Background and state of play

In its 2023 Working Programme, the European Commission states that it 'is prepared to revise the EU’s FDI screening regulation in light of two years experience, with a view to identifying ... necessary amendments that would strengthen its functioning and effectiveness.' 

The joint communication by the European Commission and HR/VP Borrell on a European economic security strategy of 20 June 2023 states that the 'Commission ... will propose its revision before the end of 2023'.

From 14 June 2023 to 21 July 2023, the Commission scheduled a call for evidence period during which stakeholders were invited to share their experience with the current FDI screening framework and potential additional points to be reviewed. This call contains a list of issues that the Commission believes could be revised (e.g. definition of investments covered, sectorial coverage, coverage of transactions, reporting on the screening outcome, procedural issues, scope of information to be provided, etc.). A total of ten stakeholders provided feedback that can be accessed at the Commission website. 

On 24 January 2024, the European Commission published a Communication titled 'Advancing European economic security'. It introduces five new initiatives, one of them being the proposal for a regulation on the screening of foreign investments in the Union and repealing Regulation (EU) 2019/452 currently in force. In addition, it published its evaluation of that Regulation. 

The legislative proposal 

• adds to the legal basis (Article 207 TFEU) of the Regulation Article 114 TFEU which provides for the adoption of measures to ensure the establishment and functioning of the internal market in order to require Member States (MS) to screen certain investments within the internal market and addressing differences between MS' screening mechanisms, which may obstruct the fundamental freedoms and have a direct effect on the functioning of the internal market; 
• sets out the following objectives:
  • (i) create a level playing field among MS,
  • (ii) reduce existing compliance costs for foreign investors and
  • (iii) prevent the emergence of additional obstacles in the internal market for investments;
• provides in line with its internal market objective 'that certain foreign investments would need to undergo screening, regardless of the MS where the target is located;'
• provides 'that foreign investments are assessed against harmonised standards and timelines;'
• a higher degree of harmonisation at Union level is necessary, therefore Article 114 TFEU is a relevant legal basis for this initiative;'
• would extend the scope of the Regulation under Article 114 TFEU stressing that this extension 'would be limited to those investments within the EU which: 
  • (i) are made by a foreign investor's subsidiary in the Union where the subsidiary is directly or indirectly controlled by a foreign investor. Entities which have no third-country participation, or which only have a non-controlling participation by a foreign investor (portfolio investments) are not covered;
  • (ii) have the aim of establishing a lasting link between the foreign investor and the EU target;' 
• explains that the extension of the scope of the Regulation 'is aimed at capturing a specific set of foreign investments made through EU subsidiaries controlled by non-EU investors;'
• 'complements and expands the existing provisions which allow such investments to be covered where the chosen structure is used to circumvent the screening of FDI into the EU. This ensures a consistent approach to risks to security and public order flowing from investments that ultimately lead to control and decision-making power by a third-country investor, whether they are carried out either directly from outside the EU or indirectly through an entity established in the EU but controlled by a foreign investor;'
• states that 'this extension will lead to the screening of transactions which are carried out through entities legitimately established in the EU;
• states that this 'constitutes an additional step by comparison with the concept of circumvention in the Regulation, which only applies when the transaction is carried out within the EU by means of artificial arrangements that do not reflect economic reality.'

Parliament's Committee on international trade (INTA) held an exchange of views with the Commission on the Regulation's revision on 24 January 2024. 

European Parliament position

In its resolution on building a comprehensive European port strategy of January 2024, Parliament 'underlines the importance of stepping up EU cooperation in screening and blocking inbound investments in critical infrastructure where major negative impacts on other MS or the EU as a whole cannot be excluded ...; it strongly encourages the Commission to strengthen the role of the protective measures for ports via an ambitious revision of the ... FDI Regulation, including by making a FDI screening system mandatory in all MS, ensuring that screening processes are clear and objective and that the definitions, scope and procedural aspects are consistent across MS, in order to ensure an EU-wide level playing field.' 

In its resolution on the future of EU international investment policy of June 2022, Parliament 'calls on the Commission to provide more granular data on whether inward FDI flows support sustainable economic activities and greenfield investments, to assess different options to monitor the activities supported by outward flows, and to assess the possibility of further specifying whether other sectors should be considered as strategic sectors; to explore the possibility of strengthening the EU FDI screening mechanism to give it, with the agreement of the MS, the power to block an investment that would create a risk to security and public order. It calls on those MS that do not yet have one, to set up such a national FDI screening mechanism in order to ensure that European cooperation is effective.'

References:

• European Parliament, Resolution on building a comprehensive European port strategy of 17 January 2024 (2023/2059(INI)); Resolution on the future of EU international investment policy of 23 June 2022 (2021/2176(INI)); Committee on international trade (INTA) exchange of views with the Commission on the revision of Regulation (EU) 2019/452 establishing a framework for the screening of foreign direct investments into the Union on the Regulation's revision on 24 January 2024; 
• European Parliament, debate with VP/HR Josep Borrell Fontelles on the European Economic Security Strategy, On 12 December 2023. Exchange of views with Sabine Weyand, Director-General of DG Trade, European Commission, trade and investment related aspects of the European economic security strategy on 24 January 2024.
• European Commission, Proposal for a regulation on the screening of foreign investments in the Union and repealing Regulation (EU) 2019/452, COM(2024) 23 final, 24 January 2024.
• European Commission, Evaluation of 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 accompanying the document Proposal for a Regulation on the screening of foreign investments in the Union and repealing Regulation (EU) 2019/452, SWD(2024) 23 final, 24 January 2024.
• European Commission, Communication: Advancing European economic security: an introduction to five new initiatives, COM(2024) 22 final, 24 January 2024.
• European Commission, Third Annual Report on the screening of foreign direct investments into the Union, COM(2023) 590 final, 19 October 2023. 
• European Commission and HR/VP, European economic security strategy, JOIN(2023) 20 final, 20 June 2023.
• European Commission, Screening of foreign direct investment (FDI) - evaluation and revision of the EU framework. Feedback and statistics. Call for evidence.
• European Commission, Commission work programme 2023. A Union standing firm and united, COM(2022) 548 final, 18 October 2022.

Further reading:

• European Parliament, EPRS, Briefing, EU framework for FDI screening, April 2019.
• European Parliament, EPRS, At a Glance, Economic security policies in G7 countries, October 2023.

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