On November 20, 2018, the European Parliament ("EP"), the Council and the European Commission ("Commission") reached a political agreement on the final text of a regulation establishing a framework for screening foreign direct investments ("FDI") into the European Union ("EU") ("the EU FDI screening framework"/"the Regulation").1 The text is based on a proposal that the Commission presented on September 13, 2017. (See our previous Legal Updates.)2

The Regulation strikes a balance between the amendments that had been proposed by the EP and the concerns that exist at the member state level, as expressed by the Council. The essence of the proposal tabled by the Commission in September 2017 remains intact in the final text of the Regulation. However, there are some important additions and nuances that are discussed in this Legal Update. 


The EU FDI screening framework is being adopted at a time of enhanced attention on (the negative aspects of) FDI in jurisdictions around the globe. At the EU level, member states are increasingly focusing on screening mechanisms in order to prevent foreign influence in certain strategic sectors, such as energy (storage), artificial intelligence, aerospace, defense, semiconductors, and nano- and biotechnologies. 

The EU FDI Screening Framework

The essence of the Commission’s proposal was that it would not require EU member states to implement an FDI screening mechanism, and this underlying idea remains in place in the Regulation.3 However, where such a mechanism exists or is to be adopted at the member state level, it must meet certain basic screening requirements, such as judicial review of decisions, non-discrimination between different third countries and transparency.4 To this end, the Commission will compile a list of member state FDI screening mechanisms.5 The Regulation also establishes, as foreseen by the Commission, a comprehensive cooperation mechanism requiring EU member states to, inter alia, inform the Commission and other EU member states of ongoing investment screenings. Similarly, in cases “where a foreign direct investment is likely to affect projects or programs of Union interest,” the Commission may carry out its own review on grounds of security and public order.6

Key Amendments to the Initial Proposal

The final text as agreed on by the institutions contains some additions and nuances that, in general, appear to demarcate the competences of the EU member states and those of the Commission with respect to FDI screening. 

Signaling the difficult balance that had to be sought to progress to an adoptable regulation, the autonomy of the member states is emphasized as follows in Article 1 of the Regulation:

"2. This Regulation is without prejudice to the sole responsibility of the Member States for the maintenance of national security, as provided for in Article 4(2) TEU, and to the right of the Member States to protect their essential security interests in accordance with Article 346 TFEU.

3. Nothing in this Regulation shall limit the right of each Member State to decide whether or not to screen a particular foreign direct investment within the framework of this Regulation."

At the same time, and again in cautious terms, Recital 17 to the Regulation provides that comments from member states or an opinion from the Commission with regard to a foreign direct investment "should" be given "due consideration through, where appropriate, measures available under their national legislation, or in broader policy-making" in line with the receiving member state's "duty of sincere cooperation under Article 4(3) TEU."7

The essential changes are provided below: 

  • The Commission is given the authority to "provide an opinion […] no later than 15 months after the foreign direct investment has been completed."8 Recital 21 introduces this amendment as providing "greater certainty for investors," but in reality the provision would appear to increase the uncertainty faced by investors, as investments may still be scrutinized for 15 months after completion.

  • The reference to the possibility of having "judicial redress" against screening decisions of national authorities has been weakened to having "recourse" against such decisions.9 At first sight, this would appear to weaken the possibility of companies to challenge decisions prohibiting certain investments, as companies would no longer be entitled to "redress" in a court of law (i.e. judicial), but may have to seek "recourse"  against such a decision, which may be limited to an administrative proceeding.

  • The scope of application now includes investments that may have an impact on:
    • Critical infrastructure in the fields of energy, transport, water, health, communications, media, data processing or storage, aerospace, defense, and electoral or financial infrastructure, as well as sensitive facilities, land and real estate that are crucial for the use of such infrastructure;
    • Critical technologies and dual use items, including artificial intelligence, robotics, semiconductors, cybersecurity, quantum, aerospace, defense, energy storage, nuclear technologies, nano- and biotechnologies;
    • The supply of energy, raw materials and food security;
    • Access to sensitive data such as personal data; and
    • The freedom and pluralism of the media.
  • To determine whether a foreign direct investment is likely to affect security or public order, it is now provided that account "may" be taken "in particular" of whether:

