Foreign Investment in EU 2024

Foreign Investment in EU 2024

FOREIGN INVESTMENT 2024

EUROPEAN UNION

Charles Pommiès, Dominic Long

(Allen & Overy LLP)

LAW AND POLICY

Policies and practices

1. What, in general terms, are your government’s policies and practices regarding oversight and review of foreign investment?

The European Union (the EU) is one of the most open destinations for foreign direct investment in the world. The EU recognizes the key role that foreign direct investment can play in contributing to member states’ growth, for instance by (1) enhancing competitiveness; (2) creating jobs and economies of scale; (3) bringing in capital, technologies, innovation and expertise; and (4) opening new markets for EU exports.

The European Commission (the Commission) noted in a working document on foreign direct investment in the EU dated 13 March 2019 (SWD(2019) 108 final): ‘Although foreign ownership is widespread across virtually all sectors of the EU economy, it is remarkably high in a number of sectors that are at the heart of the economy, such as oil refining (67 per cent of total assets of the sector), pharmaceuticals (56 per cent), electronic and optical products (54 per cent), insurance (45 per cent) or electrical equipment (39 per cent).’ The same working document noted that: ‘In terms of countries of origin, the “traditional” main investors in the EU – i.e. advanced economies such as the US, Switzerland, Norway, Canada, Australia, Japan – remain well ahead and still control more than 80 per cent of all foreign-owned assets. They started investing a long time ago and have kept their acquisition rates constant over time.’ In recent years, however, there has been an increasing diversity of countries investing in the EU and the data also clearly shows the emergence of new investors. Investments and acquisitions from emerging countries are typically concentrated in a much more limited number of sectors, but they are becoming increasingly visible in a number of sub-sectors. Notably, these include investors from China (e.g, in aircraft manufacturing and specialized machinery) and India (e.g, in pharmaceuticals), as well as offshore investors.

The Treaty of Lisbon (which entered into force on 1 December 2009) extended the scope of trade policy to include foreign direct investment, thus making foreign direct investment an exclusive competence of the EU. Before the Treaty of Lisbon, investment was generally considered an area of mixed competence, which meant that both the EU and its member states could maintain and adopt instruments such as international investment agreements.

Main laws

2. What are the main laws that directly or indirectly regulate acquisitions and investments by foreign nationals and investors on the basis of the national interest?

The debate surrounding foreign direct investment entering the EU became a pre-eminent issue in February 2017 when the French, German and Italian ministers for the economy requested action at the EU level. Subsequently, on 13 September 2017, Jean-Claude Juncker, then President of the Commission, spoke before the European Parliament and confirmed that the EU would remain open to foreign direct investment but should devise ‘vigorous and effective policies’ to ensure a level playing field with the rest of the world, and to ‘protect critical European assets against investment that would be detrimental to legitimate interests of the Union or its Member States’. President Juncker highlighted the ‘political responsibility’ to ensure that foreign direct investment in certain industries ‘should only happen in transparency, with scrutiny and debate’.

The Commission’s proposal that followed was a response to the EU’s decentralized and fragmented system of monitoring foreign direct investment inflows, as well as member states’ concerns about the lack of reciprocity with EU trade partners. Member states had pointed out the imbalance created by increased flows of foreign direct investment by non-EU investors with strong ties to their home governments that often target sectors considered to be of strategic national and EU importance, such as energy, telecommunications and technology.

This debate eventually led to the adoption of Regulation (EU) 2019/452 of the European Parliament and of the Council of 19 March 2019 establishing a framework for the screening of foreign direct investments into the Union, the EU Foreign Direct Investment Regulation (the EU FDI Regulation). The EU FDI Regulation entered into force on 10 April 2019. The cooperation mechanism between member states and the Commission, one of the key features of the EU FDI Regulation, became effective on 11 October 2020.

The Commission also noted at the height of the Covid crisis that member states can intervene in certain cases outside of screening mechanisms – for instance, by imposing compulsory licenses on patented medicines in the event of a national emergency, such as a pandemic. It also pointed to the possibility for national governments to take ‘golden shares’ in companies, which usually grant the state special rights, if this is ‘necessary and proportionate to achieve a legitimate public policy objective’.

