On September 13, 2017, the European Commission ("Commission") presented a proposal1 for a regulation establishing a framework for member states and the Commission to screen foreign direct investments ("FDI") into the European Union ("proposed Regulation"). 2 The proposed Regulation was presented as part of a number of EU policy proposals that were launched in light of the 2017 State of the Union.3

Although the proposal appears to accord a large degree of deference to member states in the field of investment screening, it also includes a specific mechanism that would permit the Commission to review certain investments that are relevant to EU interest.

The proposed Regulation does not require member states to set up such a mechanism4 but builds on and complements existing investment screening mechanisms at the member state level.5 Where such a mechanism exists or is to be adopted at the member state level, the proposed framework aims at ensuring that it meets certain basic requirements when carrying out screening, such as the need for judicial review of decisions, non-discrimination between different third countries and transparency.6 These considerations reflect the European Union's obligations under international trade and investment agreements, as "grounds for investment review are defined in compliance with the relevant measures for the imposition of restrictive measures based on grounds of security or public order stipulated in the WTO Agreement ([...] Article XIV(a) and Article XIVbis of the GATS)."7

The proposed Regulation also implements a comprehensive cooperation mechanism by requesting member states to inter alia inform the Commission and other member states on ongoing investment screenings. In that context, the Commission and other member states notably would be entitled, under the proposed Regulation, to request information and provide comments and opinions on the screened investment, although the ultimate decision would rest solely on the member states in which the FDI is planned or has been completed.8

Additionally and significantly, the Proposal provides that the Commission may carry out its own review on grounds of security and public order in any case "where a foreign direct investment is likely to affect projects or programmes of Union interest."9 The projects and programmes of "Union [EU] interest" are defined as those that either:

  • Involve a substantial amount or a significant share of EU funding or
  • Are covered by EU legislation regarding critical infrastructure, critical technologies or critical inputs.10

In that context, the Commission also is entitled to issue an opinion to the member state where such investments are planned.11 While member states would still be allowed to disregard the Commission's opinion, as they are entitled to in the context of national screening processes, they would need to justify their decision.12

The proposal comes in response to concerns expressed by larger member states such as Germany, France and Italy that "a growing number of non-EU investors were buying up European technologies for the strategic objectives of their home country."13 In a joint statement, their respective ministers of economic affairs welcomed the Commission's proposal, emphasizing the need for trade rules that are fair and the protection of national strategic interests.14 The response of smaller member states is unknown as of yet, but it is expected that they may oppose the Commission's proposal—especially member states that rely on Russian or Chinese investments in energy infrastructure and therefore may be reluctant to accept any plans to grant the Commission a say in whether such investments should be permitted.

Although the proposed Regulation does not go as far as laying down a screening mechanism such as that of the Committee on Foreign Investment in the United States ("CFIUS"), the proposed Regulation still allows the Commission to weigh in. In addition, major energy and infrastructure projects either receive EU funding or are covered by EU legislation regarding critical infrastructure, technologies or inputs, and thus the Commission will have the opportunity to screen foreign investments in such situations. Consequently, although the framework for Commission screening in its current form is described as a "complementary tool" and the Commission may only issue "opinions," the proposed Regulation nevertheless provides the European Union with an instrument that could have an impact on a significant amount of investments in strategic sectors, as they would fall under EU scrutiny.

As the proposed Regulation now needs to go through the ordinary legislative procedure, it will be discussed by the European Parliament and the member states in the European Council. In that context, both institutions will be able to discuss amendments to the proposed Regulation.


1 European Commission, 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. Available at http://ec.europa.eu/transparency/regdoc/rep/1/2017/EN .

2 The proposed Regulation covers FDI only, i.e., investments of a lasting nature to carry on an economic activity in a member state (to the exclusion of portfolio investments) made by an individual or entity in a third country. A possibility to control intra-EU transactions is also foreseen to prevent circumvention.

3 Available at http://europa.eu/rapid/pressrelease_SPEECH-17-3165_en.htm.

4 Page 3 of the Explanatory Memorandum to the proposed Regulation.

5 Currently, 12 member states apply a form of investment screening: Austria, Denmark, Germany, Finland, France, Latvia, Lithuania, Italy, Poland, Portugal, Spain, and the United Kingdom.

6 See Article 6 of the proposed Regulation.

7 Recital (22) of the proposed Regulation.

8 Recital (7) and Articles 7 and 8 of the proposed Regulation.

9 Article 3(2) of the proposed Regulation.

10 Article 3(3) of the proposed Regulation. The indicative list in Annex 1 of the proposed Regulation mentions EU programs relating to satellite navigation systems (Galileo & EGNOS); key enabling technologies such as artificial intelligence, robotics, semiconductors and cybersecurity (Horizon 2020); Trans-European transport networks (TEN-T); Trans-European energy networks (TEN-E); and Trans-European telecommunications networks.

11 Article 9(1) of the proposed Regulation.

12 Article 9(5) of the proposed Regulation.

13 Reuters, France, Germany, Italy urge rethink of foreign investment in EU, 14 February 2017. A copy of the letter sent by these member states to the Commission can be found here.

14 See http://www.bmwi.de/Redaktion/EN/Pressemitteilungen/2017/20170913-eu-vorschlag-zu-investitionspruefungen-wichtiger-schritt-fuer-faire-wettbewerbsbedingungen-in-europa-und-besseren-schutz-bei-firmenuebernahmen.html

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