Explanatory Memorandum to COM(2017)487 - Framework for screening of foreign direct investments into the EU - Main contents
Please note
This page contains a limited version of this dossier in the EU Monitor.
| dossier | COM(2017)487 - Framework for screening of foreign direct investments into the EU. |
|---|---|
| source | COM(2017)487  |
| date | 13-09-2017 |
1. CONTEXTOFTHEPROPOSAL
• Reasons for and objectives of the proposal
Being an important source of growth, jobs and innovation, foreign direct investment has always been essential for the economic and social development of the European Union. It has brought significant benefits to the Union and its citizens, supporting the objectives of the Commission's Investment Plan for Europe and contributing to other Union projects and programmes. This is why the EU maintains an open investment environment and welcomes foreign investment.
In its recent Reflection Paper on Harnessing Globalisation issued on 10 May 2017, the Commission confirmed that openness to foreign investment remains a key principle for the EU and a major source of growth, but at the same time it recognised that there have been some concerns about foreign investors, notably state-owned enterprises, taking over European companies with key technologies for strategic reasons, and that EU investors often do not enjoy the same rights to invest in the country from which the investment originates. The Commission confirmed that these concerns need careful analysis and appropriate action.
While the Union's openness to foreign direct investment will not change, it has to be accompanied by vigorous and effective policies to, on the one hand, open up other economies and ensure that everyone plays by the same rules, and, on the other hand, to protect critical European assets against investment that would be detrimental to legitimate interests of the Union or its Member States. The Commission Communication accompanying this proposal provides a broad overview of the policy responses to the globalisation challenges in the area of foreign direct investment. This proposal provides a policy response to protect legitimate interests with regard to foreign direct investments that raise concerns for security or public order of the Union or its Member States.
The objective of the draft Regulation is to establish a framework for the Member States, and in certain cases the Commission, to screen foreign direct investments in the European Union, while allowing Member States to take into account of their individual situations and national circumstances.
The proposed Regulation provides legal certainty for Member States that maintain a screening mechanism1 for foreign direct investment or that wish to adopt such mechanism, in view of the Union's exclusive competence in the area of the common commercial policy, which includes foreign direct investment, pursuant to Articles 3(1)(e) and 207 i of Treaty on the Functioning of the European Union ('TFEU').
The proposed enabling framework takes into account the existing diversity between Member States in relation to screening of foreign direct investments. Today, nearly half of the Member States have screening mechanisms in place, whereas the remaining Member States do not have such mechanisms. Moreover, the existing screening mechanisms are characterised by differences in scope and procedure: ex-ante/ex-post; voluntary/mandatory notification;
general/sectoral coverage; companies/assets; applicable to investments from other Member States and third countries or third countries only, etc. 2
The proposed Regulation does not require Member States to adopt or maintain a screening mechanism for foreign direct investment. Its objective is to create an enabling framework for Member States that already have or wish to put a screening mechanism in place, and to ensure that any such screening mechanism meets some basic requirements, such as the possibility of a judicial redress of decisions, non-discrimination between different third countries and transparency.
Its aim is further to establish a cooperation mechanism between the Member States and the Commission to inform each other of foreign direct investment that may threaten security or public order and to exchange information in this regard. This cooperation mechanism should also allow for an in-depth discussion between Member States and the Commission and a better coordination of any screening decision taken by the Member State or Member States concerned. Moreover, the cooperation mechanism should increase the awareness of Member States and the Commission about planned or completed foreign direct investments that may affect security or public order.
The proposed Regulation also provides that the Commission may carry out a screening on grounds of security and public order, in case where a foreign direct investment may affect projects or programmes of Union interest. Thus, the proposed Regulation provides for a complementary tool to protect such projects and programmes alongside existing sectorial Union legislation.
To achieve the envisaged cooperation among Member States and the Commission and to allow for a meaningful screening either by another Member State concerned or by the Commission in case projects or programmes of Union interest may be affected, the proposed Regulation requires Member States to inform other Member States and the Commission about any foreign direct investment that is undergoing screening within the framework of their national screening mechanisms. The proposed cooperation mechanisms will allow a Member State to raise concerns as regards a foreign direct investment in another Member State and to provide comments. The Commission may also issue a non-binding opinion on such foreign direct investment. Finally, it is proposed that Member States and the Commission may request on a case-by-case basis some basic information in relation to a specific foreign direct investment to be able to further assess whether such investment affects or threatens to affect security or public order.
This proposal shall not be considered an initiative within the Regulatory Fitness Programme (REFIT).
