European Parliament Tightens Rules for Foreign Investments in the EU

On 8 May 2025, the European Parliament adopted a far-reaching reform of the EU-wide screening rules for foreign investments. The reform is aiming at protecting critical sectors from security risks without jeopardising the openness of the single market. The adopted draft for a revision of the EU FDI Screening Regulation provides for mandatory screening in key areas and gives the Commission the authority to take final decisions in instances of disagreement.

Key elements of the new rules

1. Mandatory screening of sensitive sectors:
   Investments (including Greenfield investments!) in certain sectors such as media, critical raw materials, transport infrastructure, energy grids, aerospace and emerging technologies (e.g. semiconductors, AI, cyber security) will be subject to mandatory screening in order to identify security or public order risks. The purpose is to prevent foreign players from controlling strategic infrastructure.
2. Harmonised procedures across the EU:
   National screening mechanisms will be harmonised in terms of criteria, deadlines and transparency. This reduces red tape for businesses and gives investors planning certainty.
3. Strengthened role of EU Commission:
   For the first time, the Commission will have the power to intervene where there are disagreements between member states about potential risks emanating from a planned foreign investment or where the planned investment has impacts beyond national borders. The Commission will have the right to prohibit investments or impose data protection requirements or demand joint ventures with EU companies.
4. Wider scope of application: 
   Transactions within the EU are also covered by the rules if the investing company is controlled by investors from outside the EU.

Protection of economic sovereignty

Parliament’s rapporteur Raphaël Glucksmann (S&D, France) said:

'Right now, the EU’s foreign investment screening system is fragmented, costly for investors, and insufficiently effective at mitigating risks. Leaving large industrial plants, energy grids, and media giants open to foreign takeovers — whether from China, the US, or elsewhere — ultimately puts our security and economic sovereignty on shaky ground. Screening procedures will now be streamlined across member states, keeping the single market open and attractive, while also protecting our industries, safeguarding key sectors, and allowing our strategic industries to become more competitive.'

From patchwork to a common line

The current EU FDI screening system of 2020 allows screening on a national level but offers no effective tools for EU-wide risks. The reform is a response to geopolitical tensions and developments such as investments in harbours, technology companies or power plants by foreign wealth or companies outside the EU.

Next steps

Now that the report has been adopted in plenary, negotiations with member states on the final shape of the Screening Regulation can begin. Parliament and Council must adopt the final legislative act before it can enter into force.

Why this is important

The reform aims at protecting the EU single market as an attractive place to invest, but closes loopholes in investment screening that could be abused by geopolitical rivals. By empowering the Commission as an 'arbitrator', the EU is sending a clear signal of the EU's greater ability to act in an era of global competition for economic supremacy.

Dr Christian von Wistinghausen
Lelu Li