For completeness, it should be noted that article 21 of Council Regulation (EC) No. 139/2004 of 20 January 2004 on the control of concentrations between undertakings, the EU Merger Regulation (EUMR) recognizes the right of member states to take appropriate measures in relation to transactions requiring notification to the Commission under the EUMR to protect legitimate interests other than maintaining competition in the relevant markets. These include, in particular, public security, plurality of the media and prudential rules (in effect, financial stability). Article 21 of the EUMR also leaves open the possibility that other public interests may be recognized by the Commission as legitimate, at the request of a member state, after an assessment of their compatibility with general EU law principles. Individual member states have used this provision to protect national interests in the context of acquisitions of businesses operating in the defense, media and financial services sectors that would otherwise fall within the exclusive jurisdiction of the Commission under the EUMR. Importantly, however, these provisions are not expressed as applying specifically or exclusively to acquisitions or investments by foreign entities (and indeed have been used to review domestic mergers in addition to takeovers by foreign entities).

Scope of application

3. Outline the scope of application of these laws, including what kinds of investments or transactions are caught. Are minority interests caught? Are there specific sectors over which the authorities have a power to oversee and prevent foreign investment or sectors that are the subject of special scrutiny?

The EU FDI Regulation creates an enabling framework for member states to screen foreign direct investment on grounds of security and public order. It confirms that member states may continue to maintain and amend existing foreign direct investment screening measures, or adopt new measures, taking into account their national circumstances.

Importantly, however, member states are not required to adopt a foreign direct investment screening mechanism. That said, the Commission firmly expects all member states to establish a comprehensive national foreign direct investment screening mechanism in the near future as this is considered to be an indispensable tool to safeguard the EU against potentially risky foreign investments from third countries.

A key feature of the EU FDI Regulation is the creation of channels for communication and collaboration between member states and the Commission, to facilitate the sharing of information about planned or completed foreign direct investment in the territory of one or several member states. Through such channels, member states are also able to comment on investments taking place in other member states that may affect their security or public order. Further, the Commission may itself issue an opinion on an investment that may affect security or public order in more than one member state. However, the final decision on the appropriate response to any particular foreign direct investment rests exclusively with the specific member states reviewing that investment – they must give due consideration to the comments or opinion received (and in limited cases take ‘utmost account’ of the Commission’s opinions), but they are not bound by them.

The EU FDI Regulation also provides that every member state that has a foreign direct investment screening mechanism has to ensure that it complies with basic substantive and procedural requirements.

In terms of substance, the EU FDI Regulation lays out a non-exhaustive list of effects that may be taken into consideration by member states when screening foreign direct investment. These include effects on critical infrastructure, technologies, sensitive information and inputs that are essential for security or the maintenance of public order. Crucially, the EU FDI Regulation states that, when assessing these effects, member states and the Commission should 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.

The EU FDI Regulation also outlines the essential elements of a procedural framework to allow investors, the Commission and member states to understand better how investments are likely to be screened across member states and to ensure transparency and non-discrimination between third countries. In particular, the EU FDI Regulation provides that national foreign direct investment screening regimes should have clear time frames, which allow them to take into account comments by other member states and the opinions of the Commission. The EU FDI Regulation also provides that individual investors should have the possibility to seek recourse against screening decisions.

Definitions

4. How is a foreign investor or foreign investment defined in the applicable law?

A foreign investor is defined in the EU FDI Regulation as a natural person of any non-EU country or an undertaking of any non-EU country, intending to make or having made a foreign direct investment.

A foreign direct investment is defined in the EU FDI Regulation as an investment of any kind by a foreign investor aiming to establish or to maintain lasting and direct links between the foreign investor and the entrepreneur to whom, or the undertaking to which, the capital is made available in order to carry on an economic activity in a member state. This includes investments that enable effective participation in the management or control of a company carrying out an economic activity.

Special rules for SOEs and SWFs

5. Are there special rules for investments made by foreign state-owned enterprises (SOEs) and sovereign wealth funds (SWFs)? How is an SOE or SWF defined?

Non-EU SOEs and SWFs are covered by the EU FDI Regulation’s general definition of foreign investors. No special rules apply to non-EU SOEs and SWFs. The EU FDI Regulation imposes upon member states an obligation to ensure that their national foreign direct investment screening mechanisms do not discriminate between non-EU countries.

