Foreign investment to be screened to protect EU countries’ strategic interests

Japanese Minister of Foreign Affairs

Cecilia Malmström, Member of the EC in charge of Trade, receives Tarō Kōno, Japanese Minister for Foreign Affairs. © European Union , 2018 / Source: EC – Audiovisual Service / Photo: Lukasz Kobus

This article is brought to you in association with the European Parliament.

New tools to check that foreign investment in EU countries does not threaten their security or public order were approved by the Trade Committee on Monday.

Trade MEPs backed plans to set up a mechanism to screen foreign direct investment (FDI) in a transparent, predictable and non-discriminatory manner. The aim is to ensure that foreign investments do not pose a threat to critical infrastructure, key technologies or access sensitive information.

MEPs strengthened the proposal’s scope, to enable the EU member states and Commission also to check whether, inter alia:

  • a foreign investment might affect media independence or the EU’s strategic autonomy,
  • the investor has a track-record of investing in projects that might threaten security or public order, or
  • the investment could lead to the creation of a monopoly.

Better cooperation

The committee stipulated that a member state that decides to screen an FDI should inform other member states and the Commission of the fact within five working days and be open to comments. It also proposed that if a third of the member states consider an investment worrisome, the target country should engage in a dialogue to resolve the issues at stake.

To foster member states’ cooperation on inward FDI, share best practices and address possible concerns, MEPs suggested setting up an Investment Screening Coordination Group, to be chaired by the Commission and composed of member states with the European Parliament as observer.

The European Parliament could ask the Commission to issue an opinion on a foreign direct investment that is planned or has been completed in a member state.

Quote

“Most trade partners of the EU already have a screening mechanism in place. Without succumbing to protectionism, it is time to show that Europe is not naive in these times of globalisation. If it wants to preserve a favourable climate for investments -sources of growth, jobs, and innovation – it has to protect European assets. We are not against foreign investment, but against strange investment,” said Parliament’s rapporteur Franck Proust (EPP, France).

“Next to the reform of the dual use export control system, FDI screening is one of the main priorities of the International Trade Committee. We hope to finalize new rules before the end of Parliament’s term and look forward to fruitful negotiations with the Council under the leadership of the Austrian Presidency,” added committee chair Bernd Lange (S&D, DE).

The draft rules were approved by 30 votes to 7.

Next steps

MEPs can begin talks with ministers once the draft rules have been approved by Parliament as a whole at its 11-14 June plenary session in Strasbourg and the Council of Ministers has approved its own position.

Background

Inward foreign direct investment has been an important source of economic growth in the EU. However, it is also a growing source of concern if the investor is a state-owned enterprise, or if the investment is in critical infrastructure projects in fields such as energy or communications, or in enterprises working with key technologies, such as robotics or nuclear technology.

Currently only 12 of the 28 member states has a screening mechanism that examines FDI on grounds of security or public order. The systems vary widely, and countries do not coordinate their approaches even where investments might have an effect in multiple countries. The proposal does not seek to harmonize national screening mechanisms, but to enhance cooperation among member states and the Commission. It is part of a trade and investment package announced by the Commission in September 2017.

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