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European Union: Council adopts negotiating position on investment control reform

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In brief

On 12 June 2025, the representatives of the EU Member States in the Committee of Permanent Representatives (Coreper) approved the Council’s negotiating mandate to revise Regulation (EU) 2019/452 (EU FDI Screening Regulation) on the screening of foreign direct investment (FDI). This clears the way for the so-called trialogue negotiations with the European Parliament and the European Commission. The aim of the reform is to strengthen the EU’s ability to respond to security-related risks of foreign investments and forms part of the EU Commission’s agenda of an ‘open strategic autonomy’ – while at the same time maintaining an open and investment-friendly environment.

Contents

  1. Background and overview of key changes
  2. Position of the Committee on International Trade of the European Parliament
  3. Position of the Council of the European Union
  4. Outlook and next steps
  5. Recommendation

Background and overview of key changes

The current FDI Screening Regulation (Regulation (EU) 2019/452) has been in force since October 2020. It established a cooperation mechanism between the Member States and the European Commission to assess foreign investments for potential risks to security or public order. It essentially provides for a notice-and-comment procedure, which requires EU Member States to notify the EU Commission when they decide to conduct FDI screenings. The EU Commission and the other EU Member States are then invited to provide their comments on the investment. Due to significant differences in the individual EU Member State FDI screening regimes, the Commission proposed a comprehensive reform in January 2024 as part of its Economic Security Strategy.

The Commission’s proposal of January 2024 introduces several important changes, which we have laid out in a previous blogpost. Most notably, all Member States will be required to implement a domestic FDI investment screening regime – which is so far not mandatory. The proposal also introduces a minimum range of industry sectors, such as semiconductors, artificial intelligence, quantum technologies and biotechnology, for which FDI filing and clearance requirements shall be provided for under domestic FDI regimes in the EU. It further suggests to clarify that the EU FDI Screening Regulation shall also apply to indirect investments, which are already regularly screened under domestic EU Member State FDI screening regimes.

Position of the Committee on International Trade of the European Parliament

On 8 April 2025, the European Parliament’s Committee on International Trade adopted its position on the reform of the FDI Screening Regulation. The Committee largely follows the European Commission’s proposal, but goes further in some respects. For example, additional sectors are to be subject to mandatory investment screening in future, including media services, critical raw materials and transport infrastructure. The Committee also advocates greater harmonization of national review procedures in order to facilitate cross-border investments. Importantly, the parliamentary Committee’s proposal also advocates for a greater role of the EU Commission in FDI screenings in the EU. A central element of the proposal is the introduction of a standardized EU portal for investment notifications, which should simplify the procedures for companies.

Position of the Council of the European Union

The Council of the EU also supports the Commission’s proposal, in particular the mandatory introduction of investment controls in all member states. It clarifies that the EU FDI Screening Regulation shall provide for a minimum harmonization of the sectors and timelines for domestic EU Member State FDI screening procedures and that the EU Member States retain the discretion to subject more industry sectors to their domestic FDI screening regimes. The Council proposes a stronger focus on military and dual-use goods for the minimum range of sectors to be covered by domestic screening regimes. The Committee’s proposal also tones down the suggestion for a greater role of the EU Commission. While EU cooperation on FDI screenings is to be made more efficient, the final decision on investments is to remain with the individual member states. It clarifies that the EU FDI Screening Regulation shall not apply to internal reorganizations, which are subject to multiple EU Member State screening regimes.

Outlook and next steps

Now that the Council of the European Union has adopted its position, trilogue negotiations with the European Parliament and the European Commission will begin. In these negotiations, representatives of the three institutions meet to develop a common position on the legislative proposal. The aim is to reach a provisional political agreement that can accelerate the legislative process.

This agreement must then be formally approved by all three institutions – the Parliament, the Council, and the Commission. Only once this formal confirmation has taken place is the law considered adopted under the ordinary legislative procedure and can enter into force.

A political agreement is expected during the course of 2025. Once the new regulation enters into force, a transitional period is likely to follow – with the new rules potentially becoming binding from 2026.

Recommendation

Companies should follow the developments closely and analyze at an early stage what impact the new requirements could have on their investment strategies and compliance processes. We support our clients in M&A deals covering targets in multiple jurisdictions taking the requirements for coordination in the EU under the evolving FDI framework into particular account.

