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The EU Foreign Direct Investment Screening Regulation (Regulation 2019/452) (FDI Screening Regulation), which entered into force in April 2019, applies from 11 October 2020. It introduces the first EU-wide foreign investment screening cooperation mechanism and allows the European Commission and Member States to comment on foreign investments taking place in other Member States. Since its adoption in April 2019, Member States have significantly tightened their FDI screening regimes and are continuing to do so, and the European Commission calls upon Member States without FDI regimes to follow suit. The new rules will increase scrutiny of foreign investments into the EU in strategic industry sectors, infrastructures and key future technologies, result in longer and more complex reviews and increase the number of investments that will be subject to investment screening. The new EU FDI screening framework complements the European Commission’s existing powers to review foreign investments under EU merger control rules and sector-specific regulation (including the EU’s Third Energy Package applicable to investments in EU energy infrastructure). EU FDI screening will be the responsibility of the new Chief Trade Enforcement Officer, in charge of the EU’s offensive and defensive trade tools. It is therefore to be expected that the FDI policy of the European Commission will be guided by the broader EU trade policy objectives, including the recently endorsed ‘open strategic autonomy’.

Autores: Christian Filippitsch Geert Goeteyn Yves Melin Isabelle Rahman Max Seuster Jin Woo Kim

Key impact for investors 

Foreign investments in strategic sectors in the EU are subject to increasingly tighter foreign direct investment (FDI) screening. The new FDI Screening Regulation establishes a mandatory information sharing system between the European Commission (Commission) and EU Member States (Member States) and allows them to comment on foreign investments foreseen in other Member States.1 Since its adoption in April 2019, Member States have significantly tightened their FDI screening regimes and are continuing to do so.

While the FDI Screening Regulation does not allow the Commission to block investments or issue binding opinions to Member States and does not harmonise FDI screening across the EU, the new rules will have a significant impact on foreign investments going forward.

More scrutiny on foreign investments – the new cooperation mechanism will increase the exchange of information between the Commission and Member States, and the Commission and national authorities will become more aware of transactions and can ask for substantial information on a transaction being reviewed in another Member State. In practice, it is expected that businesses will increasingly lobby the Commission to actively engage (and ‘intervene’) in Member States’ review of foreign investments by competitors.

Longer review periods – national foreign investment screening mechanisms must take into account the period when other Member States provide their comments and the Commission issues a non-binding opinion to the Member State carrying out the investment screening. This means, in practice, that an additional minimum of 35-50 days needs to be factored into the review timetable and corporate documentation (long-stop dates, etc.). Investors are therefore advised to consider foreign investment issues early to mitigate any delays.

More investments subject to screening – Member States have been tightening their FDI regimes and continue to do so, and several Member States without an existing screening regime in place are likely to follow suit shortly.