Trade negotiators from the European Parliament reached an agreement yesterday with representatives of the European Council and Commission to establish foreign direct investment screening throughout the EU.
Foreign direct investment – which refers to investments made by a firm or individual based in a different country to the entity receiving the investment – has been a significant contributor to economic growth in the EU, but the lack of widespread foreign direct investment screening has raised an increasing number of concerns.
Unregulated or unsupervised investment in overseas interests carries a variety of potential security risks, particularly if the investor is a state-owned enterprise or if the investment is in technology or infrastructure projects. 13 Member States currently have some form of foreign direct investment screening in place; and the different screening systems are not coordinated between countries, which yesterday’s agreement seeks to ameliorate.
The new agreement on foreign direct investment screening will support “transparent, predictable and non-discriminatory” mechanisms to screen foreign investments for threats to infrastructure, key technologies and sensitive information. The EU will still remain open to foreign investment; but the new rules will improve transparency, international coordination and provide the option of collective responses from Member States to potential security threats.
Rapporteur Franck Proust said: “Thanks to a strong political will, we have an agreement that is both well-balanced and ambitious. We are making up for lost time: all the big economies of the world already have a [foreign direct investment screening] mechanism. Each country has to be vigilant, including those who do not yet have a national screening mechanism. I particularly welcome the inclusion of a large number of sectors that are covered by the agreement: the EU is going to be able to protect strategic industries ranging from aerospace, food security and media to electric batteries.”
Once the new agreement has received the approval of the Council, Committee on International Trade and the European Parliament, it will come into effect. Member States which already have foreign direct investment screening procedures in place will be given time to adapt their systems to fit the new rules.