However, article 4(2)(a) of the EU FDI Regulation provides that one particular factor that member states and the Commission may take into account when determining whether a foreign direct investment is likely to affect security or public order, is whether the foreign investor is directly or indirectly controlled by the government of a non-EU country. This includes state bodies or armed forces, and encompasses control through ownership structure or significant funding.

Relevant authorities

6. Which officials or bodies are the competent authorities to review mergers or acquisitions on national interest grounds?

The EU FDI Regulation provides that each member state and the Commission must establish a contact point that will be involved in all issues relating to the implementation of the EU FDI Regulation.

Within the Commission itself, the day-to-day responsibilities in relation to the implementation of the EU FDI Regulation are handled by the Directorate-General for Trade. Unit TRADE-F-4 manages the consultation procedures put in place by the EU FDI Regulation. That unit acts as a focal point for cooperation with member states’ representatives as well as with subject-matter experts of other Commission services, other EU institutions and the European External Action Service, the EU’s diplomatic service.

In addition, a group of experts on the screening of foreign direct investments into the EU has been created. The group of experts is chaired by the Commission and is composed of representatives of member states’ authorities. All member states take part in the group, irrespective of whether they have a national screening mechanism in place. The group of experts does not discuss individual foreign direct investment cases. Instead, its mission is to provide advice and expertise to the Commission on issues relating to the screening of foreign direct investments, share best practices and lessons learned, and exchange views on trends and issues of common concern relating to foreign direct investments. The group of experts must also be consulted on systemic issues relating to the implementation of the EU FDI Regulation, as well as implementing rules in relation to the list of projects and programs of EU interest annexed to the EU FDI Regulation.

7. Notwithstanding the above-mentioned laws and policies, how much discretion do the authorities have to approve or reject transactions on national interest grounds?

The EU FDI Regulation does not foresee any centralized screening mechanism at the EU level by which the Commission, or any other EU institution, would have the final say on foreign direct investments. Rather, the final decision will be made by the member states undertaking screening under their national rules.

The EU FDI Regulation does not allow for the screening of foreign direct investments based on concerns other than security and public order.

PROCEDURE

Jurisdictional thresholds

8. What jurisdictional thresholds trigger a review or application of the law? Is filing mandatory?

The EU Foreign Direct Investment Regulation (the EU FDI Regulation) sets out a list of factors that member states and the Commission are encouraged (but in no way mandated) to consider when determining if a foreign direct investment is likely to affect security or public order, including:

• critical infrastructure, whether physical or virtual (including energy, transport, water, health, communications, media, data processing or storage, aerospace, defense, electoral or financial infrastructure, and sensitive facilities), as well as land and real estate crucial for the use of such infrastructure;
• critical technologies and ‘dual-use items’ (i.e, software and technology that can be used for both civil and military purposes, as defined in article 2(1) of Council Regulation (EC) No. 428/2009) including artificial intelligence, robotics, semiconductors, cybersecurity, aerospace, defense, energy storage, quantum and nuclear technologies, as well as nanotechnologies and biotechnologies;
• supply of critical inputs, including energy or raw materials, as well as food security;
• access to sensitive information, including personal data, or the ability to control such information; or
• the freedom and pluralism of the media.

In addition, in determining whether a foreign direct investment is likely to affect security or public order, member states and the European Commission (the Commission) may also take into account, in particular, 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 in a member state; or
• there is a serious risk that the foreign investor engages in illegal or criminal activities.

National interest clearance

9. What is the procedure for obtaining national interest clearance of transactions and other investments? Are there any filing fees? Is filing mandatory?

The EU FDI Regulation does not foresee any centralized screening mechanism at the EU level by which the Commission or any other EU institution would have the final say on foreign investments.

The obligation to notify under the EU FDI Regulation is incumbent on the member states undertaking the screening under their national rules. Member states must notify the Commission and the other member states of any foreign direct investment in their territory that is undergoing screening as soon as possible.

The information that member states should communicate to other member states and the Commission as part of that notification, or in response to requests for additional information (irrespective of whether a foreign direct investment is subject to a screening procedure), includes:

• the ownership structure of the foreign investor and of the undertaking in which the foreign direct investment is planned or has been completed, including information on the ultimate investor and participation in the capital;
• the approximate value of the foreign direct investment;
• the products, services and business operations of the foreign investor and of the undertaking in which the foreign direct investment is planned or has been completed;
• the relevant business operations of the foreign investor and the undertaking in which the foreign direct investment is planned or has been completed;
• the funding of the investment and its source, on the basis of the best information available to the member state; and
• the date when the foreign direct investment is planned to be completed or has been completed.

