COVID-19: EU urges vigilance around foreign investment

The European Commission has issued Guidance to Member States on foreign direct investment (FDI), urging them to use all available tools at EU and national level to protect "Europe's strategic assets" in the current crisis.

The Guidance responds to concerns expressed by Member States that the EU’s strategic industries are at risk of opportunistic investments from outside the EU, which may affect the EU’s ability to respond to the COVID-19 pandemic.

The Guidance notes that there could be an increased risk of attempts to acquire healthcare capacities (such as personal protective equipment) or related industries (such as research establishments) via FDI. In such instances, the Commission stresses the importance of ensuring that any such FDI does not have a harmful impact on the EU's capacity to cover the healthcare needs of its citizens.

The Guidance is not legally binding, nor does it bestow any new powers on Member States or EU institutions. However, it is a timely reminder of existing laws, particularly the Regulation on FDI screening (the Regulation), which applies across the EU from 11 October 2020. It is also a good indicator of the Commission's view of FDI screening as a more EU-centric concern and its ambitions for future development of laws in this area.

As well as highlighting features of the Regulation, the Guidance emphasises the importance of FDI screening more broadly in the current circumstances for protecting, not only national interests, but those of the EU as a whole. The Commission:

  • Calls on Member States with screening mechanisms already in place to "make full use" of the tools available to them under EU and national law to guard against FDI that could undermine security or public order in the EU
  • Encourages Member States without comprehensive screening mechanisms in place to set up a "full-fledged screening mechanism" and to consider other available options in the meantime
  • Urges Member States to be particularly vigilant to ensure that "the current health crisis does not result in a sell-off of Europe’s business and industrial actors, including SMEs"
  • Encourages cooperation between Member States where FDI could have an effect on the EU single market
  • Notes that, in the analysis of justification and proportionality, investments from non-EU countries might be prevented on broader grounds than would apply to intra-European investments

Regulation on FDI screening - key features

  • Applies to FDI from third countries across all sectors and not subject to any thresholds
  • Empowers Member States to review investments on the grounds of security or public order and to take measures to address specific risks
  • Explicitly refers to risks to critical infrastructure, critical technologies and critical inputs amongst the factors to be considered when screening a foreign investment
  • Member States may impose mitigating measures (such as supply commitments) or prevent a foreign investor taking control of a company
  • The Commission can issue opinions and other Member States may make comments on planned or completed FDI for the purpose of protecting security or public order, even where a Member State has not taken any action
  • The Member State is required to give these opinions "due consideration", but ultimately, the final decision on FDI remains the sole responsibility of the Member State
  • The Commission can conduct ex post reviews of transactions, as the Regulation includes a 15-month look-back mechanism (so, for example, ex post reviews of transactions occurring in March 2020 will be possible until June 2021)

For a more comprehensive overview of the Regulation, see our article from last year when the legislation was introduced. Gina Conheady, Partner and Head of our San Francisco office, has also published an article discussing aspects of these latest developments, which you can read here.

For more information on this topic please contact Julie Murray, Knowledge Lawyer or any member of A&L Goodbody's Corporate and M&A team. 

Date published: 8 April 2020