    • The foreign investor is directly or indirectly controlled by the government, including state bodies or armed forces of a third country, including through ownership structure or significant funding;
    • The foreign investor has already been involved in activities affecting security or public order of a member state; or
    • There is as serious risk that the foreign investor engages in illegal or criminal activities.
  • The draft had provided that, where the Commission considers that a foreign direct investment undergoing screening is likely to affect security or public order in more than one member state, the Commission might issue an opinion. The Regulation now also provides that the Commission may issue an opinion when it has relevant information in relation to that foreign direct investment. In addition and significantly, the Commission may issue an opinion following comments from other member states, but must do so after at least one-third of member states consider that a foreign direct investment is likely to affect their security or public order. As well, a member state that believes that a foreign direct investment on its territory is likely to affect its security or public order may request that the Commission issue an opinion or that other member states provide comments. Moreover, the same applies when the foreign direct investment is not undergoing screening in the member state of investment but another member state or the Commission consider that the investment is likely to affect security or public order in more than one member state or where they have relevant information in relation to that foreign investment.
  • The European Defense Industrial Development Program and the Permanent Structured Cooperation ("PESCO") are added to the list of programs of Union interest, which already included the Global Navigation Satellite System ("GNSS") programs Galileo and EGNOS, the Copernicus Programme and the Horizon 2020 Framework Programme for Research and Innovation, as well as the Trans-European Networks for Transport ("TEN-T"), Energy ("TEN-E") and Telecommunications.10
  • Whereas the EP had sought to extend the scope of the proposed Regulation to investments in the Exclusive Economic Zone (“EEZ”) of member states,11 this amendment has not been included in the final text.
  • The final text emphasizes the member states' prerogative to decide on measures in the field of the protection of essential security interests.12
  • The Regulation also formalizes the role of the Commission Expert Group on the screening of foreign direct investment into the EU, which had already been established in November 2017.13 According to Article 12(2), the expert group "shall continue to discuss issues related to the screening of foreign direct investments, share best practices and lessons learned, exchange views on trends and issues of common concern related to foreign direct investments." Discussions within the group are confidential. 
  • The Regulation now also provides, albeit in very discretionary terms, that the member states or the Commission "as appropriate, might consider" relevant information provided by economic operators, civil society organizations or social partners such as trade unions.14

In sum, the Regulation still does not impose a requirement on member states to adopt an FDI screening mechanism. However, the amendments adopted by the EP and Council would appear to grant the Commission more influence over screening decisions than initially foreseen by providing for the review of completed investment and by increasing the number of programs of "Union interest" that are covered by the Regulation. These changes may have an impact on potential investment into the EU.

Next Steps

A final plenary vote in the EP is expected in March 2019, after which the Regulation is expected to enter into force in spring/summer 2019. However, as per Article 17(1), the application of the Regulation will not start until 18 months after its entry into force.

For more information about the topics raised in this Legal Update, please contact one of the following members of the Mayer Brown Trade & Customs team in Brussels:

1European Parliament, Provisional Agreement Resulting from Interinstitutional Negotiations, December 6, 2018. Available at https://bit.ly/2R2wbBp

2European Commission, Proposal for a Regulation of the European Parliament and of the Council Establishing a Framework for Screening of Foreign Direct Investments into the European Union. Available at http://ec.europa.eu/transparency/regdoc/rep/1/2017/EN/COM-2017-487-F1-EN-MAIN-PART-1.PDF. See Mayer Brown's earlier Legal Updates https://www.mayerbrown.com/european-commission-proposes-framework-for-fdi-screening-mechanism-09-15-2017/ and https://www.mayerbrown.com/the-eus-proposed-framework-for-fdi-screening-mechanism--status-and-prospects-for-adoption-10-04-2018/.

3Recital (8) and Article 1(3) of the Regulation

4See Article 3 of the Regulation.

5 See Article 3(8) of the Regulation.

6 Article 8 of the Regulation.

7Article 4(3) TEU provides the following:

"3. Pursuant to the principle of sincere cooperation, the Union and the Member States shall, in full mutual respect, assist each other in carrying out tasks which flow from the Treaties.

The Member States shall take any appropriate measure, general or particular, to ensure fulfilment of the obligations arising out of the Treaties or resulting from the acts of the institutions of the Union.

The Member States shall facilitate the achievement of the Union's tasks and refrain from any measure which could jeopardise the attainment of the Union's objectives."

8Article 7(8) of the Regulation.

9Compare Article 6(4) of the proposed Regulation with Article 3(5) of the Regulation.

10Article 8(3) and the Annex to the Regulation.

11See http://www.europarl.europa.eu/sides/getDoc.do?type=REPORT&mode=XML&reference=A8-2018-0198&language=EN.

12See Article 346 of the TFEU.

13Commission Decision of  November 29, 2017 setting up the group of experts on the screening of foreign direct investments into the European Union, C(2017) 7866 final.

14Recital 14 of the Regulation.