The notification may also include a list of member states whose security or public order is deemed likely to be affected.

Finally, and where applicable, the member state undertaking the screening must endeavor, as part of the notification, to indicate whether it considers that the foreign direct investment undergoing screening is:

• likely to affect projects or programs of EU interest (i.e, projects involving substantial funding from the EU or established by EU legislation, such as Galileo, the EU’s global satellite navigation system; Horizon 2020, which facilitates research, innovation and key enabling technologies; and the Trans-European Networks for Energy, which focuses on energy infrastructure); or
• likely to fall within the scope of the EU Merger Regulation; or both.

Such information should be provided by the screening member state without undue delay further to article 9 of the EU FDI Regulation.

The Commission published, on 19 April 2021, a template notification form (the Commission’s form) that member states should use to compile the required information. It noted that the Commission’s form should enhance the quality of information submitted by member states, thereby enabling a swift review by other member states and the Commission and eventually speeding up the decision-making process in the reviewing member states.

10. Which party is responsible for securing approval?

The obligation to notify under the EU FDI Regulation is incumbent on the member states undertaking the screening under their national rules. Member states must notify the Commission and the other member states of any foreign direct investment in their territory that is undergoing screening as soon as possible.

Businesses (investors or target undertakings) are not required to directly notify transactions to the Commission or to other member states where the investment concerned does not trigger the application of the national screening regime.

Review process

11. How long does the review process take? What factors determine the timelines for clearance? Are there any exemptions, or any expedited or ‘fast-track’ options?

The review process starts when a member state notifies the Commission and the other member states of any foreign direct investment in its territory that is undergoing screening. This notification should happen as soon as possible after the relevant member state has started its own review under the applicable national regime. The notification should include all relevant information describing the proposed investment and the foreign investors concerned.

No later than 15 calendar days following receipt of the notification, other member states and the Commission must notify the member state undertaking the screening of their intention to provide comments (in the case of member states) or an opinion (in the case of the Commission). Within that time frame, other member states and the Commission may also request that the member state undertaking the screening provide additional information. Any request for additional information must be duly justified, limited to information necessary to provide comments or to issue an opinion, proportionate to the purpose of the request and not unduly burdensome for the member state undertaking the screening. Requests for information and replies provided by member states must be sent to the Commission simultaneously.

Where a member state considers that a foreign direct investment undergoing screening in another member state is likely to affect its security or public order, or has information relevant for such screening, it may provide comments to the member state undertaking the screening. Comments should be addressed to the member state undertaking the screening and sent to the Commission simultaneously. The Commission must notify the other member states that comments were provided. Comments should be sent to the member state undertaking the screening within a reasonable period of time, and in any case no later than 35 calendar days following receipt of the notification. However, if additional information was requested, comments should be sent by member states no later than 20 calendar days following receipt of the additional information.

Likewise, 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, or has relevant information in relation to that foreign direct investment, it may issue an opinion addressed to the member state undertaking the screening. The Commission may issue an opinion irrespective of whether other member states have provided comments. The Commission may also issue an opinion following comments from other member states. In addition, if at least one-third of member states consider that a foreign direct investment is likely to affect their security or public order, the Commission is required to issue such an opinion where justified. In all cases, the Commission must notify the other member states that an opinion was issued. It should send any opinion to the member state undertaking the screening within a reasonable period of time, and in any case no later than 35 calendar days following receipt of the notification. However, if additional information was requested, the Commission should send an opinion no later than 20 calendar days following receipt of the additional information. In addition, and by way of exception to the standard timeline, the Commission may issue an opinion following comments from other member states, no later than five calendar days after the deadlines applicable to member states have expired.

Finally, the EU FDI Regulation allows for a swifter process where the need for immediate action is duly justified. Indeed, in exceptional cases where the member state undertaking the screening considers that its security or public order requires immediate action, it must notify the other member states and the Commission of its intention to issue a screening decision before the time frames referred to above. In such a case, the other member states and the Commission should endeavor to provide comments or to issue an opinion expeditiously.

