Under the new rules informally agreed by EU co-legislators, foreign investments in sensitive sectors such as defence, semiconductors, artificial intelligence, critical rawmaterials and financial services will be subject to mandatory screening by member states,in order toidentify and address potential security or public order risks.
The procedures applicable to national screening mechanisms will be streamlined, thereby reducing complexity and making the EU a more attractive place to invest. Cooperation among national screening authorities and with the Commission will be enhanced, facilitating coordination and joint action on cross-border security risks. The new law will also cover transactions within the EU where the investor is ultimately owned by individuals or entities from a non-EU country.
In a statement adopted as part of the political agreement on the new regulation, the European Parliament and the Commission agree on the need for further action at Union level to address economic security risks resulting from foreign investments. The Commission also commits to take an initiative to set out conditions for foreign investments in specific strategic sectors.
Parliament’s rapporteur Raphaël Glucksmann (S&D, FR) said:“These were intense negotiations because we had strongly diverged views between Parliament and Council on the concept of economic security and the Union’s role in safeguarding it. The spirit of compromise ultimately prevailed, and the outcome will deliver important improvements in the way foreign investment is handled by Member States and the Commission. Clearer and faster procedures will enhance the EU’s attractiveness, while a streamlined cooperation mechanism will ensure that all Member States can raise their security concerns effectively. Our debates with Council underscored the need for further action at European level to ensure not only that foreign investments do not pose immediate security risks, but also that they bring added value to the Union. We welcome the Commission’s commitment to work on this matter. The Parliament is ready.”
Bernd Lange (S&D, DE),Chair of the international trade committee, added: “The EU welcomes investors from across the globe who contribute to job creation, knowledge transfer and increased productivity throughout our continent. At the same time, such investments must not endanger the Union’s security or public order. The revised Foreign Investment Screening Regulation offers investors greater clarity regarding risk criteria and establishes transparent, harmonised rules for national screening authorities. By requiring all Member States to implement a screening mechanism and by strengthening cooperation among them, the regulation closes potential loopholes for high-risk investments in the internal market. Moreover, the European Parliament successfully advocated for a broader minimum scope of the national screening mechanisms, ensuring that investments in particularly critical sectors must be screened by all Member States.”
Background
The current foreign direct investment screening regulation entered into applicationon 11 October 2020. It aims to safeguard the EU’s security and public order by providing a framework for identifying and addressing potential security or public order risks relating to foreign direct investments, while remaining open to foreign capital inflows. It also established a cooperation mechanism between Member States and the European Commission. Following an evaluation of the functioning of the current regulation, the Commission submitted its proposal on the revision of the FDI screening regulation in January 2024. The legislative proposal aims to address identified deficiencies and is a corepart of the EU’s economic security agenda.
Next steps
The provisional agreement will need to be formally adopted by both Parliament and Council before it can enter into force.
Discussion about this post