Weekend Edition Nº184

THE LEGISLATIVE PROPOSAL OF THE COMMISSION TO STRENGTHEN FDI SCREENING RISING FROM THE ASHES OF REGULATION 2019/452

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NAJIBULLAH ZAMANI

The Legislative Proposal of the Commission to Strengthen FDI Screening: Rising from the Ashes of Regulation 2019/452

Najibullah Zamani 1

1. Introduction

After decades of investment liberalisation, the attitude of States towards foreign direct investments (FDI) has changed fundamentally in recent years due to geo-political developments. In the contemporary geo-political environment, States increasingly pursue geopolitical, strategic and security interests through investment policies rather than through political and military policies. Accordingly, States perceive nowadays FDI increasingly as a threat to national interests and security. The Organisation for Economic Cooperation and Development (OECD) noticed that, as a consequence of the increased concerns, more and more countries are adjusting existing FDI screenings mechanisms and adopting new policies in order to safeguard their national interests.2 The European Union (EU) and its Member States have joined the ranks of these countries. To address the concerns voiced by the Members States and the Commission, Regulation 2019/4523 was adopted in March 2019.

Pursuant to Article 15, the Commission must evaluate the functioning and effectiveness of Regulation 2019/452 by 12 October 2023 and every five years thereafter and, if necessary, propose a legislative proposal recommending amendments to the Regulation. Following its evaluation, the Commission announced4 on the 24th of January 2024 the adoption of a legislative proposal5 addressing the shortcomings of Regulation 2019/452 and improving its efficiency.

1. Lecturer and PhD Candidate in European and International Economic Law at the public law research institute for State and Law (SteR), Radboud University, Nijmegen. He holds an LL.M degree in Corporate Law and a MSc degree in Corporate Finance.

2. OECD, OECD Research note on current and emerging trends: Acquisition- and ownership- related policies to safeguard essential security interests. New policies to manage new threats 4, https://www.oecd.org/investment/OECD-Acquisition-ownership-policies-securityMay2020.pdf (12 March 2019).

3. Regulation EU No 2019/452 of the European Parliament and of the Council of 19 March 2019 establishing a framework for screening of foreign direct investments into the European Union [2019] Official Journal L791/1.

4. Commission, ‘Press release: Commission proposes new initiatives to strengthen economic security’ (24 January 2024).

5. Proposal for a Regulation of the European Parliament and of the Council on the screening of foreign direct investments in the Union and repealing Regulation (EU) 2019/452 of the European Parliament and of the Council, COM(2024)23 final

The aim of this Long-Read is to provide an overview of the debate surrounding Regulation 2019/452, its shortcomings and whether, if so to what extent the proposal of the Commission addresses the identified shortcomings adequately. In order to do so, it is helpful to first of all briefly discuss the concerns with regard to FDI (section 2) and the legal framework established by Regulation 2019/452 to address these concerns (section 3). Then attention will be paid to the shortcomings and possible inefficiencies of Regulation 2019/452 identified by the OECD and the European Court of Auditors (ECA) (section 4) and the recommendations made (section 5). The penultimate section will discuss the proposal of the Commission and how it is meant to address the identified shortcomings and inefficiencies of Regulation 2019/452. Finally, the last section will conclude.

2. Concerns leading to the adoption of Regulation 2019/452

Cherished for decades, FDI came increasingly under attack from 2017 onwards. The immediate cause for this changed attitude, concerned a series of Chinese takeovers of EU companies with key technologies. In line with ‘Made in China 2025’, Chinese investors, often backed up by the Chinese government, aimed at taking over EU companies possessing technological knowledge in order to upgrade China’s industry.6 As consequence of these takeovers, the German, Franch and Italian governments sent in February 2017 a letter to the Commission expressing their concerns about the investment policy of the EU.7 The concerns of these Member States were twofold. First of all, the Member States identified a lack of reciprocity meaning that EU investors did not enjoy the same rights in third countries as investors from third countries did enjoy in the EU. EU investors did not have access to certain sectors of the domestic economies of third countries for instance. And when access was provided, EU investors had to operate under more unfavourable conditions than national investors who were often supported through subsidies, which within the legal order of the EU are outlawed by the prohibition of state aid. In addition to a lack of reciprocity, they voiced their concerns about ‘a possible sell-out of European expertise’. In its reflection paper on harnessing globalisation, the Commission acknowledged the concerns of the Member States with regard to ‘[…] foreign investors, notably state-owned enterprises, taking over European companies with key technologies for strategic reasons’.8

