New EU uniform and stricter standards for screening foreign investments

The European Union published the Regulation of the European Parliament and of the Council establishing a framework for the screening of foreign direct investments (Regulation (EU) 2019/452) into the Union on 21 March 2019 (as already pre-informed in our article in the December 2018 Newsletter entitled "The EU‘s path to uniform and stricter standards for screening foreign investments"). The new rules will enter into force twenty days later and will apply 18 months later.

The framework concerns "the screening by Member States of foreign direct investments into the Union on the grounds of security or public order,” as Article 1 para. 1 of the Regulation stipulates.

The EU Member States retain the power to review and potentially block foreign direct investments on security and public order grounds, said power not having been delegated to the European Commission. Each Member State has, as before, sole responsibility for its national security, as provided for in Article 4 para. 2 of the Treaty of European Union (TEU), and retains its national right to protect its essential security interests in accordance with Article 346 of the Treaty on the Functioning of the European Union (TFEU), as Article1para. 2 of the Regulation emphasises. Moreover, the Member States' discretion as to whether they screen foreign investments will not be curtailed, see Article 1 para. 3.

Does the Regulation address the substance or merely the procedure?

The Regulation provides the framework within which Member States should screen foreign investments, limited to grounds of security and public order. The framework mentions criteria for screening, but does not limit them. In this way, the Regulation provides guidance as to the substantive criteria.

As regards the procedure, the Regulation provides a legal basis for the European Commission and other Member States to get involved in ongoing screening procedures and even to impel a Member State to Screen foreign investments.

The substantive criteria for screening

The Regulation distinguishes between factors that concern the investment itself, on the one hand, and factors related to the person of the investor on the other hand.

As regards the investment itself, the Regulation invites the reviewing authority to assess the potential effects of the foreign direct investment on critical infrastructure, critical technologies and dual use items, supply of critical inputs, access to sensitive information, and the freedom and pluralism of the press.

Critical infrastructure is defined in Article 4 para. 1 as "infrastructure, whether physical or virtual, including energy, transport, water, health, communications, media, data processing or storage, aerospace, defence, electoral or financial infrastructure, and sensitive facilities, as well as land and real estate crucial for the use of such infrastructure".

Critical technologies and dual-use items are defined as in the EU Dual-Use Regulation as "including artificial intelligence, robotics, semiconductors, cybersecurity, aerospace, defence, energy storage, quantum and nuclear technologies as well as nanotechnologies and biotechnologies".

The supply of critical inputs includes energy or raw materials, as well as food security. Access to sensitive information includes personal data and the ability to control such information.

With regard to potential issues arising in the person of the investor, the Regulation refers in Article 4 para. 2 foremost to the control of the foreign investor, whether he is directly or indirectly controlled by the government, including state bodies or armed forces, of a third country, including through the ownership structure or significant funding.

The procedural provisions

The procedural provisions go beyond the current practice. The Regulation 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.

First scenario: a review is ongoing

In the first scenario, the reviewing Member State must inform the European Commission and other potentially affected countries of the review, and provide specific information on the envisaged investment (Article 7 together with Article 9). The specific information relates in particular to the ownership structure of the foreign investor and of the undertaking in which the foreign direct investment is planned or has been completed; "the products, services and business operations of the foreign investor and of the undertaking in which the foreign direct investment is planned or has been completed"; and the funding of the investment and its source.

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 relevant to the investigation.

The European Commission may likewise send relevant information to the investigating Member State. Additionally, it can send comments on the foreign investment in the form of an opinion, if it considers that the investment affects more than one Member State or if requested to do so by one or several Member States (Article 6 para. 3 and 4).

Second scenario: no review and the European Commission or another Member State keen to start

While the first scenario introduces the novel feature that allows the European Commission to issue an opinion on the concerns regarding the investment, and therefore improves the position of other Member States in an ongoing investigation, the provisions regarding the second scenario introduce a powerful novelty. The new feature may well force a Member State to start an investigation in a situation where it wanted to avoid doing so.

The second scenario applies not only to planned, but also to completed foreign investments. Article 7 para. 1 explicitly states that a Member State (other than the Member State of the investment) may provide comments on planned and completed investments, which may affect its security or public order. The Member State and the European Commission may also send relevant information. This triggers a mechanism of exchanges in a so-called cooperation procedure, and possibly an opinion from the European Commission. In contrast to current practice, a Member State can no longer ignore comments from other countries or the European Commission.

Even though the Regulation stops short of obliging the Member State of the investment to start a formal screening procedure, the cooperation procedure will inevitably lead at least to a "mini-screening".

Third scenario: projects or programmes of Union interest are at stake

A third avenue for the European Commission to weigh in on foreign investments will be opened whenever projects or programmes of Union interest could be affected by foreign planned or even completed investments (see Article 8).

The Regulation refers to "projects and programmes which involve a substantial amount or a significant share of Union funding, or which are covered by Union law regarding critical infrastructure, critical technologies or critical inputs which are essential for security or public order". They will be listed in an annex that will be regularly updated.

As with the other above-mentioned options for the European Commission and other Member States to influence or start screening, the Member State concerned remains free to decide on the investment (or whether to start screening the investment). However, the mere obligation to cooperate with the European Commission and other Member States, and to some extent to provide reasons, will compel the Member State to look more closely at foreign investments.


The novel instrument stops short of compelling Member States to screen foreign investments or even to introduce specific legislation. This notwithstanding, the Regulation will most likely be followed by national legislation in Member States that so far have no rules on investment screening. Moreover, the legislation will, even before its formal application in 18 months' time, encourage a more open discussion of all aspects of investment. Whereas the European Union will always remain open to foreign investment, and has one of the highest, if not the highest level of foreign investment in industry, aspects of security and public order should not be neglected.

If you have any questions regarding this topic, please feel free to contact Dr Rainer Bierwagen.


EU-Recht European Parliament Regulation 2019/452 direct investments foreign investments screening

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