So far, so-called “screening mechanisms” in the Member States to screen takeovers that were rated as problematic were anything but uniform. For example, over the past years, individual Member States (such as Germany, France and Austria) have implemented or developed foreign economic defence instruments for investment screening. However, so far other Member States have refrained from doing so. Apart from that the European Commission has repeatedly opposed restrictions on the free movement of capital. Now, the Regulation is establishing an European framework for screening of foreign direct investments for reasons of “security and public order”. This framework includes for example standards of transparency and non-discrimination for investors between non-EU countries in the respective national legal provisions. However, at the same time, the actual screening competencies of the European Commission remain restricted within the scope of the Regulation. The latter mainly focusses on cooperation mechanisms, which include increased reporting and consultation obligations between Member States and towards the European Commission. These apply for example, if takeovers represent a risk to projects and programmes in the Union’s interest (for example in the sectors trans-European transport or energy networks). Apart from that, annual reporting obligations by the Member States on foreign direct investments on their territory shall also establish a type of early warning system on investment flows at European level.

Foreign economic defence instruments with an edge?

However, it is difficult to predict how much legal certainty and scope the Regulation will actually provide Member States with to incite them to use and develop their foreign economic defence instruments for investment screening. Even though the EC quotes “When it comes to decisions on foreign direct investments, the European framework will maintain the necessary national flexibility. Member States keep the last word in any investment screening”. However, they will still run the risk in future that based on a restrictive union law interpretation of reasons of “security and public order”, they will come into conflict with prohibition of restrictions of free movement of capital. Missing from the Regulation is a strengthening of screening aspects in the public interest (for example in case of endangering social cohesion or regional development). At the same time, compared to the original EC proposal, the Regulation shows more explicitly named areas of application: these now include, for example under screening-relevant “critical infrastructure” apart from for example energy and transport also water, health, media, data processing and storage. Additional expansions also appear in the screening-relevant sector “critical technology” (such as power storage) or for example in respect of newly introduced factors such as “food safety”. This also signals to the Member States that they may expand the scope of screening-relevant sectors in their respective nationally regulated screening mechanisms. Against this background, Austria has now also been given a window of opportunity to give more edge to the applicability of her Foreign Trade Law in future.

Further information:

AK Position FDI Screening

AK Study: Company takeovers and investments by Chinese investors in Austria from the point of view of corporate actors