12. Must the review be completed before the parties can close the transaction? What are the penalties or other consequences if the parties implement the transaction before clearance is obtained?

Whether a foreign direct investment can be completed before clearance by the relevant national authority is a matter of applicable national law. Member states remain free to decide whether to adopt a national screening regime. For those member states that have a national screening regime, there is no obligation under the EU FDI Regulation to impose a suspension obligation.

No penalties can be imposed on foreign investors under the EU FDI Regulation.

Involvement of authorities

13. Can formal or informal guidance from the authorities be obtained prior to a filing being made? Do the authorities expect pre-filing dialogue or meetings?

The EU FDI Regulation does not foresee that foreign investors have direct access to the Commission. The cooperation mechanism set out by the EU FDI Regulation starts only from the time the member state screening a foreign direct investment notifies other member states and the Commission, or when a member state or the Commission requests information from a member state because it considers that a foreign direct investment not undergoing screening is likely to affect security or public order.

14. When are government relations, public affairs, lobbying or other specialists made use of to support the review of a transaction by the authorities? Are there any other lawful informal procedures to facilitate or expedite clearance?

The Commission has stated that it will assess risks to security or public order based on information received from the member state where the investment is planned or completed, or from other available sources, but that it will not contact investors or other stakeholders directly. Instead, the Commission will rely on member states, which are under an obligation to provide information to the Commission or other member states, to request necessary information directly from businesses.

Foreign investors or target undertakings may hire lawyers, lobbyists, industry-specific subject-matter experts, or other specialists in government relations or public affairs, to prepare the national filing and support the review at national level as well as to assist the parties and the national authority in understanding the European context. However, these specialists are not granted direct access to the Commission under the EU FDI Regulation.

15. What post-closing or retroactive powers do the authorities have to review, challenge or unwind a transaction that was not otherwise subject to pre-merger review?

Even in the absence of any formal foreign direct investment investigation, any member state and the Commission can draw attention to a planned or completed foreign investment in another member state. This possibility remains open up to 15 months after completion of the investment. As in the case of a foreign direct investment undertaking screening, a member state may receive comments from other member states or opinions from the Commission, and it is under an obligation to take them into account. The EU FDI Regulation does not prescribe what consequences this process will have on member states where no screening regime exists or where no ex-post scrutiny is foreseen. However, the recitals to the EU FDI Regulation, referring to member states’ general duty of sincere cooperation, strongly encourage member states to consider measures available under their national law or in their broader policy-making.

SUBSTANTIVE ASSESSMENT

Substantive test

16. What is the substantive test for clearance and on whom is the onus for showing the transaction does or does not satisfy the test?

Article 3(1) of the EU Foreign Direct Investment Regulation (the EU FDI Regulation) provides that ‘Member States may maintain, amend or adopt mechanisms to screen foreign direct investments in their territory on the grounds of security or public order.’ The EU FDI Regulation does not allow for the screening of foreign direct investments based on concerns other than security and public order.

The EU FDI Regulation is without prejudice to:

• the right of member states to derogate from the free movement of capital on grounds of public policy or public security, as provided for in article 65(1)(b) of the Treaty on the Functioning of the European Union (TFEU);
• the sole responsibility of member states for safeguarding their national security, as provided for in article 4(2) of the Treaty on European Union; and
• the protection by member states of their essential security interests in accordance with article 346 of the TFEU, which provides that any member state may take such measures as it considers necessary for the protection of the essential interests of its security which are connected with the production of or trade in arms, munitions and war material.

17. To what extent will the authorities consult or cooperate with officials in other countries during the substantive assessment?

One of the key features of the EU FDI Regulation is to put in place a framework for consultation and cooperation between member states and with the European Commission (the Commission). Although the final decision on any individual transaction is made by the member states undertaking screening in accordance with their national rules, the member states undertaking the screening have an obligation to give due consideration to the comments of the other member states and to the opinion of the Commission.

In the case of foreign direct investment affecting projects or programs of EU interest (i.e, projects involving substantial funding from the EU or established by EU legislation, such as Galileo, the EU’s global satellite navigation system; Horizon 2020, which facilitates research, innovation and key enabling technologies; and the Trans-European Networks for Energy, which focuses on energy infrastructure), the Commission’s opinions must be given ‘utmost account’ by member states undertaking screening. Where these opinions are not followed, the member states are obliged to provide an explanation to the Commission.

