EU to scrutinise foreign direct investment more closely

FDI

(FDI, 2019)

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


Parliament has agreed to set up an EU-level tool to screen foreign direct investment on grounds of security to protect strategic sectors, in a vote on Thursday.

While the EU remains open for investment, inward foreign direct investment (FDI) needs to be vetted to limit any possible danger to the EU’s strategic interests. The new provisions on how to screen, informally agreed between Parliament negotiators and EU ministers, were endorsed by 500 votes for, 49 against and 56 abstentions. Parliament’s vote has created the first EU-wide system that supports member states’ screening FDI on grounds of security and public order.

Protecting strategic sectors

The new regulation protects critical infrastructure such as energy, transport, communications, data, space, and finance; and technologies, including semiconductors, artificial intelligence, and robotics. EP negotiators added sectors such as water, health, defence, media, biotechnology and food security.

Better cooperation, more peer pressure

MEPs strengthened the cooperation mechanism to include exchange of information between EU member states, which can issue comments on FDI targeting other member states. The European Commission can ask for information and deliver its opinion to the country where the investment is planned, but the final decision remains with the country concerned.

Quote

Europe that protects has become a reality. This mechanism is a concrete step against threats to our industries, technologies and strategic interests. We have succeeded in setting up this mechanism quickly, despite the sensitivity of the subject, some reticence and unprecedented pressure. Europe is taking control of its destiny, while staying open for foreign investment”, said Franck Proust (EPP, FR), the MEP steering the measure through Parliament.

Next steps

Council is expected to formally endorse the agreement on 5 March. The regulation will enter into effect 18 months after its publication in the Official Journal.

Background

Currently only 14 EU countries (Austria, Denmark, Germany, Finland, France, Latvia, Lithuania, Hungary, Italy, the Netherlands, Poland, Portugal, Spain and the United Kingdom) have FDI screening mechanisms which differ widely in their scope and design. FDI has cross-border effects, which can now be addressed.

In the last 20 years, the structure and source of FDI to the EU changed drastically, with more FDI from emerging economies. Investment from China grew sixfold, from Brazil tenfold, and investment from Russia more than doubled, recently targeting high-tech sectors and often through companies with state ownership or ties to governments.

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