Cherished for decades, FDI came increasingly under attack from 2017 onwards. The immediate cause for this changed attitude, concerned a series of Chinese takeovers of EU companies with key technologies

6. See for instance J. Wübbeke et al., ‘Made in China 2025: The Making of High-tech Superpower and Consequences for Industrial Countries’ (2016), at 52.

7. Letter of German, French and Italian governments to Commissioner Malmström (February 2017).

8. European Commission, Reflection paper on harnessing globalization (10 May 2017), COM(2017)240 final, at 18.

The takeover of EU companies holding critical technologies by foreign investors poses concerns for at least two reasons. First of all, foreign investors may enact decisions that result in a decline in the quality or quantity of the products or services provided by the target company. Furthermore, influenced by their governments, foreign investors might repatriate essential assets of the EU companies to their home states, potentially leading to a scenario where the EU and its Member States lose access to crucial goods and services. In the most severe circumstances, these assets could be wielded against the EU and its Member States for geopolitical and strategic purposes.9

3. The framework of Regulation 2019/452

In order to address the concerns voiced, Regulation 2019/452 was adopted in March 2019. In its proposal, the Commission noted that even though openness to FDI remains a key principle of the EU, ‘[…] vigorous and appropriate policies to, first, open markets for EU companies in third countries, ensure that everyone plays by the same rules and protect EU investments in third countries, and, second, to protect assets in the EU against takeovers that may be detrimental to the essential interests of the EU or of its Member States are necessary’.10 Regulation 2019/452 is thus meant to achieve two objectives simultaneously: creating a level playing field and protecting the legitimate interests of the EU and its Member States from the negative effects of FDI.11

Regulation 2019/452 contains three main elements, which are discussed extensively in literature.12 Therefore, it suffices here to briefly recall these main elements. The first element concerns the non-exhaustive list of factors which Member States and the Commission can take into account to determine whether security and/or public order is adversely affected by a particular FDI. Secondly, the Regulation provides that certain minimum requirements, which serve as safeguards for foreign investors,13 have to be met by the screening mechanisms that are in place or introduced by the Member States. Finally, the Regulation introduces a cooperation mechanism meant to facilitate the cooperation and information sharing between Member States and between Member States and the Commission regarding FDI which might have adverse cross border effects on security and public order.

9. Jens Velten, Screening Foreign Direct Investments in the EU: Political Rationale, Legal Limitations, Legislative Options, Springer, 2022, p. 15. Velten (p. 20-21) identifies yet another concern: the so-called private information concern. Due to the takeover, foreign investors get access to private information such as personal data. The foreign investors may transfer this also its home country.

10. European Commission, ‘Welcoming foreign direct investments while protection essential interests’, COM(2017)494 final 5 (13 September 2017).

11. European Commission, ‘Proposal for a Regulation of the European Parliament and of the Council establishing a framework for screening of foreign direct investments into the European Union’ COM(2017)487 final 2 (13 September 2017). See also inter alia recital 8 of Regulation 2019/452; European Commission, ‘Reflection Paper on Harnessing Globalization’, COM (2017)240, 15 (10 May 2017); European Commission, ‘Joint Communication to the European Parliament and the Council – Elements for a new EU strategy on China’, JOIN(2016)30 final (22 June 2016).

12. See e.g. Jens Velten, Screening Foreign Direct Investments in the EU: Political Rationale, Legal Limitations, Legislative Options, Springer, 2022; Steffen Hindelang and Andreas Moberg (Eds.), YSEC Yearbook of Socio-Economic Constitutions 2020: A Common Law on Investment Screening, Springer, 2020; Jacques H.J. Bourgois (Ed.), EU Framework for Foreign Direct Investment Control, Wolters Kluwer, 13.Wolf Zwartkruis and Bas J. de Jong, ‘The EU regulation on screening of foreign direct investment: A game changer?’, European Business Law Review 31, 2020, p. 466.

