By Greg Stonefield King & Wood Mallesons’ London office

The European Commission has taken steps to address foreign investments in the EU. While the Commission are proposing a regulation establishing an EU framework to screen foreign direct investments, they will at the same time immediately proceed with the following measures:

  • By the end of 2018, conduct further in-depth analysis of foreign direct investment flows into the EU; and
  • Set up a co-ordination group composed of member state representatives and chaired by the Commission to exchange information on foreign direct investment flows and screenings.

Jyrki Katainen, vice-president of the Commission, said that in certain cases, foreign takeovers can be detrimental to European interests. In addition, the absence of a comprehensive legal framework at the EU level and the lack of an EU-wide screening mechanism creates uncertainty for foreign investors facing different screening regimes from member states. To address this, the Commission has come up with these proposals.

The proposed regulation establishes a framework for the screening of foreign direct investments into the EU on security or public order grounds. The regulation includes transparency obligations and a list of factors that may be taken into account in determining whether foreign direct investment may have an impact on security or public order. The draft regulation also establishes a mechanism for co-operation between member states.

The new measures are linked to foreign direct investments in the EU in strategic sectors (for example, energy, space, transport) or assets (technologies and inputs linked to strategic sectors, critical infrastructures across sectors, sensitive data). The focus is on investors owned or controlled by governments of third countries (that is, non-EU countries).

The EU proposals are at an early stage, but will affect governments and companies active in those strategic sectors. The UK government has also publicly stated pre the last election that they wanted to consider ways to protect certain vital industries. However, nothing has materialised yet in the UK and commentators have pointed out that in light of BREXIT the UK is more included to welcome most investors in the UK.