New Regulation (EU) 2019/452 – A common approach to establish a framework for the screening of foreign direct investments into the European Union

On the 19th of March 2019 the European Parliament and the Council of the European Union have published the Regulation (EU) 2019/452 in order to establish a framework for the screening of foreign direct investments into the Union. The new regulation will enter into force on the 8th of April 2019 and will apply from 11th October 2020.

European Union, Regulation, Foreign Direct InvestmentThe regulation aims to provide legal certainty for Member States regarding their screening mechanisms as well as to ensure a Union-wide coordination and cooperation regarding the screening of foreign direct investments, which seem likely to affect security or public order. This is not only required in order to keep up with the major trading partners of the Union, which already developed such frameworks, but also to ensure the Union’s growth (cf. preamble).

Whereas the Regulation provides a framework, within which Member States should scan foreign investments as well as the guidance, how to implement corresponding mechanisms, EU Member however retain the power to review and distinguish the character of foreign direct investment autonomously. Each Member State has, as before, full responsibility for its own national security, as stated in Article 4 (2) of the Treaty of European Union, moreover maintains its national right to protect its security interests corresponding to Article 346 of the Treaty on the Functioning of the European Union (TFEU).

To guide Member States and the Commission in the application of the Regulation, the new regulation provides a list of factors, that could be taken into consideration when determining whether a foreign direct investment is likely to affect security and public order.

Article 4 (1.) itemizes those factors as following: (a) critical infrastructure, whether physical or virtual (e.g. energy, transport, water, health, communications, media, data processing or storage, aerospace, defence, electoral or financial infrastructure, sensitive facilities, land and real estate crucial for the use of such infrastructure); (b) critical technologies and dual use items as defined in point 1 of Article 2 Council Regulation (EC) No 428/2009 (such as artificial intelligence, robotics, semiconductors, cybersecurity, aerospace, defence, energy storage, quantum and nuclear technologies, nanotechnologies, biotechnologies); (c) supply of critical inputs (including energy or raw materials, food security); (d) access to sensitive information; (e) freedom and pluralism of the media.

Regarding potential issues arising in the person of the investor, Article 4 (2.) states, to take into account, whether the foreign investor is directly or indirectly controlled by the government, 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.

Moreover the regulation settles procedural provisions. It distinguishes between the situation in which a review is ongoing, and the situation of no review; in essence, the rules for the latter situation are such as to enable the European Commission and other Member States to push for a review.

For example, the cooperation mechanism in relation to an foreign direct investment undergoing screening instructs the Member States to notify the Commission and the other Member States of any foreign direct investment in their territory by providing specific information (see Article 9 in conjunction to Article 7). If another Member State considers its security or public order potentially affected by the investment, it may send comments to the screening Member State (Article 6 para. 1). The same applies if it has information that may be of importance to the investigation. (For further remarks, see Article 6 ff.)

The new rules will, even before their formal application, encourage a more open interchange of all aspects of investment. Even if the European Union will always remain amenable to foreign investment, and has one of the highest level of foreign investment in the industry, aspects of security and public order should be more than ever taken seriously.

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