Regulation 2019/452 is thus meant to achieve two objectives simultaneously: creating a level playing field and protecting the legitimate interests of the EU and its Member States from the negative effects of FDI

Conversely, Regulation 2019/452 does not create an independent EU-wide screening mechanism. Pursuant to Article 1(1), the Regulation only establishes a framework for the screening of FDI on the grounds of security and public order by Member States. Regulation 2019/452 also does not oblige Member States to establish a screening mechanism. Article 3(1) clearly provides that Member States may maintain, amend or adopt mechanisms to screen FDI in their territory. Member States are also not obliged to screen a particular FDI, as indicated by inter alia Article 1(3).14 Finally, even though Member States are required to give due consideration to comments and opinions of other Member States and the Commission, the final screening decision is the sole responsibility of the Member State where the FDI is planned or completed.15

4. Shortcomings of Regulation 2019/452

Regulation 2019/452 was recently evaluated by the OECD16 and ECA.17 The objective of both studies was to assess the effectiveness and efficiency of the framework for FDI screening as established by Regulation 2019/452.18 The ECA does not define the notions of ‘effectiveness’ and ‘efficiency’. The OECD does define these terms by stating that for the purpose of the present report, the term ‘effectiveness’ refers ‘[…] to situations where foreign direct investment that likely affects the security or public order of Member States or projects or programs of Union interest is screened and managed’. Efficiency refers according to the OECD ‘[…] to situations where effectiveness is achieved while keeping the administrative burden for investors and other stakeholders proportionate to the policy goals and relevant security or public order concerns’.19

14. Article 1(3) provides: Nothing in this Regulation shall limit the right of each Member State to decide whether or not to screen a particular foreign direct investment within the framework of this Regulation.

15. See Article 6(9) with regard to FDI that are undergoing screening and Article 7(7) for FDI that is not undergoing screening in the Member State where it is planned or completed. Pursuant to Article 8(1) the Commission can also provide opinions with regard to FDI that is likely to affect projects or programs of Union interest. In such a case, the Member State were the FDI is planned or completed is required to ‘take utmost account of the Commission’s opinion and provide an explanation to the Commission if its opinion is not followed’. See Article 8(1) (c) and recital 19.

16. OECD, Framework for screening foreign direct investment into the EU: Assessing effectiveness and efficiency (2022), accessible via: The Framework for the screening of foreign direct investment into the Union (oecd.org)

17. ECA, Special report- Screening foreign direct investments into the EU: First steps taken, but significant limitations remain in addressing security and public order effectively (6 December 2023), accessible here

18. ECA Report, point 19 and OECD Report, point 2.

19. OECD Report, point 3.

If the framework appears to be ineffective, then that in essence means that FDI transactions are not screened despite the fact that these transactions are capable of adversely affecting the security and/or public order of the Member States and/or of the EU

Assessing the effectiveness and efficiency of the framework established by Regulation 2019/452 is important because its ineffectiveness and inefficiency gives rise to several problems. If the framework appears to be ineffective, then that in essence means that FDI transactions are not screened despite the fact that these transactions are capable of adversely affecting the security and/or public order of the Member States and/ or of the EU. Similarly, an inefficient framework leads to costly and timeconsuming screening procedures which in turn is not in the best interests of the parties to the FDI transactions and the national authorities.20

Both the ECA21 and the OECD22 identified shortcomings which weigh on the effectiveness and efficiency of the framework for FDI screening as established by Regulation 2019/452. At first sight, the identified shortcomings are diverse in nature and relate to both substantive and procedural aspects of Regulation 2019/452. At closer look however, almost all shortcomings identified by the ECA and the OECD weighing on the effectiveness and efficiency of the Regulation are in essence the result of two fundamental choices underlying Regulation 2019/452.