• Consistency with existing policy provisions in the policy area
The objective of the proposal is to support the overall policy objectives of the Union as laid out in Article 3 of the Treaty on European Union, notably as regards its relations with the wider world to uphold the Union's values and interests, and to contribute to the protection of its citizens, peace, security and free and fair trade.
These considerations are without prejudice to the question of the full compatibility of all screening
2
The proposal is fully in line with the 2015 'Trade for All' Communication3 to create a rules-based regime inter alia for investment as well as with the Commission 'Reflection Paper on Harnessing Globalisation' issued on 10 May 2017.
The proposed Regulation strikes the appropriate balance between, on the one hand, the objective of addressing legitimate concerns raised with regard to certain foreign direct investments and, on the other hand, the need to maintain an open and welcoming regime for such investment into the Union, while being fully compatible with EU law and international commitments. This proposal is accompanied by a Communication which sets out the wider context of this proposal.
• Consistency with other Union policies
The proposed Regulation will complement, is consistent with, and does not affect other Union policies and initiatives, which include in particular the following:
movement of capital and freedom of establishment
Foreign direct investment is a capital movement under Article 63 TFEU. Article 63 TFEU prohibits any restriction to capital movements between Member States and between Member States and third countries. Investment screening mechanisms may represent a restriction on the free movement of capital which, however, may be justified when necessary and proportionate for the achievement of the objectives defined in the Treaty, including on public security and public policy grounds (Article 65 TFEU) or for overriding reasons in the general interest, as defined by the Court of Justice of the European Union.
As clarified in the case law of the Court of Justice, whereas Member States enjoy discretion in determining public policy and public security requirements in the light of their national needs,4 those public interests cannot be determined unilaterally by the Member States without any control by the institutions of the EU and must be interpreted strictly: they may be relied on only if there is a genuine and sufficiently serious threat to a fundamental interest of society.5 Restrictions to the fundamental freedoms must not be misapplied so as to, in fact, serve purely economic ends. Furthermore, investment screening mechanisms should comply with the general principles of EU law, in particular the principles of proportionality and legal certainty. These principles require that the procedure and the criteria for the investment screening are defined in a non-discriminatory and sufficiently precise manner. Potential investors must be able to know such mechanisms in advance and to seek judicial review.
The proposed Regulation is consistent with these requirements. It confirms that Member States may screen foreign direct investments on grounds of security or public order and sets out basic procedural requirements for Member State's screening mechanisms, such as transparency, non-discrimination between different third countries and judicial review.
Foreign direct investment may lead to the establishment of a third country investor in the EU, e.g. when such an investment acquires a controlling stake in an EU-based undertaking. Article 49 TFEU prohibits restrictions on the freedom of establishment of nationals of a Member State in the territory of another Member State. Whereas Article 63 TFEU also applies to capital movements from third countries, Article 49 TFEU does not apply to the establishment
COM(2015)497, 14.10.2015.
Case C-265/95, Commission v France ("strawberries"), paragraph 33.
of third country nationals in the EU. Thus the proposed Regulation does not affect the Treaty provisions on freedom of establishment.
Foreign direct investments may take the form of mergers, acquisitions or joint ventures that constitute concentrations falling within the scope of the EU Merger Regulation6. In relation to such concentrations, Article 21 i of the EU Merger Regulation allows Member States to take appropriate measures to protect legitimate interests provided they are compatible with the general principles and other provisions of Union law. To that effect, Article 21 i, second paragraph, explicitly recognises the protection of public security, plurality of the media and prudential rules as legitimate interests. Screening decisions taken under the proposed Regulation to protect these interests do not need be communicated to the Commission under Article 21 i, third paragraph, provided they are compatible with the general principles and other provisions of Union law. By contrast, when a Member State intends to take a screening decision under the proposed Regulation to protect other public interests, it will need to communicate this to the Commission under Article 21 i, third paragraph, if the decision concerns a concentration that falls within the scope of the EU Merger Regulation. The Commission will ensure consistency in the application of the proposed Regulation and of Article 21 i.7 To the extent that the respective scope of application of the two regulations overlap, the grounds for screening set out in Article 1 of the proposed Regulation and the notion of legitimate interests within the meaning of Article 21 i, third paragraph, of the EU Merger Regulation should be interpreted in a coherent manner, without prejudice to the assessment of the compatibility of the national measures aimed at protecting these interests with the general principles and other provisions of Union law.