Other relevant parties

18. What other parties may become involved in the review process? What rights and standing do complainants have?

The EU FDI Regulation does not foresee that third parties (other than the national contact points established by the member states for the purpose of implementing the EU FDI Regulation) have direct access to the Commission.

Prohibition and objections to transaction

19. What powers do the authorities have to prohibit or otherwise interfere with a transaction?

The Commission does not have the power to prohibit, unwind or otherwise directly interfere with a transaction. The final decision will be made by the member states undertaking screening under their national rules.

20. Is it possible to remedy or avoid the authorities’ objections to a transaction, for example, by giving undertakings or agreeing to other mitigation arrangements?

The Commission does not have the power to impose remedies on a transaction. The final decision will be made by the member states undertaking screening in accordance with their national rules.

Challenge and appeal

21. Can a negative decision be challenged or appealed?

The opinions issued by the Commission cannot be challenged or appealed because they are not binding on their addressees (i.e, the member states undertaking the screening of a particular transaction) and do not adversely affect foreign investors or other parties. Furthermore, the Commission has stated that it will not disclose information on any opinion issued on individual transactions including to the foreign investors or target undertakings concerned.

Importantly, however, the EU FDI Regulation provides that foreign investors and target undertakings concerned should have the possibility to seek recourse against screening decisions of the national authorities. Whether this recourse is in the form of judicial review or otherwise is a matter of national law.

Confidential information

22. What safeguards are in place to protect confidential information from being disseminated and what are the consequences if confidentiality is breached?

The ability to exchange confidential information is critical to the proper operation of the cooperation mechanism put in place by the EU FDI Regulation. Member states and the Commission have an obligation to take all necessary measures to protect the confidentiality of the information (including commercially sensitive information) acquired as a result of the application of the EU FDI Regulation in accordance with EU law and the respective national law. They should also ensure that classified information provided or exchanged under the EU FDI Regulation is not downgraded or declassified without the prior written consent of the originator.

The EU FDI Regulation further provides that any information received can be used only for the purpose for which it was requested.

In practical terms, the Commission has established a secure and encrypted system of communications to support direct cooperation and exchange of information between the contact points at national level and the Commission.

RECENT CASES

Relevant recent case law

23. Discuss in detail up to three recent cases that reflect how the foregoing laws and policies were applied and the outcome, including, where possible, examples of rejections.

As at 13 November 2023, the cooperation mechanism created by the EU Foreign Direct Investment Regulation has been fully effective for three years. The European Commission (Commission) has stated that it will not disclose information related to specific cases (including the fact that notifications have been received or opinions issued). There is no information otherwise publicly available on specific cases to date. Commission officials as well as officials of national authorities, however, have confirmed that the cooperation mechanism started to operate as soon as it became effective on 11 October 2020.

According to the Third Annual Report on the screening of foreign direct investments into the Union, published by the Commission on 19 October 2023, a total of 423 transactions were submitted by 17 member states in 2022. Austria, Denmark, France, Germany, Italy and Spain were responsible for more than 90 per cent of those notifications. The four sectors with the highest number of transactions were:

• manufacturing;
• ICT;
• professional activities; and
• wholesale and retail.

The notified transactions show a broad range in terms of value, with the lowest deal value at less than one euro and the highest at approximately €25 billion. Of the 423 cases, 81 per cent were closed by the Commission without additional information being requested from the notifying member state.

86 per cent of formally screened cases in 2022 were authorized unconditionally. And only nine per cent of cases involved the negotiation or imposition of conditions or mitigating measures from investors prior to approval – a substantial drop from 23 per cent in 2021. Frustration of transactions remains rare: in 2021, just one per cent of decided cases were blocked, while for a further 4 per cent the transaction was withdrawn by the parties prior to any decision.

UPDATE AND TRENDS IN FOREIGN INVESTMENT IN EU

Key developments of the past year

24. Are there any developments, emerging trends or hot topics in foreign investment review regulation in your jurisdiction? Are there any current proposed changes in the law or policy that will have an impact on foreign investment and national interest review?

Revision of the Regulation

The European Commission (the Commission) is completing an evaluation of the EU Foreign Direct Investment Regulation (the EU FDI Regulation). In June 2023, it launched a consultation on a replacement regulation and stated that its experience with the current framework ‘shows that a number of issues could be improved’.