The first issue concerns the fact that, as mentioned above, Regulation 2019/452 does not oblige Member States to put in place a screening mechanism. Accordingly, there are still a number of Member States which do not have a framework for the screening of FDI.23 The most recent data published by the Commission shows that out of the 27 Member States, six Member States do not have a screening mechanism.24 These six Member States are Bulgaria, Croatia, Cyprus, Greece, Ireland, and Sweden. The absence of a screening mechanism in these Member States is problematic for at least two reasons.25 First of all, without screening mechanisms these Member States are unable to identify and appropriately address risks to their own security and/or public order, risks to other Member States’ security and/or public order and risks related to Union’s security and/or public order, which is the whole raison d’être of Regulation 2019/452. This is especially problematic because countries such as Cyprus, Greece and Ireland are important entry points for foreign capital into the Union.26 Secondly, Member States which do not have a screening mechanism in place, have neither the institutional infrastructure and capacity for nor practical experience in gathering, sharing, requesting and processing information as mentioned in Article 9 Regulation 2019/452. This in turn reduces significantly the effectiveness of the cooperation mechanism because the information requirements of Article 9 are necessary for the proper functioning of the cooperation mechanism. Without such information, Member States and the Commission cannot assess and evaluate appropriately FDI transactions in other Member States.

20. Cf. OECD Report, point 173.

21. ECA Report, points 24-57.

22. OECD Report, points 157-181.

23. This issue was also raised by the ECA and OECD. See ECA Report, point 27 and OECD Report, point 159.

24. European Commission, List of screening mechanisms notified by Member States (last update 23 January 2024). Accessible via: https:// policy.trade.ec.europa.eu/enforcement-and-protection/investment-screening_en.

25. See OECD Report, point 160.

26. OECD Report, point 159.

The second issue concerns the fact that Regulation 2019/452 is, as discussed above, enabling rather than harmonising in nature. As the ECA notes, not harmonising and defining the key provisions and concepts of Regulation 2019/452, has resulted in significant differences between the national screening mechanisms of the Member States. These differences are, inter alia, related to (i) the sectoral scope of the mechanisms, (ii) the definitions of key concepts such as security and public order, (iii) determining the threshold for control, (iv) the applicable timeframes and (v) possible exemptions from screening for certain acquirers.27 These differences in turn reduce significantly the effectiveness and efficiency of Regulation 2019/452 and in particular that of the cooperation mechanism. For instance, different timeframes makes the screening procedure complicated and costly, and therefore inefficient, in cases of multi-jurisdiction FDI. The same holds true for the definition of the notion of FDI: if one Member State considers the acquisition of 10% of the shares to be constituting FDI, whereas another Member States sets the threshold at 25%, then this of course will create ’blind spots’, as the ECA has put it.28

5. Recommendations of the ECA

In its report, the ECA provides four recommendations. The first and most important recommendation is that (a) the Member States must be obliged to establish screening mechanisms, (b) key concepts must be clarified, (c) investments made by foreign investors through subsidiaries in the EU must be covered by the framework and (d) Member States must communicate the outcome of screening decisions. The second recommendation requires that the Commission must assess whether the screening mechanisms of the Member States comply with the minimum requirements as laid down in Article 3 and that Member States must be encouraged to align the applicable criteria, timeframes and processes for the screening of multi-jurisdiction FDI transactions. The third recommendation aims at improving the cooperation mechanism and the Commission’s assessment of FDI transactions that threaten security and/or public order. Quite curiously, the ECA has noticed that some Member States did not block FDI transactions by individuals who were on a sanctions list.29 Accordingly, the ECA recommends to prohibit FDI transactions by foreign investors who are on such lists. While such a recommendation is more than welcome, one can ask why the Member States concerned have not blocked transactions by foreign investors who are on sanctions list. After all, Article 4(2)(b) and (c) Regulation 2019/452 explicitly provide that where foreign investors are involved in activities affecting security or public order in a Member State or whether there is a serious risk that the foreign investor engages in illegal or criminal activities, such a transaction must be screened and eventually blocked. Finally, the last recommendation requires that the Commission improves the quality of the annual reports. In its reply to the ECA report, the Commission has (partially) accepted more or less all recommendations.30

6. The legislative proposal: an improvement?

The legislative proposal of the Commission (hereinafter referred to as the draft Regulation) addresses at first sight both issues mentioned above. On the basis of the draft Regulation, Member States are obliged to establish a screening mechanism