Over the years, the Union has adopted legislation to improve the security of supply in the field of energy of the Union and its Member States. The Critical Infrastructure Directive8 requires Member States to identify European Critical Infrastructure and prepare security plans. The Electricity and Gas Directives of the so-called Third Energy Package (Directive 2009/72/EC concerning common rules for the internal market in electricity;9 Directive 2009/73/EC concerning common rules for the internal market in natural gas10) contain provisions requiring the assessment of security of supply implications for the Member State concerned but also the EU as a whole where the gas or the electricity transmission system of a Member State is
undertakings (OJ L 24, 29.1.2004, p.
1).
In order to ensure a smooth handling of the foreign direct investment screening mechanism at national
level and the procedure pursuant to Article 21 i of the EU Merger Regulation, it could be useful that
Member States indicate whether a transaction is likely to fall within the scope of the EU Merger
Regulation when they inform the Commission and other Member States that they have started a
screening procedure pursuant to Article 8 i of the proposed Regulation.
Council Directive 2008/114/EC of 8 December 2008 on the identification and designation of European
critical infrastructures and the assessment of the need to improve their protection (OJ L 345,
23.12.2008, p.75).
common rules for the internal market in electricity and repealing Directive 2003/54/EC (OJ L 211,
14.8.2009, p. 55).
common rules for the internal market in natural gas and repealing Directive 2003/55/EC (OJ L 211,
6
8
9
10
Moreover, the Regulation on Security of Gas Supply11
focuses specifically on security of supply concerns and requires Member States to carry out Risk Assessments, at national and regional level, assessing all possible risks for the gas system, including the risks associated to the control of infrastructure relevant for security of supply by third country entities, and to prepare comprehensive Preventive Action Plans and Emergency Plans with measures to mitigate those risks. In the same vein, the proposal for Risk Preparedness12 contains similar provisions for the electricity sector. Energy entities are also expressly included in the Directive on network infrastructure security13 as essential services.
materials
To address the growing concern of securing valuable raw materials for the Union economy, the Commission launched the European Raw Materials Initiative in 2008. It is an integrated strategy that establishes targeted measures to secure and improve access to raw materials for the EU. One of the priority actions of the Initiative was to establish a list of Critical Raw Materials at the EU level. This list contains raw materials which reach or exceed thresholds for both Economic Importance and Supply Risk. The Commission established the first list in 2011 and has kept to the commitment to update it at least every three years to reflect market, production and technological developments14. A second list was published in 2014 and a new list is published in parallel to this Regulation.
The list of Critical Raw Materials should help to incentivise the European production of Critical Raw Materials and facilitate the launching of new mining and recycling activities. The Commission has in recent years taken account of the list of Critical Raw Materials through a wide range of actions in the areas of trade, international relations, research and innovation, knowledge base and circular economy. The EU supports complementary policy initiatives by Member States who are also involved in the preparation of the list of Critical Raw Materials.
The proposed Regulation will be complementary to EU policies in the fields of electronic communications, cybersecurity, critical infrastructure protection, and industrial
competitiveness in cybersecurity products and services. The Joint Communication by the Commission and the High Representative of the EU for Foreign Affairs and Security Policy on a Cybersecurity Strategy for the European Union laid out a vision for an open, safe, and secure cyberspace.15 This was followed by Regulation No 283/201416, which identifies projects of common interest in the field of trans-European networks in the area of telecommunications infrastructure. In addition, Directive 2016/1148 places obligations of
12
13
The new Regulation repealing Regulation (EU) No 994/2010 is currently in the adoption process and is expected to enter into force in autumn 2017.
COM (2016) 318, Proposal for a Regulation of the European Parliament and of the Council on risk-preparedness in the electricity sector and repealing Directive 2005/89/EC
Directive (EU) 2016/1148 of the European Parliament and of the Council of 6 July 2016 concerning measures for a high common level of security of network and information systems across the Union, OJ L 194, 19.7.2016, p. 1.
Communication 'Tackling the challenges in commodity markets and on raw materials', COM(2011)25 JOIN(2013) 1 final, 7.2.2013.
Regulation (EU) No 283/2014 of the European Parliament and of the Council of 11 March 2014 on guidelines for trans-European networks in the area of telecommunications infrastructure and repealing
11
cybersecurity preparedness on Member States and introduces preparedness and notification requirements for operators of essential services and for digital service providers.17 In July 2016, the Commission announced the launch of a public-private partnership on cybersecurity and additional market-oriented policy measures to boost industrial capabilities in Europe.18 EU funds from Horizon 2020 and the Connecting Europe Facility are also used for the above purposes. 19 In September 2017 the Commission has also put forward a Communication setting out a comprehensive EU approach to cybersecurity, including at global level; it also proposed a Regulation setting up an EU security certification framework for cybersecurity in order to prevent market fragmentation and to make it easier for users to know whether ICT products and services, including connected objects, are cyber-secure.
