The European Commission has announced new FDI screening measures in the EU, including an obligation for all Member States to screen foreign investments in certain areas. In this news article, we summarise the main features of the proposal.
The EU Regulation on the screening of foreign direct investments (the FDI Regulation) entered into force in October 2020. Since then, there has been a strong focus on foreign investments that may pose a risk to national security or public order, and an increasing number of countries are introducing national FDI regimes.
The European Commission has now published a first draft of a new Regulation that significantly extends the Member States' obligations in relation to foreign investment screening.
All Member States must screen foreign investments
The current FDI Regulation includes a cooperation mechanism for those Member States that have chosen to implement national screening rules - but it does not impose any obligation on the Member States to adopt such rules.
In its proposed revision of the FDI Regulation, the Commission maintains the cooperation mechanism, meaning that Member States must continue to report foreign investments and will have an opportunity to comment on such investments in other Member States. However, the Commission also proposes to make it mandatory for the Member States to introduce investment screening rules.
Today, 22 (out of 27) Member States have already implemented national investment screening rules, and more Member States are working on it. Thus, the last Member States will now also have to introduce rules in the area, while the others (including Denmark) will have to ensure that their rules meet certain minimum requirements.
Minimum requirements for national investment screening mechanisms
The proposed Regulation will not only cover investments made by non-EU resident individuals or companies (as is the case today), but also investments made by investors that are ultimately owned by a non-EU resident individual or company. This expansion of the scope of the Regulation should be seen in the light of a recent ruling in which the European Court of Justice found that the current FDI Regulation only applies to direct foreign investments - not to indirect investments made through a company based in a Member State.
In the preamble of the Regulation, the Commission further encourages the Member States to also screen other types of arrangements whereby a foreign investor creates a lasting connection to a relevant target company in the EU - and mentions greenfield investments as an example of such arrangements.
As for the proposed substantive scope of the Regulation, it is stated that the Member States must, as a minimum, screen investments that (1) relate to certain EU projects or programmes or (2) relate to particularly critical technologies or sectors. The specific programmes, technologies and sectors are listed in two annexes to the Regulation and include, inter alia, the EU space programme, Horizon Europe (EU framework programme for research and innovation), and digitalisation and defence programmes.
The critical technologies overlap to a large extent with the "critical technology" categories that are already covered by the Danish Investment Screening Act. Thus, it is proposed that Member States should at least screen investments in certain technologies related to advanced semiconductors, artificial intelligence, quantum computers, sensors, aerospace, energy, robots, and biotechnology.
Also, investments related to certain critical pharmaceutical products and certain financial sector operators and activities should be screened.
The listed programmes, technologies and sectors are minimum requirements that the Commission expects Member States' to include in their investment screening rules. However, the Member States will be free to expand the scope of their rules to also include other areas which they find could pose a risk to national security or public order.
Screening of outbound investments?
The proposed revision of the FDI Regulation is part of an overall package of five initiatives aimed at strengthening security in the EU. In addition to the FDI screening rules, the Commission has announced that it is considering possible changes to the rules on export controls, regulation of dual-use products, and increased protection of research from foreign influence.
The Commission also indicates that it may be necessary to regulate screening of investments made by EU investors in a non-EU resident target company - that is reverse investment screening. According to the Commission, it may in some cases pose a risk to EU national security if specific technologies or knowhow developed outside the EU are ultimately being used against the EU or to the detriment of global security interests. The Commission does not specify the relevant investments in detail but notes that the rules will have a narrow scope.
As a first step, the Commission will now start collecting data for the purpose of a risk assessment. Then, the Commission will enter into a dialogue with the Member States to determine the need for rules on outbound investment screening and, if applicable, the scope of such rules.
Contemplated amendments to the Danish Investment Screening Act
The proposal for the new FDI Regulation will now be considered by the European Parliament, and it is therefore not yet certain which changes will ultimately be adopted. If the Regulation is adopted as proposed, the Danish Investment Screening Act will have to be amended accordingly to ensure that it covers the relevant EU programmes and critical technologies and sectors. Furthermore, it may prove necessary to require submission of more details when filing an application.
However, the scope of the Danish Investment Screening Act is already relatively broad, and it is expected that the Act will be further expanded maybe as early as this year. Thus, it appears from the Danish government's legislative agenda for the 2023-2024 parliamentary year that the Ministry of Industry, Business and Financial Affairs is working to amend the Act in order to increase control of public tenders and R&D agreements. This should probably be viewed in light of the proposal for an expansion of the scope of the Act to include "critical infrastructure" agreements that was introduced and (for now) shelved again in 2023.
No specific amendments to the Danish Act have yet been proposed, but much seems to indicate that 2024 will be another interesting year in this area.
Read the Commission's press release on new initiatives to strengthen economic security.
Read the Commission's draft of the new FDI Regulation.
Read the Commission's factsheet on the new FDI Regulation.
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Investment screening may be in breach of the freedom of establishment
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