27. ECA Report, point 33 with a reference to the OECD Report in footnote 18.

28. ECA Report, point 33.

29. ECA Report, point 50.

30. European Commission, Replies of the European Commission to the European Court of Auditors’ special report, p. 6-9.

as indicated by the word ‘shall’ in Article 3(1).31 The draft Regulation shows also signs of greater harmonisation as indicated by its legal basis. In addition to Article 207 TFEU, Article 114 TFEU is also included as a legal basis which indicates that the draft Regulation will be more harmonising in nature. This is also emphasised by the Commission in the Explanatory Memorandum, where it argued that ‘[…] a higher degree of harmonization at Union level is necessary [and that] therefore Article 114 TFEU is a relevant legal basis for this initiative’’.32 Besides these two points, the draft Regulation contains also other interesting substantive, institutional and procedural novelties. Below the most important aspects will be discussed.

6.1 Substantive aspects of the draft Regulation

The draft Regulation introduces inter alia the following substantive changes.

First of all, Article 1(1) of the draft Regulation provides that it is aimed at establishing a Union framework for the screening of foreign investments whereas the scope of Regulation 2019/452 is limited to the screening of foreign direct investment 33 The notion of foreign investment is of course broader than the notion of foreign direct investment as the former encompasses the latter. Pursuant to Article 2(1) of the draft Regulation, foreign investment means a foreign direct investment or an investment within the Union with foreign control, which enables effective participation in the management or control of a Union target. According to Article 2(3) of draft Regulation, an investment within the Union with foreign control means ‘an investment of any kind carried out by a foreign investor through the foreign investor’s subsidiary in the Union, that aims to establish or to maintain lasting and direct links between the foreign investor and a Union target that exists or is to be established, and to which target the foreign investor makes capital available in order to carry out an economic activity in a Member State’.34 Article 2(7) of the draft Regulation defines the term ‘foreign investor’s subsidiary in the Union’. Accordingly, on the basis of Article 2(3) and (7) of the draft Regulation, Member States can screen intra-EU direct investments provided that the ultimate owner is a foreign,

On the basis of the draft Regulation, Member States are obliged to establish a screening mechanism as indicated by the word ‘shall’ in Article 3(1)

31. Article 3(1) Regulation 2019/452 used the word ‘may’ which indicated that there was no obligation on Member States to adopt a screening mechanism.

32. European Commission, Explanatory Memorandum, p. 10.

33. See Article 1(1) Regulation 2019/452.

34. The notion of foreign direct investment is defined in the draft Regulation in exactly the same manner as in Regulation 2019/452. See Article 2(2) draft Regulation and Article 2(1) Regulation 2019/452.

Extending the scope to intra-EU direct investments with as ultimate owners non-EU investors can be seen as a response to the ruling of the Court in the Xella Magyarország case

i.e. non-EU, investor.35 Under Regulation 2019/452, screening intraEU direct investments is only possible in cases of circumvention.36

Extending the scope to intra-EU direct investments with as ultimate owners non-EU investors can be seen as a response to the ruling of the Court in the Xella Magyarország case,37 wherein it ruled that Regulation 2019/452 does not apply to intra-EU direct investments except in cases of artificial arrangements that do not reflect the economic reality and are, therefore, meant to circumvent the screening mechanisms of the Member States.

Secondly and in contrast to the regime of Regulation 2019/452, the Commission encourages Member States to also screen greenfield investments, which refers to the setup of new facilities or undertakings in the EU by foreign investors or the foreign investor’s subsidiaries in the Union.38

Finally, Article 13 of the draft Regulation resembles to a great extent the list of factors in Article 4 of Regulation 2019/452. On the basis of, inter alia, these factors, Member States and the Commission can assess whether a particular FDI is likely to adversely affect security or public order. The draft Regulation differs from Regulation 2019/452, however, in two aspects with regard to the list of factors. First of all, under the draft Regulation Member States and the Commission are obliged, as indicated by the use of the word ‘shall’, to take into account at least the factors provided by Article 13(3) and (4) in their assessment of whether a particular FDI is adversely affecting security or public order. Under Regulation 2019/452, no such obligation exists because Article 4(1) and (2) employ the word ‘may’. Secondly, the draft Regulation extends the scope of the investor-related screening factors. The factors mentioned in Article 4(2)(a-c) Regulation 2019/452 are only dealing with the behaviour of the foreign investors. For instance, Article 4(2)(c) Regulation 2019/452 provides that the Member States and the Commission may take into account whether the foreign investor is directly or indirectly controlled by the government of a third country. The corresponding provision in Article 13(4)(e) draft Regulation provides that the Member States and the Commission must take into account whether the foreign investor, a natural person or entity controlling the foreign investor, the beneficial owner of the foreign investor, any of the subsidiaries of the foreign investor, or any other party owned or controlled by, or acting on behalf or at the direction of the foreign investor is likely to pursue a third country’s policy objectives, or facilitate the development of a third country’s military capabilities. Hence, under the draft Regulation the investor-related factors are extended to other persons and entities associated with the foreign investor.