The proposed Regulation will not affect Regulation (EC) No 1008/2008 on common rules for the operation of air services in the Community20, since the latter does not set up an investment screening mechanism. Regulation (EC) No 1008/2008 provides as one of the conditions for granting an operating licence to an undertaking permitted to carry by air passengers, mail or cargo for remuneration or hire that Member States or nationals of Member States own more than 50% of the undertaking and effectively control it (Article 4).
of acquisitions in the financial sector
EU legislation in the financial sector provides for the power of competent authorities to carry out a prudential assessment of acquisitions and increases of holdings in financial institutions (i.e. credit institutions, investment firms, and insurance and reinsurance undertakings). It sets out notification requirements, procedural rules and evaluation criteria for such assessments. The objective of these provisions is to ensure the sound and prudent management of the financial institutions. These rules are set out in Directive 2007/44/EC concerning procedural rules and evaluation criteria for the prudential assessment of acquisitions and increase of holdings in the financial sector, Directive 2013/36/EU on access to the activity of credit institutions and the prudential supervision of credit institutions and investment firms, Directive 2009/138/EC on the taking-up and pursuit of the business of Insurance and Reinsurance (Solvency II) and Directive 2014/65/EU on markets in financial instruments21.
Directive (EU) 2016/1148 of the European Parliament and of the Council of 6 July 2016 concerning measures for a high common level of security of network and information systems across the Union Commission Communication COM(2016) 410 on Strengthening Europe's Cyber Resilience System and Fostering a Competitive and Innovative Cybersecurity Industry.
Regulation (EU) No 283/2014 of the European Parliament and of the Council of 11 March 2014 on guidelines for trans-European networks in the area of telecommunications infrastructure and repealing Decision No 1336/97/EC OJ L 293, 31.10.2008, p. 3.
Directive 2007/44/EC of the European Parliament and of the Council of 5 September 2007 amending Council Directive 92/49/EEC and Directives 2002/83/EC, 2004/39/EC, 2005/68/EC and 2006/48/EC as regards procedural rules and evaluation criteria for the prudential assessment of acquisitions and increase of holdings in the financial sector (OJ L 247, 21.9.2007, p. 1–16), Directive 2013/36/EU of the European Parliament and of the Council of 26 June 2013 on access to the activity of credit institutions and the prudential supervision of credit institutions and investment firms, amending Directive 2002/87/EC and repealing Directives 2006/48/EC and 2006/49/EC (OJ L 176, 27.6.2013, p. 338–436), Directive 2009/138/EC of the European Parliament and of the Council of 25 November 2009 on the taking-up and pursuit of the business of Insurance and Reinsurance (Solvency II) (OJ L 335, 17.12.2009, p. 1–155), Directive 2014/65/EU of the European Parliament and of the Council of 15 May 2014 on markets in financial instruments and amending Directive 2002/92/EC and Directive
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8
19
The proposed Regulation will not affect EU rules for the prudential review of acquisitions of qualifying holdings in the financial sector, which will remain a distinct procedure with a specific objective.
control
The proposed Regulation will not affect the dual-use export control governed by Regulation (EC) No 428/200922. Trade in dual-use items is subject to controls to prevent the risks that these items may pose for international security. Controls derive from international obligations and are in line with commitments agreed upon in multilateral export control regimes. The EU export control regime is governed by Regulation (EC) No 428/2009 setting up a Community regime for the control of exports, transfer, brokering and transit of dual-use items, which provides for common control rules, a common list of dual-use items as well as coordination and cooperation to support consistent implementation and enforcement throughout the Union. The Regulation is binding and directly applicable throughout the EU.
policy
In the Commission Communication on the space strategy for Europe, the Commission underlined the importance of addressing the vulnerability of European supply chains. The establishment of a framework for screening of foreign direct investment supports this objective.
2. LEGALBASIS, SUBSIDIARITYAND PROPORTIONALITY
• Legal basis
Foreign direct investment is included in the list of matters falling under the common commercial policy pursuant to Article 207 i TFEU. In accordance with Article 3(1)(e) of TFEU, the European Union has exclusive competence with respect to the common commercial policy. Accordingly, only the Union may legislate and adopt legally binding acts within that area.
