Search for:

The EU screening mechanism for foreign direct investments potentially affecting security and public order in an EU Member State or in the whole EU became fully operational on 11 October 2020. Following the adoption of the EU Foreign Direct Investment Regulation, the European Commission (Commission) and the Member States have developed a coordination framework, consisting of various separate national screening mechanisms. The EU screening mechanism aims at enhancing cooperation and information sharing between the Commission and the Member States. Foreign direct investments (FDI) in sensitive industries will be scrutinized to avoid the loss of critical assets and technology (e.g. in health, energy, transport, media, defense, financial infrastructure sectors, etc.). This is part of the Commission’s strategy to protect an increasingly vulnerable regional economy from hostile takeovers by non-EU players (see also European Commission Publishes White Paper Suggesting New EU Filing Obligations for Companies That Have Received Non-EU Subsidies).

    • It is important for non-EU investors to be aware that from now on deals in the EU will be systematically scrutinized not just with respect to merger control, but also from the perspective of foreign direct investment, notably if these have the potential to raise national security and public order concerns.
    • Unlike merger control, the Commission will not have the ability to block FDI. Rather, those Member States affected by the incoming FDI will inform the other Member States and Commission, which will provide their comments if they consider that the FDI is likely to affect their security or public order or a programme in the interest of the EU, or where they have relevant information.
  • The most imminent impact will be on the deal timetable as the national FDI procedures cater for the EU screening mechanism in the domestic procedural rules. In Austria, for example, the first investigation phase has been expanded from one to two months to allow for EU screening. Pending respective clearances the parties may not be able to close their deal as the national FDI rules often have similar standstill obligations as in merger regimes.

Background

The March 2019 FDI Regulation did not establish a unified EU-wide screening mechanism enabling the Commission to block foreign investments, nor did it oblige Member States to adopt their own national screening systems. Rather, this Regulation established common standards for national screening mechanisms to provide for an EU cooperation mechanism including exchange information between the various stakeholders.

Over the last eighteen months, the Commission and Member States have developed a screening mechanism aimed to scrutinize incoming FDI potentially affecting security or public order. This includes:

    • the notification by EU Member States of their existing national investment screening mechanisms to the Commission;
    • the establishment of a framework to exchange the relevant information between Member States and the Commission, including deadlines for cooperation, as well as non-discrimination and confidentiality requirements; and
  • the development of procedures for Member States and the Commission to quickly react to FDI concerns and issue opinions if FDI threatens the security or public order of a Member State, or a project in the interest of the Union (e.g. Horizon 2020 or Galileo).

For further details, please refer to our earlier alerts available:

COVID-19: Impact on Governmental Foreign Investment Screening

EU: Foreign investment screening regulation approved


For further information and to discuss what this development might mean for you, please get in touch with your usual Baker McKenzie contact.

Author

Werner Berg is a partner in BakerMcKenzie's Brussels office. A seasoned lawyer with more than 20 years' experience, his practice covers the entire spectrum of EU and German antitrust law. Werner is recommended in Chambers Global and Chambers Europe, Legal 500 EMEA, European Legal Experts and Best Lawyers. He became an Acritas star in 2018. Werner is a regular speaker at conferences, including the Academy of European Law on European merger control. He also teaches a course on German merger control at Queen Mary University of London and is the co-editor of the commentary Berg/Mäsch, Deutsches und Europäisches Kartellrecht (3rd ed. 2018).

Author

Dr. Anita Lukaschek, a senior associate, joined Baker McKenzie in 2015. She previously worked for the Austrian Federal Competition Authority, handling major cartel cases and being responsible for the leniency program. Anita has been on secondment to the European Commission (DG Competition) and the Federal Ministry of Economy (Trade Law Division). She regularly writes articles and book contributions, particularly on competition matters. Anita has been lecturing on EU competition law at the University of Economics and Business Administration in Vienna (where Anita started her professional career as a university assistant) and the University of Applied Sciences Joanneum, Graz.

Author

Luca Montani is a senior associate in Baker McKenzie, Brussels' Antitrust & Competition Practice. He joined the Firm in January 2014 after working in a major US law firm based in Brussels, and at the European Commission Directorate General for Competition (Mergers). Prior to that, he practiced civil litigation in Italy.