35. Article 2(6) draft Regulation defines a foreign investor as a natural person of a third country or an undertaking or entity which is established or otherwise organised under the laws of a third country.

36. See e.g. recital 10 and Article 3(6) Regulation 2019/452.

37. Judgement of the Court of Justice 30 March 2023, Xella Magyarország (Case C-106/22, ECLI:EU:C:2023:568, para. 32).

38. Recital 17 draft Regulation.

6.2 Institutional and procedural aspects

Also with regard to institutional and procedural aspects, the draft Regulation brings greater harmonisation.

The draft Regulation requires that Member States must screen foreign investments in EU companies that participate in projects or programmes of Union interest39 or are economically active in specific areas of the economy.40 Article 2(18) of draft Regulation provides that projects or programmes of Union interests are those projects and programmes that provide for the development, maintenance or acquisition of critical infrastructure, critical technologies or critical inputs which are essential for security or public order. Annex I contains a list of these projects and programmes and includes, inter alia, the Space Programme, Euratom Research and Training Programme 2021-25 and the Digital Europe Programme. The specific areas of the economy referred to in Article 4(4)(b) draft Regulation are listed in Annex II and include, besides military and dual use items, inter alia advanced semiconductors, artificial intelligence and autonomous systems. Under Regulation 2019/452, Member States are not obliged to screen FDI which are likely to affect projects or programmes of Union interest. The Commission can issue only an opinion on the basis of Article 8(1) Regulation 2019/452 to Member States were the FDI is planned or completed. Even though Member States must ‘take utmost account’ of the opinion of the Commission and provide an explanation if the opinion is not followed,41 the final screening decision is their own.42 Accordingly, Regulation 2019/452 does not oblige Member States to screen FDI transactions likely of affecting projects or programmes of the Union interest.

The draft Regulation requires that Member States must screen foreign investments in EU companies that participate in projects or programmes of Union interest or are economically active in specific areas of the economy

39. Article 4(4)(a) and recitals 11 and 20 draft Regulation.

40. Article 4(2)(g) in conjunction with Article 4(4)(b) draft Regulation.

41. Article 8(1)(c) Regulation 2019/452.

42. Article 6(9) Regulation 2019/452.

Moreover, the draft Regulation introduces a notification obligation in three situations. First, Member States must always notify foreign investments in EU companies participating in projects or programmes of Union interest to other Member States and the Commission.43 Second, foreign investments in EU companies economically active in the areas listed in Annex II are only notifiable if the foreign investor or an associated natural personal or entity (i) is directly or indirectly controlled by a foreign government, (ii) is subject to sanctions, or (iii) is involved in a previously reviewed foreign investment that either was not approved or only conditionally approved.44 Finally, Member States must notify the Commission and the other Member States of foreign investments in EU companies established in their territory where an in-depth investigation is initiated or where they intend to prohibit the transaction or adopt mitigating measures.45 The draft Regulation harmonises also, albeit to a certain extent, the procedure,46 relevant deadlines47 and information48 for notifiable transactions.