• Subsidiarity (for non-exclusive competence)
Not applicable. The European Union has exclusive competence with respect to foreign direct investment, which is included in the list of matters falling under the common commercial policy pursuant to Article 207 i TFEU.
• Proportionality
The provisions in this proposal are limited to what is necessary in order to attain the objectives of the Regulation and therefore comply with the principles of proportionality.
The proposal creates an enabling framework for Member States to screen foreign direct investments on grounds of security and public order. The proposed regulation does not require Member States to adopt a screening mechanism for foreign direct investment, nor does it exhaustively mandate the substantive or procedural features for screening mechanisms. It only sets out basic requirements that should be common to Member States' screening mechanisms.
Council Regulation (EC) No 428/2009 of 5 May 2009 setting up a Community regime for the control of
22
The proposal creates a cooperation mechanism between Member States to share information about foreign direct investment planned or completed on the territory of one or several Member States. It also provides the possibility for other Member States and the Commission to comment on such investment, but leaves the final decision on the appropriate response to the Member States in which the investment is planned or completed.
Moreover, the proposal introduces the possibility for the Commission to screen foreign direct investments which are likely to affect projects or programmes of Union interest on security and public order grounds. Projects or programmes of union interest include in particular those involving a substantial EU funding, or established by Union legislation regarding critical infrastructure, critical technology or critical inputs. In order to ensure transparency and legal certainty, an indicative list of projects or programmes of Union interest is included in the annex to the Regulation. The scope of the screening remains limited to likely threats to security and public order. The Commission will be able to provide an opinion to the Member States in which the investment is planned or completed, while entrusting the final decision on the appropriate response to those Member States.
Finally, although a number of requirements already exist at EU and Member State level on the disclosure of major shareholdings23, these requirements essentially concern listed companies and do not contain an obligation to provide the information necessary to conduct a full assessment of planned or completed foreign direct investments. The proposed Regulation therefore introduces the means for Member States and the Commission to request information for the purposes of implementing the proposed Regulation, whilst limiting the burden on Member States, investors and EU companies by not requiring them to provide this information upfront.
• Choice of the instrument
Article 207(2) TFEU provides that the European Parliament and the Council shall adopt the measures defining the framework for implementing the common commercial policy by means of regulations in accordance with the ordinary legislative procedure.
3. RESULTS OF EX-POST EVALUATIONS, STAKEHOLDER
Contents
- CONSULTATIONS
- A mechanism allowing the State to monitor foreign investments in companies/sectors considered of
- These considerations are without prejudice to the question of the full compatibility of all screening
- Free
- Case C-463/00, Commission v Spain, paragraph 34; Case C-212/09 Commission v Portugal, paragraph
- EU Merger Regulation
- Energy
- Council Regulation (EC) No 139/2004 of 20 January 2004 on the control of concentrations between
- In order to ensure a smooth handling of the foreign direct investment screening mechanism at national
- Member States indicate whether a transaction is likely to fall within the scope of the EU Merger
- Council Directive 2008/114/EC of 8 December 2008 on the identification and designation of European
- Directive 2009/72/EC of the European Parliament and of the Council of 13 July 2009 concerning
- Directive 2009/73/EC of the European Parliament and of the Council of 13 July 2009 concerning
- controlled by a third country operator. Moreover, the Regulation on Security of
- Raw
- Cybersecurity and electronic communications
- 14 15 16
- COM (2016) 318, Proposal for a Regulation of the European Parliament and of the Council on risk-preparedness in the electricity sector and repealing Directive 2005/89/EC
- Regulation (EU) No 283/2014 of the European Parliament and of the Council of 11 March 2014 on guidelines for trans-European networks in the area of telecommunications infrastructure and repealing
- Air transport
- Prudential assessment
- 20 21
- Dual-use export
- European space
- Council Regulation (EC) No 428/2009 of 5 May 2009 setting up a Community regime for the control of
- When making its proposal, the Commission ensured that it is in line with the best practices of the OECD as enshrined in its Guidelines for Recipient Country Investment Policies Relating
- The proposed Regulation introduces the means for Member States and the Commission to request information to screen foreign direct investments that raise concerns for security or
- Not applicable
- Article 6 lays down the essential elements of the procedural framework for the screening of foreign direct investment by Member States. Such a procedural framework will allow
- The proposed Regulation introduces in Article 3(2) the possibility for the Commission to screen foreign direct investments that are likely to affect projects or programmes of Union
ANDIMPACTASSESSMENTS
• Ex-post evaluations/fitness checks of existing legislation
This proposed Regulation is a new policy initiative, which is linked to the exclusive competence on foreign direct investment being part of the common commercial policy, conferred upon the Union by the Lisbon Treaty. There has been no existing legislation on foreign investment screening at EU level so far.
