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Regulation Published on the Establishment of a Framework for the Screening of Foreign Direct Investments into the EU

On 10 April 2019, Regulation 2019/452 of the European Parliament and of the Council establishing a framework for the screening of foreign direct investments into the Union will enter into force. However, the rules contained in the Regulation will only apply as of 11 October 2020. The publication of this new Regulation in the Official Journal follows the three-way talks between the European Parliament, the Council and the Commission that concluded on 20 November 2018 and the formal adoption of the final text earlier this year.

The FDI Screening Regulation’s objective is to establish a framework for the screening, by Member States, of foreign direct investments into the EU on the grounds of security or public order. It also aims to provide a mechanism for cooperation between Member States with regard to foreign direct investments likely to affect security or public order. It includes the possibility for the Commission to issue opinions on such investments. The Regulation does not establish a centralized EU-wide screening mechanism for FDI, and it does not require EU Member States to implement FDI screening mechanisms.

However, if such a national mechanism exists, it must meet certain basic screening requirements. Indeed, as to the legal certainty that the Regulation seeks to provide, it should be noted that the Regulation requires Member States which have FDI screening mechanisms in place to have transparent and non-discriminatory rules and procedures related to those screening mechanisms, including relevant timeframes. Moreover, Member States have to set out the circumstances triggering the screening, the grounds for screening and the applicable detailed procedural rules. Member State have to prevent any circumvention of their screening mechanisms from occurring.

In determining whether a foreign direct investment is likely to affect security or public order, Member States and the Commission may consider its potential effects on, among other matters, critical infrastructure, critical technologies and dual use items, supply of critical inputs, access to sensitive information, or the freedom and pluralism of the media. In this regard, Member States could consider relevant information received from economic operators, civil society organisations, or social partners such as trade unions.

Furthermore, Member States and the Commission could take into account whether the foreign investor is directly or indirectly controlled by the government of a third country, or whether the foreign investor has already been involved in activities affecting security or public order in a Member State, or whether there is a serious risk that the foreign investor engages in illegal or criminal activities.

Where a Member State has no FDI screening mechanism in place, the Regulation enables the Commission and other Member States to push for a review. In this context, the Regulation allows a Member State to provide comments to another Member State, when the former considers that an FDI is likely to affect its security or its public order, provided that the other Member State is not yet screening the FDI. Its comments will be sent to the Commission simultaneously, upon which the Commission notifies the other Member States about the comments. The Member State receiving comments should give such comments (or an opinion) due consideration through measures available under its national law, or in its broader policy-making.

The Commission could issue an opinion irrespective of whether other Member States have provided comments. The Commission may also issue an opinion following comments from other Member States. The Commission shall issue such opinion where justified, after at least one-third of Member States consider that a foreign direct investment is likely to affect their security or public order.

Also, when an FDI is likely to affect projects or programmes of EU interest on grounds of security or public order, the Commission may issue an opinion addressed to the Member State where the FDI is planned or has been completed. Those projects or programmes of EU interest shall include projects and programmes which involve a substantial amount or a significant share of EU funding, or which are covered by EU law regarding critical infrastructure, critical technologies or critical inputs which are essential for security or public order. The list of projects or programmes of EU interest is set out in the Annex included in the Regulation. The Commission has the power to adopt delegated acts in accordance with Article 16 of the Regulation to amend the list of projects and programmes of Union interest.

Hong Kong investors currently involved in investments subject to FDI screening in an EU Member State should note that investments which have not been subjected to screening and are completed before 10 April 2019 will not be affected by the cooperation mechanism under the Regulation.

Finally, Hong Kong investors should be aware that the Commission and Member States are free to cooperate with the responsible authorities of third countries on issues relating to the screening of foreign direct investments on grounds of security and public order.

Content provided by Picture: HKTDC Research
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