For a brief overview of the key points of the adopted text and its significance for the citizen, please see the corresponding summary note.

Background and state of play

On 13 September 2017 the Commission published a proposal for a regulation establishing a legal framework for the screening of FDI inflows into the EU. Parliament’s Committee on international trade (INTA) - associated committee: Committee on Industry, Research and Energy (ITRE) under rule 54, (rapporteur Reinhard Bütikofer (Greens/EFA, Germany)), - adopted its report on 28 May 2018 and the decision to enter into trilogue negotiations. Next to ITRE, the Sub-Committee on Security and Defence (SEDE)/Committee on Foreign Affairs (AFET), rapporteur Geoffrey Van Orden (ECR, United Kingdom) and the Committee on Economic and Monetary Affairs (ECON), rapporteur Roberts Zīle (ECR, Latvia), drafted opinions. As there were no requests for a vote in Parliament, INTA was authorised to start negotiations based on the INTA report. On 13 June 2018, permanent representatives of the EU Member States (COREPER) agreed on the Council's position. The trilogue phase started on 10 July 2018 and ended on 20 November 2018 with an agreement on a provisional text. After the text’s approval by COREPER, INTA endorsed it by 30 votes to 4 with 5 abstentions on 10 December 2018. On 14 February 2019, Parliament adopted the text by 500 votes to 49 with 56 abstentions. The Council formally endorsed the agreed text on 5 March 2019. The enabling framework entered into force in April 2019 as Regulation (EU) No 2019/452 of 19 March 2019, but will only be applied as of November 2020. On 13 March 2019, the Commission published a detailed analysis on FDI flows into the EU based on firm-level data, as announced in its 2017 legislative proposal.

Commission proposal

The Commission proposed:

• to create an enabling legal framework which embraces the diversity of Member States’ approaches to FDI screening and their exclusive responsibility for national security, while taking into account the EU's competence for FDI;
• to set basic requirements as well as time-limits for Member States’ FDI screening procedures;
• a non-exhaustive list of factors that may be taken into consideration in the screening process;
• to reaffirm that Member States may maintain, amend or adopt FDI screening mechanisms on grounds of security or public order under the conditions of the proposed Regulation, that Member States would not be obliged to create an FDI screening mechanism and that they retain their final decision-making power on FDI;
• to introduce a new Commission competence to screen FDI and issue a non-binding opinion, if i) an FDI in a Member State may affect the security or public order of projects or programmes “of Union interest”; ii) an FDI in a Member State may affect the security or public order of other Member States;
• to create a cooperation mechanism between Member States and the Commission which aims to enhance the coordination of screening decisions taken by the Member State/s concerned and to increase the awareness of Member States and the Commission about planned or completed FDI that may affect security or public order by way of exchanges of information;
• to introduce transparency and information requirements for screening and non-screening Member States linked to this new cooperation mechanism.

European Council/Council position

In June 2017, the European Council welcomed "the Commission's initiative (...) to analyse investments from third countries in strategic sectors, while fully respecting Members States' competences."

Position of the European Parliament

Parliament

• added a new definition of “foreign government-controlled direct investment”;
• complemented the non-exhaustive list of Union projects or programmes in the Annex;
• added items to the proposed factors which have to be taken into account in the screening process such as media and election infrastructure and introduced new factors which may be considered such as the degree of reciprocity of market access and a level playing field for EU companies in the foreign investor’s market;
• broadened the information exchange and dialogue to raise awareness and strengthened the sharing among Member States of the Commission opinion and Member States’ comments on an FDI to take place in one Member State that may affect the security or public order of one or more other Member States or in relation to a Union project or programme, while highlighting the need to ensure the confidentiality of sensitive information;
• increased peer pressure on a Member State in which an FDI is planned, however without affecting its sovereign right to take the final decision on that FDI; this peer pressure would be highest in the event that one third of Member States raises concerns about an FDI;
• proposed that stakeholders such as trade unions be allowed to request Member States' authorities to consider activating their FDI screening mechanism;
• introduced an Investment Screening Coordination Group as a second institutional coordination body next to the envisaged FDI screening contact points;
• required all Member States to submit an annual FDI report to the Commission and those Member States with FDI screening mechanisms to provide additional information on their application, based on which the Commission is to draw up and publish an annual report.

The provisional text

• stresses that the proposed regulation's scope is strictly limited to FDI screening on grounds of security or public order;
• eliminates language about the proposed right of the Commission to screen;
• leaves the broadened list of factors non-exhaustive, adding among others directly or indirectly government-controlled investors and notably the media and electoral infrastructure;
• splits the cooperation mechanism into two procedures: one for FDI undergoing screening and one for FDI not undergoing screening;
• makes the drafting of a non-binding Commission opinion which Member States must “give due consideration” mandatory, if an FDI undergoes no screening and one third of Member States considers that their security or public order may be affected;
• allows Member States to make comments and the Commission to issue a non-binding opinion up to 15 months after the completion of an FDI, if the FDI has undergone no screening;
• allows Member States which consider that an FDI in their territory not undergoing screening is likely to affect their security or public order to request the Commission to issue an opinion;
• as for FDI likely to affect projects or programmes of Union interest, the respective Member State must “take utmost account” of the Commission’s opinion and provide an explanation, if this opinion is not followed.

References:

• European Parliament, Legislative Observatory (OEIL), Screening of foreign direct investments into the European Union, 2017/0224(COD)
• 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 791, 21 March 2019, p. 1-14.
• Council of the European Union, Proposal for a Regulation of the European Parliament and of the Council establishing a framework for screening of foreign direct investments into
  the European Union (First reading) - Confirmation of the final compromise text with a view to agreement, 20 November 2018
• European Commission, Foreign direct investment in the EU, Commission staff working document, SWD(2019) 108 final, 13 March 2019; List of screening mechanisms notified by EU Member States.
• European Commission, Proposal for a Regulation establishing a framework for screening of foreign direct investments into the European Union, COM(2017)487, 13 September 2017
• European Commission, Commission Staff Working Document accompanying the Proposal for a Regulation of the European Parliament and of the Council establishing a framework for screening of foreign direct investments into the European Union, SWD(2027)297, 13 September 2017
• European Commission, Welcoming Foreign Direct Investment while Protecting Essential Interests, COM(2017)494, 13 September 2017
• European Parliament, Report on the proposal for a regulation of the European Parliament and of the Council establishing a framework for screening of foreign direct investments into the European Union, 4 June 2018

Further reading:

• European Parliament, EPRS, EU framework for FDI screening, Legislative briefing, April 2019
• European Parliament, EPRS, EU framework for FDI screening, Plenary at a Glance, February 2019
• European Parliament, EPRS, Foreign direct investment screening: A debate in light of China-EU FDI flows, Briefing, May 2017

Author: Gisela Grieger, Members' Research Service, legislative-train@europarl.europa.eu

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