The draft Regulation also introduces a procedure to ensure the effective and efficient functioning of the cooperation mechanism with regard to multi-country transactions. Multi-country transactions are foreign investments that are subject to screening in several Member States.49 Foreign investors must file their requests for authorisation in all relevant Member States on the same day and must make cross-references to the other requests.50 The Member States in turn must send their notification to the cooperation mechanism on the same day.51 The draft Regulation also sets deadlines for, inter alia, the submission of comments and opinions by Member States and the Commission.52 The Member State concerned, must give utmost consideration to the comments and opinions of other Member States and the Commission.53 The Member States who have notified the multi-country foreign investment and the Commission must come together in order to discuss whether the intended outcomes are compatible with one another and, where applicable, the intended conditions are able to address identified cross-border risks adequately.54 The Member States where the foreign investment is planned or completed must notify their final screening decision to the Member States and the Commission who have provided comments and opinions respectively and also provide an explanation about its assessment of the comments and opinions received.55 If the other Member States and/or the Commission conclude that no utmost consideration is given to the comments and opinions, a discussion forum must be set up in order to prevent similar problems in the future.56

43. Article 5(1)(a) draft Regulation.

44. Article 5(1)(b) draft Regulation.

45. Article 5(2) draft Regulation.

46. Article 7 and 8 draft Regulation.

47. Article 8 draft Regulation.

48. Article 10 draft Regulation.

49. Article 2(20) draft Regulation.

50. Article 6(2)(a) draft Regulation.

51. Article 6(2)(c) draft Regulation.

52. Article 7 and 8 draft Regulation.

53. Article 7(5) draft Regulation.

54. Article 7(6) draft Regulation.

55. Article 7(8) draft Regulation.

56. Article 7(9) draft Regulation.

Finally, with regard to the minimum requirements, Article 4 of the draft Regulation resembles to a large extent Article 3 of Regulation 2019/452. The draft Regulation, however, introduces some changes. Article 4(2)(e) of the draft Regulation requires that foreign investors, their subsidiaries in the EU and the undertakings concerned, must have the possibility to seek judicial recourse against screening decisions. Moreover, 4(2)(c) of the draft Regulation empowers the screening authorities of the Member States to screen non-notified foreign investments by their own initiative for at least 15 months after the completion if the screening authorities are of the opinion that security or public order is adversely affected.57

7. Concluding thoughts

Overall, it can be concluded that the draft Regulation takes important steps in addressing the shortcomings of Regulation 2019/452. The fact that it obliges Member States to adopt appropriate screening mechanisms can be applauded. Also the fact that certain procedures and deadlines are harmonised, is an important improvement. Further harmonisation would have been desirable. At the same time however, one must be aware of the fact that the competence of the EU to adopt harmonising measures in the ambit of security or public order is to a great extent curtailed by Article 4(2) TEU and Article 346 TFEU. Pursuant to Article 4(2)(a) TEU, the EU has shared competence in the field of the internal market while Article 346 TFEU provides that the protection of essential security interests is in principle a matter for the Member States. The limits of these two provisions are also acknowledged by both Regulation 2019/45258 and the draft Regulation.59

Overall, it can be concluded that the draft Regulation takes important steps in addressing the shortcomings of Regulation 2019/452. The fact that it obliges Member States to adopt appropriate screening mechanisms can be applauded

57. See for the procedure Article 9 draft Regulation.

58. Article 1(2) Regulation 2019/452.

59. Article 1(4) draft Regulation.

While important steps have been taken, it is unclear why under the own initiative procedure Member States and the Commission have the possibility to screen foreign investments by own initiative for at least 15 months after the completion of a foreign investment that is not notified or where the national screening authorities have grounds to consider that the foreign investment may affect security or public order. A superficial reading of this provision indicates that Member States and the Commission must wait at least 15 months after the completion of the foreign investment before they can start screening such investments under the own initiative procedure. However, upon closer look it appears that the screening authorities can/start screening non-notified foreign investments within 15 months after its completion, while a longer period is not precluded. It is therefore possible that screening authorities start screening non-notified foreign investments even after 20 months after their completion. Hence, no maximum term is set within which non-notified foreign investments must be screened. This is highly undesirable. It leads to legal uncertainty: due to the lack of a maximum term, screening authorities can decide to start screening non-notified foreign investments at any time they deem appropriate. Foreign investors of non-notifiable foreign investments can therefore always be confronted with a screening, and its possible consequences such as unwinding of the transaction. Moreover, it is questionable what the added value would be of screening foreign investments after a long period of its completion since irreversible consequences may have already materialised. It would be therefore more appropriate if a maximum term, such as 15 months, is set for the screening of non-notifiable foreign investments.

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