• Stakeholder consultations
Given the substantive scope of the Commission's Proposal for a Regulation and in particular its objective of, inter alia, ensuring EU coordination for screening foreign direct investment into the European Union on grounds of security or public order, the Commission has conducted consultations with Member States that have been actively seeking an EU
See in particular Directive 2004/109/EC of 15 December 2004 on the harmonisation of transparency requirements in relation to information about issuers whose securities are admitted to trading on a regulated market and amending Directive 2001/34/EC (OJ, L390, 31.12.2004, p. 38); Directive
23
intervention in this policy area, and also some other Member States, irrespective whether they maintain or not a national investment screening mechanisms.
• Collection and use of expertise
When designing its proposal for a Regulation, the Commission used in the first place expertise and experience of the Member States that maintain in place and operate investment screening mechanisms. The proposal also takes into account third countries' experience in screening foreign direct investment. In this respect, the Commission relied on the information made available by its major trading partners in the process of informal consultations or acquired through trade negotiations, as well as on information which is widely available to the public.
When making its proposal, the Commission ensured that it is in line with the best practices of the OECD as enshrined in its Guidelines for Recipient Country Investment Policies Relating
to National Security.
• Impact assessment
The Union is one of the most open economies to incoming foreign direct investment. Inward investments to the EU are constantly growing. They increasingly focus on particular sectors, on larger than average enterprises, and increasingly emanate from state owned enterprises or investors with strong links to governments. In contrast to this, since 2016, at global level, restrictions to foreign direct investment are increasing.
Recently, a series of take-overs of European companies involved foreign investors with strong ties to their home governments which strategy focus on the purchase of European companies that develop technologies or maintain infrastructures that are essential to perform critical functions in society and the economy. The ultimate risk is that such investment could be detrimental to security and public order of the Union or its Member States. The combination of these developments triggered concerns of European citizens, companies and Member States. These concerns need careful analysis and appropriate action, as announced in the Commission Reflection paper on Harnessing Globalisation, issued on 10 May 2017.
In view of the rapidly changing economic reality, growing concerns of citizens and Member States, the proposal is exceptionally presented without an accompanying impact assessment. The proposal targets specifically the main issues identified at this stage in a proportionate manner. Other elements will be further assessed in the study announced in the Communication accompanying this Regulation. In the meantime the Commission proposal for Regulation is accompanied by a Staff working document providing a factual description of foreign takeovers in the EU on the basis of the available data, as well as a brief analysis of the issue at stake.
The Commission Communication accompanying the Proposal for a Regulation announces an in-depth analysis of investment flows into the EU in particular those in strategic sectors or assets which may raise security or public order concerns. The analysis will include data collection, analysis of trends, and assessment of impact, including through case studies. Its results will feed into the decision-making process.
• Regulatory fitness and simplification
The proposed Regulation introduces the means for Member States and the Commission to request information to screen foreign direct investments that raise concerns for security or
public order. The information obligations are designed to limit the burden on Member States, investors and EU companies, e.g. by not requiring them to provide certain information upfront, but only at request. Wherever the proposed Regulation envisages the possibility for Member States to provide comments, or the Commission to issue an opinion, very strict deadlines are established to minimise burden for Member States that operate screening mechanisms, and ultimately for investors that are subject to screening.
• Fundamental rights
This proposed Regulation will not affect the protection of fundamental rights.
4. BUDGETARYIMPLICATIONS
There are no other budgetary implications than administrative costs (see Financial Statement annexed to this proposal).
5. OTHERELEMENTS
• Implementation plans and monitoring, evaluation and reporting arrangements
Monitoring of implementation will be carried out in cooperation with Member States in order to ensure that competent authorities implement the requirements of the proposed Regulation effectively and consistently. To this end, the proposal requires Member States to establish Contact Points, and the accompanying Communication mentions the establishment of a Coordination Group consisting of Member States' representatives, who will meet regularly to consider, inter alia, any question relating to implementation of the Regulation.
The Commission will undertake an evaluation of this Regulation no later than three years after its entry into force in order to assess the actual impacts and evaluate its efficiency and effectiveness and the extent to which its results are consistent with the objectives. The Commission will communicate the results of this evaluation to the European Parliament and the Council.
