In November 2018, the EU agreed on a Europe-wide mechanism to screen foreign direct investment. The agreement is the culmination of 14 months of negotiations and is an important milestone in the process of protecting Europe's critical technology and infrastructure without unnecessarily restricting foreign investment.

Potential security risks

Openness to foreign investment – which fuels economic growth, innovation and employment – is one of the bedrocks of the European Union. Over the years, the EU has developed one of the most open investment regimes in the world. But in an increasingly interconnected and interdependent world, there are mounting concerns about possible security risks. For instance, if a non-EU, state-owned company wanted to buy a European harbour or defence technology firm, this could potentially be detrimental to EU or national security interests. When he presented the proposal in his annual State of the Union address in 2017, President Jean-Claude Juncker said "It is a political responsibility to know what is going on in our own backyard so that we can protect our collective security if needed".

The agreed measures will set up an EU-wide cooperation mechanism for foreign direct investment that is based on a combination of data collection, information exchange and peer pressure.

Exchanging information

Under the rules, EU countries will be able to raise specific concerns about investments taking place in another EU country, and will be required to exchange information on foreign investments and send annual reports to the Commission. International cooperation is also encouraged, including sharing experience, best practices and information regarding investment trends. Under the new rules, the Commission will be able to ask for information or issue an opinion if an investment concerns several Member States. It can also do this if the investment affects a project or programme that is of interest to the whole EU, such as Horizon 2020 or Galileo, or when asked by the Member States. Nevertheless, the ultimate decision about whether a specific foreign operation should be allowed or not rests with the Member State concerned. The new mechanism builds on the national review mechanisms that are already in place in 12 Member States. It does not require Member States to screen investments.

In parallel to the proposal, the Commission is completing a detailed analysis of foreign direct investment in the EU. The analysis focuses on strategic sectors (such as energy, space, transport) and assets (key technologies, critical infrastructure, sensitive data). Of particular interest in the analysis are cases where the investor is owned or controlled by a non-EU government or benefits from significant state subsidies. Working with the Member States, the Commission has been collecting detailed data, analysing trends and assessing the impact of investments.

The regulation is set to be officially adopted by the European Parliament and Council in early spring. Then, the Commission and the Member States will have 18 months to prepare for its application by setting up the practical arrangements of the cooperation mechanism, including secured means of communication.

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