The Commission articulated the risk that the definition of investments covered means that potentially problematic indirect non-EU investments are not caught. In July 2023, following a request for a preliminary ruling from a Hungarian court, the European Court of Justice confirmed that the EU FDI Regulation does not apply to investments in the EU made by companies registered in a member state that are controlled by a third country investor (case C-106/22, 13 July 2023, Xella Magayarország Építóanyagipari Kft). However, member states deem themselves to be entitled to enact national foreign investment screening mechanisms covering indirect or intra-EU acquisitions, subject to compliance with EU fundamental freedoms.

The Commission also identified problem areas in national screening systems: uneven sectoral and transaction coverage as well as a lack of homogeneity in procedural aspects including investigation and approval deadlines.

The Commission expects to propose a revision of the EU FDI Regulation before the end of 2023.

Investment from Russia and Belarus

On 6 April 2022, the Commission published a communication providing guidance to member states concerning foreign direct investment from Russia and Belarus in view of the military aggression against Ukraine and the restrictive measures laid down in European Council regulations on sanctions. The Commission is of the view that Russia’s military aggression against Ukraine calls for greater vigilance towards Russian and Belarusian investments into the EU and that there is a significantly heightened risk that foreign direct investment (FDI) by Russian and Belarusian investors poses a threat to security and public order. The Commission called on all member states to set up and vigorously enforce FDI screening mechanisms to address cases where the acquisition or control of a particular business, infrastructure or technology would create a risk to security or public order in the EU.

In 2022, Russia accounted for less than 1.4 per cent of the cases notified by the member states to the European Commission and Belarus for 0.2 per cent.

Foreign subsidies

In a White Paper on leveling the playing field as regards foreign subsidies, published on 17 June 2020, the Commission opened a public debate on new legal instruments to remedy market distortions caused by companies supported by public entities outside the EU. The Commission mentioned several instances of such distortions, including cases in which foreign subsidies appeared to have facilitated the acquisition of European companies, impacted other investment decisions or otherwise influenced the market behavior of their beneficiaries. This, according to the Commission, contrasts with the rigorous rules governing state aid granted by member states, which effectively prevent any form of support that could hinder competition in the EU’s internal market other than in very limited circumstances.

The Commission also considered at the time of the White Paper that the current regulatory framework is not fit for protecting European interests because none of the legal instruments available properly addresses the issue of foreign subsidies. Merger control and antitrust rules focus on consumer welfare, while national foreign investment control regimes (including the EU’s common screening framework) tackle the risk of threats to security and public order. EU trade policy instruments, including the EU anti-dumping and anti-subsidy rules, as well as World Trade Organization law, have considerable limitations.

A draft regulation on foreign subsidies distorting the internal market was published on 5 May 2021. The text went through the legislative procedure rapidly and the final version of the text was adopted on 14 December 2022 (the Foreign Subsidies Regulation). Most of the provisions of the Foreign Subsidies Regulation took effect on 12 July 2023, and additional provisions on notification obligations became applicable on 12 October 2023.

Foreign subsidies can now come under intense scrutiny in the EU, and, if found to be distorting the market, the Commission is able to apply extensive enforcement powers to prevent companies from benefiting from zero-interest loans, below-cost financing, preferential tax treatment or direct state grants outbidding EU competitors in mergers, acquisitions or public procurement procedures. State companies, which often receive subsidies, are also explicitly included in the scope of the Foreign Subsidies Regulation.

Among other provisions, the Foreign Subsidies Regulation puts in place a new regime for certain transactions backed by foreign subsidies. Filings under this new regime are separate from, and run in parallel to, any other filing under the EU’s Merger Regulation or national foreign investment control mechanisms. The new provisions enable the Commission to investigate planned mergers and acquisitions if one of the parties involved has an EU turnover of at least €500 million and the parties have received foreign financial contributions of at least €50 million in the previous three years. The Commission may also investigate tenders in public procurement involving a foreign financial contribution where the value of a procurement is at least €250 million.

The Foreign Subsidies Regulation obliges the Commission to issue guidelines at the latest in January 2026 on how it assesses the market-distorting nature of foreign subsidies and judges a subsidy’s market distorting effect against its potential benefits.

* The information in this chapter was accurate as at November 2023.

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