As part of its efforts to tackle the public health crisis and related economic vulnerability caused by the COVID-19 outbreak, the European Commission published on 25 March 2020 a Guidance to the Member States concerning foreign direct investments ("FDIs") and free movement of capital from third countries ("Guidance")1. The Guidance builds upon the Communication on the coordinated economic response to the COVID-19 Outbreak which invited the EU Member States "to be vigilant and use all tools available at Union and national level to avoid that the current crisis leads to a loss of critical assets and technology".2

The Guidance directs Member States to take all necessary measures to protect strategic industries, which may be weakened by the pervasive effects on the economy of the COVID-19 and thus threatened by foreign takeovers. Reference is made in particular to acquisitions of "healthcare capacities (for example for the productions of medical or protective equipment) or related industries such as research establishments" due to the potential risks they may have on the EU's capacity to cover the health needs of its citizens. At the same time, the Guidance recognizes that the existence of potential risks goes well beyond the healthcare-related industries3. Member States are therefore requested to exercise vigilance with regard to all strategic assets, as they "are crucial to Europe’s security, (…) part of the backbone of its economy and, as a result, of its capability for a fast recovery".

In practical terms, the Guidance calls upon Member States to implement tougher controls, which go beyond the Regulation (EU) 2019/452 ("FDI Screening Regulation"4), while anticipating the coordination mechanism foreseen under the FDI Screening Regulation:

  • Member States which already have FDI screening mechanisms on grounds of security or public order are invited to make full use of these mechanisms.
  • Member States which do not have a FDI screening mechanism or whose screening mechanism does not cover all relevant transactions are urged to set up a full-fledged screening mechanism and in the meantime to use all other available options to address risks to security or public order resulting from FDIs.
  • The importance of screening FDIs, regardless of value, is emphasized as "[s]mall start-ups, for instance, may have a relatively limited value but may be of strategic importance on issues like research or technology".
  • The European Commission emphasizes that options currently available under EU laws are not limited to the FDI Screening Regulation. Restrictions on foreign investments can be imposed on the basis of overriding reasons in the general interest, in compliance with Article 63 of the Treaty on the Functioning of the European Union ("TFEU"). 
  • Options to regulate foreign investment (including portfolio investments) can include outright prohibition, but also mitigating measures (e.g., supply commitments for critical inputs, compulsory licenses on patented medicines, regulatory measures imposing public service obligations on all companies operating in certain sectors) and holding of golden shares.
  • Member States are asked to coordinate their actions in relation to FDIs which may affect the EU single market, in view of "the interdepencies that exist in an integrated market like the European one".
  • In relation to the COVID 19 outbreak, the European Commission stresses that (i) public health concerns can justify screening or restricting FDIs (both under the FDI Screening Regulation and Article 63 TFEU) and (ii) FDIs affecting projects or programmes of Union interest, such as future projects in response to the COVID 19 outbreak, will be subject to a closer scrutiny by the European Commission.

From a legal perspective, the Guidance is not binding on Member States. Nonetheless, it is likely to have significant political and practical effects on Member States' approach towards FDI.

First, there appears to be a political momentum and consensus towards tougher FDI screenings. In a joint letter to European Council President Charles Michel, the heads of Belgium, France, Greece, Ireland, Italy, Luxembourg, Portugal, Slovenia and Spain already called for a coordinated approach "to make sure that essential value chains can fully function within the EU borders and that no strategic assets fall prey of hostile takeovers during this phase of economic difficulties"5. Member States, during the EU Summit of 26 March 2020, also welcomed the Guidance and agreed to take “all necessary measures to protect strategic assets and technology from foreign investments that could threaten legitimate public policy objectives”.6

Second, the Guidance acts as a warning, putting pressure on ongoing negotiations. While the FDI Screening Regulation will be applicable as from 11 October 2020, Member States and the Commission may provide comments and opinions within 15 months after a FDI has been completed. The Guidance makes clear that FDIs completed in March 2020 could be subject to ex post comments or opinions until June 2021, which could lead to measures being taken by the Member State where the FDI was completed.
Third, by listing the various bases on which Member States can restrict FDIs, the European Commission encourages Member States to be proactive in controlling and restricting FDIs, as this limits the risks of infringement procedures for failure to act in compliance with the requirements relating to free movement of capital under Article 63 TFEU.

Therefore, ongoing and future negotiations relating to the acquisition of undertakings involved in strategic sectors, in particular in healthcare-related industries, should fully consider the potential impact of the Guidance and the risks of enhanced FDI monitoring.

1 Communication from the Commission, Guidance to the Member States concerning foreign direct investment and free movement of capital from third countries, and the protection of Europe’s strategic assets, ahead of the application of Regulation (EU) 2019/452 (FDI Screening Regulation), 25.3.2020, C(2020) 1981 final, available at:
2 Communication from the Commission to the European Parliament, the European Council, the Council, the European Central Bank, the European Investment Bank and the Eurogroup, Coordinated economic response to the COVID-19 Outbreak, 13.3.2020, COM(2020) 112 final, available at:
3 The Guidance notably considers that there is need to ensure " the continued critical capacity of EU industry, going well beyond the healthcare sector ".
4 This Regulation establishes a framework for screening FDIs into the EU, which will apply as from 11 October 2020. Further information is available in our alert of 21 March 2019, EU FDI Screening Regulation Published in Official Journal, available at:
5 Letter to European Council President Charles Michel, 25.03.2020, available at:
6 Joint statement of the members of the European Council, 26 March 2020, available at: