The EU has reached a provisional agreement that requires all member states to enhance screening of foreign direct investment (FDI) into the bloc, especially in sensitive sectors such as defence, AI and critical minerals.
This agreement, reached between the Council’s presidency and representatives of the European Parliament, seeks to strengthen the bloc’s capacity to identify, assess and address risks from specific foreign investments in sensitive sectors, while maintaining openness to global trade.
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The revised framework builds upon the existing FDI screening system, which has been in effect since October 2020.
The new agreement requires all member states to implement screening mechanisms with a common minimum scope. Investments made through EU subsidiaries will also be included in the screening process.
According to a Financial Times report last month, the EU had announced its intention to review its foreign investment framework, with a focus on ensuring that investments by Chinese companies provide tangible benefits to local workers and support technology transfer.
The agreement seeks to bring greater “consistency across national mechanisms”, decrease administrative complexity for investors and ensure that cross-border security concerns are addressed.
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By GlobalDataMember states are required to establish screening mechanisms covering a defined set of sensitive areas including dual-use items and military equipment; “hyper-critical technologies” such as AI, semiconductors and quantum technologies; critical raw materials; and critical entities in transport, energy and digital infrastructure, the EU said in a release.
The revision to the regulation also covers electoral infrastructures such as voting systems and databases, and a “limited list” of financial system entities, including central counterparties, operators of regulated markets, central securities depositories, operators of payment systems (excluding central banks) and “systemically important” institutions.
Screening decisions will remain under the exclusive authority of the member state where the investment is made.
Decisions regarding the approval, conditioning or prohibition of investments remain the sole responsibility of the member state.
The agreement maintains this principle while enhancing “transparency and coordination” among national authorities and the EC.
According to the EU, where comments from other member states or an opinion from the Commission are issued, the screening member state would explain the way these were considered, including reasons for any disagreement, with no prejudice to “sensitive national security considerations”.
The commission “may assist” the host member state in collecting the information.
Operational aspects of the framework have also been clarified. These include the introduction of a “shared database to prevent circumvention” and facilitate the exchange of experience among authorities; an optional single portal for electronic filing of foreign investments (to be established on the request of a minimum of nine member states), and risk factor clarification for foreign investment assessment.
Prior to formal adoption, the provisional agreement will be submitted for endorsement by the Council and the Parliament.
The rules will come into effect 18 months after the regulation enters into force.
The revision forms part of the EC’s 2024 package on strengthening the economic security of the EU.
Denmark’s Industry, Business and Financial Affairs Minister, Morten Bødskov, said: “Today’s agreement strengthens the EU’s capacity to protect its security and public order, while ensuring Europe remains an attractive destination for investors.
“We achieved a balanced and proportionate framework, focused on the most sensitive technologies and infrastructures, respectful of national prerogatives and efficient for authorities and businesses alike.”
Last year, the Commission adopted five initiatives to tighten trade with non-EU actors and improve the screening of FDIs within the bloc, recommending that all member states implement a screening mechanism for direct investments from abroad to strengthen scrutiny of non-EU business initiatives across their territory.