• Explanatory documents (for directives)
• Detailed explanation of the specific provisions of the proposal
Subject matter, scope and definitions (Articles 1 and 2)
This Regulation aims to establish a comprehensive enabling framework for the screening of foreign direct investments within the Union. Article 1 confirms that foreign direct investment may be screened by the Member States and the Commission on the grounds of security or public order. The grounds for investment screening are defined in compliance with the relevant requirements for the imposition of restrictive measures based on grounds of security or public order stipulated in the WTO Agreement (including in particular Article XIV(a) and Article XIV bis of the GATS), and in other trade and investment agreements or arrangements to which the Union or its Member States are parties.
For the purpose of this Regulation, Article 2 lays down a number of applicable definitions. In particular it clarifies that foreign direct investment covers a broad range of investments which establish or maintain lasting and direct links between investors from third countries and
Member States. It
undertakings carrying out an economic activity in Member States. It does not cover portfolio investments.
Union framework for investment screening (Articles 3 and 4)
for investment
Several Member States have national mechanisms in place, according to which the movement of capital, inter alia, between Member States and third countries on grounds of public policy or public security, can be restrained. At the same time, foreign direct investment falls within the common commercial policy, and in accordance with Article 3(1)(e) of the TFEU, the Union has exclusive competence with respect to the common commercial policy. In order to provide legal certainty, Article 3 i confirms that Member States may continue maintaining and amending existing or adopting new measures to screen investment on the grounds of security or public order, taking into account their national circumstances and in accordance with the proposed Regulation.
In addition, the Commission should have the possibility to screen foreign direct investments that are likely to affect projects or programmes of Union interest on the grounds of security or public order, which is provided for in Article 3(2). Projects and programmes of Union interest serve the Union as whole and represent an important contribution to economic growth, jobs and competitiveness for the Union economy and industry. Projects and programmes of Union interest may either involve a substantial EU funding or are established by Union legislation regarding critical infrastructure, critical technologies or critical inputs. To ensure transparency, an indicative list of projects and programmes of Union interest is included in Annex 1.
In order to guide Member States and the Commission in the application of the Regulation, Article 4 provides a non-exhaustive list of factors that may be taken into consideration when screening foreign direct investment on the grounds of security or public order. This list of factors also intends to provide clarity to investors considering making or having made foreign direct investments in the Union. In determining whether a foreign direct investment may affect security or public order, Member States and the Commission should consider all relevant factors, including the effects on critical infrastructure, technologies, including key enabling technologies, and inputs which are essential for security or the maintenance of public order. In that regard, Member States and the Commission should also be able to take into account whether a foreign investor is controlled directly or indirectly by the government of a third country, including through significant funding.
Anti-circumvention (Article 5)
In order to ensure the effectiveness of their screening mechanisms and decisions, Member States should be able to maintain, amend or adopt measures necessary to prevent their circumvention. Such measures may include the screening, in compliance with EU law, of direct investments carried out by an undertaking formed in accordance with the law of a Member State and owned or controlled by a foreign investor, when the investment is made through artificial arrangements within the EU that do not reflect economic reality and circumvent the screening mechanisms. They should however not affect the fundamental freedoms established under the TFEU.
Procedural framework for Member States' screening (Article 6)
Article 6 lays down the essential elements of the procedural framework for the screening of foreign direct investment by Member States. Such a procedural framework will allow
investors, the Commission and other Member States to better understand how investments are likely to be screened and to ensure that these investments are screened in a transparent manner and that there will be no discrimination between different third countries. Those elements include in particular the establishment of timeframes for the screening, which have to take into account the timelines for the screening at EU level. The procedural framework for Member States' screening mechanisms should also establish a possibility for investors to seek judicial redress of screening decisions.
Cooperation mechanism (Article 8)
The Regulation provides for a mechanism allowing Member States to cooperate and assist each other when foreign direct investment is likely to affect their security or public order. Potentially affected Member States should have the possibility to provide comments to the Member States in which an investment is planned or completed, whether or not any of the Member States concerned maintains a screening mechanism or is conducting a screening of the investment. This cooperation should allow Member States to exchange information and coordinate, where possible, their response, as the case may be, to the foreign direct investment.
The Member States conducting a screening of a foreign direct investment should inform the other Member States of the ongoing screening. This should permit those Member States to receive comments from other Member States at an early stage and to usefully take them into consideration in their screening process. Furthermore, it will allow other Member States to consider whether a related foreign direct investment which is also planned or completed on their territory may warrant a screening under their own screening mechanism.
