephen Heifetz helps clients navigate laws and policies at the nexus of international business and security.   He has worked in senior levels of the federal government and uses that experience to provide counseling regarding legal compliance and political risk, conduct internal investigations, and defend against government investigations and enforcement actions.  He is particularly experienced in foreign investment reviews by CFIUS, Department of Defense NISPOM and FOCI rules, anti-money laundering laws, economic sanctions administered by OFAC and the UN, and travel and cargo screening programs administered by the Department of Homeland Security.  Prior to joining Steptoe, Mr. Heifetz served in the Department of Justice and the Department of Homeland Security (DHS), as well as the Central Intelligence Agency.  In his most recent government position, he served as Deputy Assistant Secretary and Acting Assistant Secretary for the Office of Policy Development at DHS.  Mr. Heifetz shaped DHS’s role in CFIUS, conducted hundreds of CFIUS reviews, and negotiated many “risk mitigation agreements” that CFIUS deemed necessary to approve foreign investments.

Read Mr. Heifetz’s full bio.