The current EU trade policy is first and foremost aimed at the liberalisation of goods and capital flows.According to the European Commission, free trade should benefit all participants. But there are obviously limits to liberalised trade, if one can believe Jean-Claude Juncker’s statement “we are not naïve free traders”. This is expressed by the screening of foreign direct investments, which has been proposed by the Commission. What is hiding behind this concept?

The eagerly awaited State of the Union Address by Commission President Jean-Claude Juncker contained a number of new initiatives regarding European trade policy. The subsequently published trade package includes among other the proposal on establishing a mechanism for screening foreign direct investments. Juncker explicitly mentioned the said mechanism in his address. His exact words were:

“If a foreign, state-owned, company wants to purchase a European harbour, part of our energy infrastructure or a defence technology firm, this should only happen in transparency, with scrutiny and debate. It is a political responsibility to know what is going on in our own backyard so that we can protect our collective security if needed.”

But what is hiding behind this Commission proposal? An EU-wide mechanism for screening foreign direct investments basically provides for a harmonisation of instruments, which already exist in some Member States. This is specifically concerned with screening and if required banning acquisitions in key industries, for example in the energy, infrastructure or defence sector, by investors from Non-EU countries, if these might have a negative impact on security or public order.

From the AK's point of view, the proposal by the Commission is a step in the right direction. The European Commission apparently realises the potential danger that free capital flow poses to public interests and regards establishing effective protective instruments as being necessary – even if this currently only refers to investments from third countries. There are, apart from the exclusive focus on direct investments from Non-EU countries, – the potential risk by investors from the EU has been completely neglected – further weak points and gaps in this proposal. On the one hand, the protection of public services has been disregarded; the reasons for banning an investment have been defined too narrowly on the other. Apart from that, the Commission proposal is contradictory to the current privatisation within the EU. On the one hand, it is the intention to protect critical infrastructure; however, on the one hand one imposes privatisation programmes on individual Member States (such as Greece). Finally, from the AK’s point of view one has to call the legal basis of the proposal into question. According to this, the review of the legal basis with regard to the single market has been recommended instead of trade policy.

Even though the People's Republic of China has been mentioned neither in Juncker’s address nor in the published proposal, experts regard an EU wide screening of foreign direct investments as a reaction to the rising capital investments and company takeovers by the Middle Kingdom. This has been illustrated for example by the privatisation of the Port of Piraeus or the takeover of the German machine builder Kuka.

Further information:

AK EUROPA Position Paper: Regulation on screening of foreign direct investments into the EU

AK: Statement on the Proposal for a Regulation on establishing a framework for screening foreign direct investments into the European Union

European Commission: State of the Union 2017 - Trade Package

European Commission: Proposal for a Regulation on establishing a framework for screening foreign direct investments in der European Union

AK EUROPA: Reclaiming Public Services: Public services back to the public sector!