The screening Member State should allow other Member States to provide comments within a reasonable timeframe of 25 working days. The screening Member States should allow for sufficient time in their screening mechanism for the comments of other Member States to be given due consideration, but shall retain the ultimate decision-making power with respect to the foreign direct investment subject to screening.
The Commission should also be informed of foreign direct investments undergoing screening under a Member State's screening mechanism on the grounds of security or public order. The Commission should also have the possibility to provide comments (in the form of an opinion) to the Member State in which the screening is ongoing or in which the investment is planned or completed, within a reasonable timeframe. In order to take account of the comments made by Member States, the Commission should have an additional period of 25 working days to determine whether to issue such an opinion to the Member States in which the investment is planned or has taken place.
Affected Member States may provide comments and the Commission may address comments to a Member State in which a foreign direct investment is planned or is completed, even if that Member State does not maintain a screening mechanism or does not conduct a screening of that investment. In such a case, that Member State may consider these comments and opinion in its broader policy making.
Commission screening concerning projects or programmes of Union interest (Articles 3 and 9)
The proposed Regulation introduces in Article 3(2) the possibility for the Commission to screen foreign direct investments that are likely to affect projects or programmes of Union
interest on grounds of security or public order. An Annex to the proposed Regulation provides for an illustrative list of such projects or programmes of Union interest in order to ensure the necessary transparency for investors and for Member States.
In those specific cases, the Commission may address an opinion to the Member States in which the investment is planned or completed where it considers that the investment is likely to threaten security or public order. The screening grounds shall always be security and public order and the Commission should be able to consider a number of factors, including those enumerated in Article 4. In its screening, the Commission should also consider the existence of specific legislation at EU level.24
The Member States concerned shall take utmost account of the Commission's opinion and provide an explanation to the Commission in case its opinion is not followed. Those Member States to which an opinion is addressed and that are conducting a screening of the foreign direct investment under their screening mechanisms, shall integrate the Commission's opinion in their screening process. Those Member States to which an opinion is addressed and that are not conducting a screening should consider ways of taking it into account whether through their screening mechanism or, in the absence of such screening mechanism, in their broader policy making.
Notification and information requirements (Articles 7 and 10)
Article 7 requires Member States to notify to the Commission their screening mechanisms as well as any amendments to such mechanisms within a certain timeframe. In addition, Member States will have to provide the Commission with annual reports on the application of their screening mechanisms, which shall include as a minimum: information on investments subject to screening, including indication of sector, origin and value of investment subject to screening, as well as information on screening decisions either prohibiting an investment or subjecting such investment to conditions. Member States that do not maintain a screening mechanism should also report covering foreign direct investments that took place in their territory, on the basis of information available to them.
In order to facilitate the cooperation with other Member States and the screening of foreign direct investment by the Commission, Article 10 establishes an obligation on all Member States, irrespective of whether they have a screening mechanism, to ensure a minimum level of information on foreign direct investments falling under the scope of the Regulation. Such minimum level of information on a foreign direct investment should be made available by a Member State upon request of another Member State, or the Commission. Relevant information includes aspects such as the ownership structure of the foreign investor, and the financing of the planned or completed investment, including, when available, information about subsides granted by third countries.
Confidentiality (Article 11)
24
See, for example, Regulation 2008/114 on the identification of European critical infrastructure, Directive 2009/73 on common rules for the internal market in natural gas and Directive 2009/72 on common rules for the internal market in electricity, Regulation 428/2009 setting up a Community regime for the control of exports, transfer, brokering and transit of dual-use items, Directive 2016/1148 on network infrastructure security, new Regulation on safeguards to the security of gas supply,
Article 11 ensures that information acquired in the application of the Regulation is used only for the purpose for which it was requested, and that any confidential information is protected.
Contact Points (Article 12)
In order to ensure a smooth and efficient implementation of the Regulation, and in particular to reinforce the communication and cooperation between Member States, and between Member States and the Commission, Article 12 requires Member States to establish within their administrations contact points for the screening of foreign direct investments, which could be contacted on all issues relating to the implementation of the Regulation.
In addition, as referred to in the Commission Communication accompanying this proposal, the Commission will set up a coordination group with regard to the screening of foreign direct investment consisting of Member States' representatives and the Commission. The Group would meet regularly to consider issues relating to foreign direct investment into the EU, including those arising from the implementation of the Regulation. This group could provide a forum for exchanging information between Member States on, inter alia, foreign direct investments flows and trends, as well as best practices for screening foreign direct investments.