New EU FDI Regulation In June 2023, the Commission and the High Representative for Foreign and Security Policy adopted a Joint Communication on a European Economic Security Strategy (the Strategy) that aims to strengthen the EU’s economic security against the background of the current geopolitical tensions and the profound technological shifts economies are experiencing worldwide. The Strategy identified four risk categories to be addressed as a matter of priority: (i) resilience of supply chains; (ii) physical and cybersecurity of critical infrastructure; (iii) technology security and technology leakage; and (iv) weaponization of economic dependencies or economic coercion. As part of the rollout of the new Strategy, the Commission published the Economic Security Package, which included the Reform Proposal for the Regulation. The Reform Proposal built on the Commission’s experience gathered via the cooperation mechanism and on the extensive evaluation of the functioning of the Regulation. The key changes that were featured prominently in the legislative process for the New Regulation include: ^ Mandating all Member States to introduce FDI screening regimes . At the time of this writing, all Member States have already adopted FDI controls, while the Croatian regime is not yet operational. The New Regulation would arguably mandate certain Member States to introduce changes to their FDI screening regimes. The Member States would have 18 months from the enactment of the New Regulation to align their FDI screening framework with the New Regulation. ^ Extending coverage to EU subsidiaries of non-EU parents and revising the treatment of EFTA investors . The New Regulation expressly covers investments made by EU subsidiaries that are ultimately controlled by non-EU investors – addressing uncertainty arising from the EU Court of Justice’s Xella ruling regarding the conditions under which Member States could screen such investments. In addition, EFTA state
investors (including Switzerland, Norway, Iceland and Liechtenstein) are not treated as equivalent to EU investors for screening purposes. Although the Commission and the European Parliament initially proposed including “greenfield investments” (i.e., the establishment of a new facility or business in the EU) in the mandatory screening scope, pushback from Member States resulted in greenfield investments being excluded from the common minimum scope. ^ Excluding internal restructurings . The New Regulation excludes internal restructurings from FDI screening rules, provided that (i) no change of beneficial ownership of the company occurs and (ii) no new entity from a third country that was not already present in the upstream ownership chain is introduced into that chain. ^ Introducing minimum standards for FDI screening . The New Regulation envisages a call-in power for the authorities to launch an “own-initiative-procedure” to screen non- notified investments for at least 15 months from completion, and a right for investors to seek judicial recourse against FDI decisions. The New Regulation lists minimum sensitive sectors where all Member States must screen foreign investments – including dual-use items, military equipment, hypercritical technologies such as artificial intelligence, quantum technologies and semiconductors, critical raw materials, critical entities in transport, energy and data infrastructure, electoral infrastructure and a defined list of financial system entities. ^ Harmonizing substantive aspects of FDI reviews . The New Regulation includes a revised set of criteria that Member States should consider when reviewing a transaction, including the impact on the security, integrity, functioning, and resilience of critical infrastructure (both physical and virtual) and the internal market; the availability and uptake of critical technologies (including key enabling technologies) and related knowledge; the security and resilience of supply chains for critical inputs;
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