The European Commission has added to its call to Member States to act on foreign direct investment (“FDI”) by announcing that it is ready to support EU-level cooperation on FDI now. Spurred on by the COVID-19 crisis and the perceived vulnerability of key EU assets, the informal cooperation announced by the Commission will bring into effect early certain elements of the EU-level screening mechanism under the EU FDI Regulation that would otherwise have come into force in October 2020.

We consider what this announcement means and share some additional insights into the current approach of the Commission and Directorate-General Trade (“DG Trade”) to the subject of FDI based on a recent forum including senior officials.

 Announcement of Early Cooperation on Foreign Direct Investment

 On 16 April, at a meeting of EU Trade Ministers, EU Trade Commissioner Phil Hogan confirmed that “the Commission is ready to start an informal cooperation with Member States on FDI screening”.

Mr Hogan has said that, in the near future, DG Trade will provide further information on the practical means for this early cooperation on FDI among Member States and the Commission to occur. In the meantime, as part of his request to EU Trade Ministers to confirm their political support for early cooperation, Mr Hogan stated that he expects EU activity in FDI to have two elements in this period of informal cooperation:

  • Monitoring of ongoing and planned foreign acquisitions and sharing the relevant information among Member States – a process led by the Commission and in which Member States are expected to share relevant information with the Commission in the first instance; and
  • Voluntary exchanges on pending FDI screening cases among Member States – to which the Commission would also be willing to contribute information it holds.

An apparent priority for the Commission, and DG Trade specifically, is to foster a degree of alignment of activities and actions across Member States in connection with FDI. The Commission wants to be informed and it wants to facilitate cooperation among Member States. Within this approach, there is a clear awareness that protecting assets necessary to deal with the healthcare emergency caused by the COVID-19 pandemic is an immediate concern. Moreover, in order to emerge from the economic crisis associated with the pandemic, there is a need to support critical industries and projects for the longer term as local assets and yet, where appropriate, also to maintain an openness to FDI as part of the framework to aid recovery.

Crucially, it does not appear that the Commission is seeking to initiate its right under the EU FDI Regulation to provide a non-binding opinion on foreign investment in Member States before October 2020. The cooperation among Member States will therefore be voluntary and without a specific outcome, for the time being and over the coming six month period.

Nonetheless, companies and investors will want to know how to navigate these informal exchanges among the Commission and Member States and ensure that their views are heard. The informality of the current cooperation will present its own challenges for those subject to, or potentially subject to, FDI review. It also remains important to understand what approach the Commission will take in coordinating the screening of FDI in Europe beginning in October when the EU FDI Regulation comes into full effect.

DG Trade Prioritises Legal Tools in Member States and Due Process

Other conversations with the Commission have provided some answers to these questions as well as some general guidance as to the current outlook from DG Trade. In particular, Carlo Pettinato, Head of the Investment Policy Unit within DG Trade, spoke with a group of interested advisers in April to offer some further explanation of the Commission’s concerns and priorities at this juncture.

What we learned from these discussions is that DG Trade is focused on the request to Member States (reviewed in our earlier alert) to use existing laws and adopt new measures, in each case, where necessary, to address appropriately the challenge and the opportunity presented by FDI. DG Trade is particularly keen to open more dialogue with Member States that have not yet adopted any kind of FDI review mechanism and to ensure that it does not have any “blind spots” in terms of actions and information relating to EU FDI.

Alongside this, the Commission remains committed to proper legal process and the overall framework for reviewing FDI which is laid down in Article 3 of the EU FDI Regulation and which mandates that Member State screening mechanisms must be (i) transparent, (ii) applied in a manner that is non-discriminatory, (iii) provide for redress and (iv) set out clear criteria for any transactions that require prior authorisation. Mr Pettinato noted that it is open to Member States to include “any sector” in their national FDI reviewing and screening regimes, but that Member States should always establish a link between the matters and areas identified for review and national security and public order. One implication of this approach appears to be that, in many instances, the COVID-19 crisis will be that sufficient link between a sector and the elements of national security and public order.

I. Ex-Post Review by the Commission

Where the EU FDI Regulation provides for EU-level coordination and screening of foreign investment beginning in October 2020, Mr Pettinato explained two key points:

  • First, consistent with a general rule set down in Article 7 of the EU FDI Regulation, the Commission and Member States are able to engage in an ex-post review of transactions within a period of 15 months from completion of an investment. As such, all foreign investment occurring since April 2019 is therefore potentially subject to review by the Commission beginning in October.
  • Second, in any ex-post review, the Commission will not seek (and we would add, does not have the power under the EU FDI Regulation) to impose a binding order in respect of a transaction or require this action by a Member State – including, for divestment or unwinding of a transaction. Instead, the Commission will aim to look for recommendations as a result of an ex-post review, and to suggest appropriate measures and policies to refine the EU environment for FDI.

More generally, we note that it is already anticipated that the Commission will provide further guidance on EU-level screening and cooperation under the EU FDI Regulation prior to the October commencement date.

II. A Note on the United Kingdom and the Impact of Brexit

What also became evident from Mr Pettinato’s comments is that EU-level coordination on FDI will not include the United Kingdom, either during the present period of informal, early cooperation or when the EU-level screening mechanism comes into full force on 11 October 2020. Under the arrangements for the UK’s transition and withdrawal from the EU, the “Acquis Communautaire is preserved up to the date of 31 January 2020, which was the date the United Kingdom officially ceased to be a Member State, and later EU measures do not apply to the United Kingdom.

It remains, perhaps, to be seen whether the United Kingdom and the Commission, or even individual Member States and the United Kingdom, will maintain some form of discourse on FDI matters where their interests intersect. Just as, it is known that both the United Kingdom authorities and the Commission each have, separately, a fairly open conversation with the Committee on Foreign Investment in the United States.

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Photo of Horst Henschen Horst Henschen

Horst Henschen has been advising international companies on their significant strategic antitrust and competition matters for over 25 years. He acts for buyers, sellers, and financial investors in merger control proceedings including in Joint Venture scenarios and defending companies against unsolicited takeovers. Horst…

Horst Henschen has been advising international companies on their significant strategic antitrust and competition matters for over 25 years. He acts for buyers, sellers, and financial investors in merger control proceedings including in Joint Venture scenarios and defending companies against unsolicited takeovers. Horst advises companies in significant (international) cartel investigations and on dominance issues.

In addition, Horst has advised numerous investors and target companies in international and German Foreign Direct Investment (“FDI”) proceedings helping in building up the firm’s ex-US FDI initiative.

Horst is a member of the firm’s global antitrust and competition team and heads the firm’s German competition practice. He is part of our cross-office FDI team that works in close cooperation with the firm’s CFIUS colleagues.