European Commission adopts Second Report on the EU Foreign Direct Investment Regime
The European Union (EU) has been developing a sophisticated Foreign Direct Investment (FDI) screening regime.
This FDI screening regime revolves around Regulation 2019/452. The EU Regulation does not oblige the 27 EU Member States to each adopt a national screening mechanism. However, the EU encourages Member States to have national screening mechanisms. In that context, Ireland is currently enacting FDI legislation – the Screening of Third Country Transactions Bill 2022 – which is part of the process of adopting an Irish FDI screening regime.
On 1 September 2022, the European Commission adopted its second annual report on the application of the EU Regulation. The report is sent by the Commission to the European Parliament and Council. It is a useful source of information on how the EU FDI regime operates (The first annual report on the FDI Screening Regulation had been adopted on 21 November 2021 and was a useful insight into the Commission's thinking on the issues involved so it is useful to have the second report so soon).
This 22-page second annual report contains some useful insights into what happened in the EU FDI world during 2021:
- the Commission believes that the FDI Screening Regulation and the co-operation mechanism are working well
- the Commission says that the FDI regime has worked efficiently
- during 2021, 13 Member States submitted a total of 414 notifications; with the vast majority closed in Phase 1 (86%), 11% going into Phase 2 and less than 3% requiring a Commission opinion – interestingly, the top four economic sectors involved in the Phase 2 cases were defence (25% of Phase 2 cases), energy (21%), aerospace (20%) and semiconductors (18%) – these are among the most sensitive sectors in terms of FDI screening
- five Member States (Austria, France, Germany, Italy and Spain) represented 85% of notifications to the Commission
- the Commission says that there have been no reported unauthorised disclosures/leaks regarding notifications, opinions or other action under the Regulation – it is critically important that there would be no breach of security meaning that the Commission's statement is reassuring
- more broadly, the report reported a rebound in FDI globally in 2021 over 2020 with global inflows amounting to €1.5tr (a +52% increase over Covid-hit 2020 but also a +11% increase over 2019)
- there were decreases in 2021 in global FDI in Ireland, Germany and Luxembourg as well as divestment in The Netherlands
- the European Commission expects greater strengthening of FDI scrutiny at Member State level and says it is "should be merely a question of time before all 27 Member States have such a mechanism in place"
- the European Commission also recalled its Guidance to Member States on FDI from Russia and Belarus to "ensure that particular attention is given to investment into critical EU assets from entities or persons somehow related to the Russian or Belarussian governments"
- there may be a revision by the EU of the existing regime as early as 2023.
This second annual report contains the European Commission's views about how the regime is working. The report is a useful source of information and data on how FDI is working in the EU. The European Commission is pleased with how the regime is working and business can take some comfort from that fact.
For more information on this topic, please contact Vincent Power, Partner, EU, Competition & Procurement, or any member of A&L Goodbody's EU, Competition & Procurement team.
Date published: 12 September 2022