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Author

Anahita Thoms heads Baker McKenzie's International Trade Practice in Germany and is a member of our EMEA Steering Committee for Compliance & Investigations. Anahita is Global Lead Sustainability Partner for our Industrials, Manufacturing and Transportation Industry Group. She serves as an Advisory Board Member in profit and non-profit organizations, such as Atlantik-Brücke, and is an elected National Committee Member at UNICEF Germany. She has served for three consecutive terms as the ABA Co-chair of the Export Controls and Economic Sanctions Committee and as the ABA Vice-Chair of the International Human Rights Committee. Anahita has also been an Advisory Board Member (Beirätin) of the Sustainable Finance Advisory Council of the German Government.

Anahita has won various accolades for her work, including 100 Most Influential Women in German Business (manager magazin), Top Lawyer (Wirtschaftswoche), Winner of the Strive Awards in the category Sustainability, Pioneer in the area of sustainability (Juve), International Trade Lawyer of the Year (Germany) 2020 ILO Client Choice Awards, Young Global Leader of the World Economic Forum, Capital 40 under 40, International Trade Lawyer of the Year (New York) 2016 ILO Client Choice Awards. In 2023, Handelsblatt recognized her as one of Germany’s Dealmaker and “most sought after advisors of the country” in the field of sustainability.

Author

Dr. Alexander Ehrle is a member and senior associate of the Firm‘s Sustainability & International Trade Practice in Baker McKenzie's Berlin and Brussels offices. Alexander is admitted to practice in Germany and New York.
Alexander advises clients on the international, European and public law governing international trade and geopolitics. Alexander handles the FDI and FSR applications and clearances in M&A transactions in the EU, Germany and globally and has been recognized for his work as one of 40 under 40 lawyers worldwide for foreign investment control by the Global Competition Review. His practice encompasses advising on international sanctions and export controls at all stages of investigations, audits and court proceedings. Alexander is also an expert in ESG legislation and advises client on the compliance with the CSDDD, the LkSG, the CSRD and ESRS, and other EU Green Deal Regulations, such as the EU Deforestation Regulation, the EU Forced Labor Regulation and CBAM. He advocates for a diligent approach to ESG regulation and provides his expertise to an international audience as co-chair convening the Business & Human Rights Committee of the American Bar Association’s International Law Section.
Alexander studied law at the Universities of Heidelberg, Montpellier (France), Mainz, Munich and New York (NYU) specializing in Public International and European Law. He worked as advisor and member of a delegation of a developing country at the United Nations before qualifying for the German bar. He qualified for the German bar, working with the German Ministry of Foreign Affairs’ Middle East Department in Berlin and the German embassy in Tokyo as well as with international law firms in Frankfurt, Berlin and Milan.
Alexander has been seconded to and worked with a major company in the optical industrial and manufacturing technology sector.

Author

Caroline Walka is a member of the foreign trade practice in Baker McKenzie's Berlin office. She joined the Firm in 2024.
Caroline studied law at the Freie Universität of Berlin and the Universidad de Granada (Spain) as well as the University of Edinburgh with a focus on public international law and human rights.
Before joining Baker McKenzie as an associate, Caroline completed her legal clerkship at the Higher Regional Court of Berlin, with the Berlin Senate Administration, at the Baker McKenzie office in Berlin and an NGO in Windhoek, Namibia. She gained important experience in (international) public law during her LLM at the University of Edinburgh, where one of her focusses was business and human rights.

Author

Vanessa Wüstneck is a member of the international trade, compliance and sustainability practice in Baker McKenzie's Berlin office. She has been with the firm since 2024. Vanessa Wüstneck studied law at the University of Cologne, focusing on public International law and European law. Before joining Baker McKenzie as an associate, Vanessa completed her legal clerkship at the Higher Regional Court of Cologne, with stages at the German Bundestag, at an international law firm in Düsseldorf and at a South African law firm in Cape Town. She also gained valuable experience in public international law and international trade law during her LL.M. studies at Trinity College Dublin (Ireland), where she also focused on human rights and environmental aspects in economic contexts.

Author

Frederik Doerr is an Associate in Baker McKenzie, Berlin office.

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