EU Expects FDI Notifications to Rise, Planning Screening Guidelines
European Union officials are seeing a steady uptick in notified transactions under its new foreign direct investment screening regime and expect the trend to continue into next year, said Denis Redonnet, the European Commission’s chief trade enforcement official. As more member states continue to screen FDI, Redonnet said the EC plans to issue a set of common guidelines for reviewing investments and will work closer with the U.S., Japan and others to share best practices.
Sign up for a free preview to unlock the rest of this article
Export Compliance Daily combines U.S. export control news, foreign border import regulation and policy developments into a single daily information service that reliably informs its trade professional readers about important current issues affecting their operations.
Redonnet gave a mostly positive assessment of the regime nearly one year after it was enacted (see 2010090016), telling the European Parliament Nov. 30 that it has increased information sharing among member states about potentially dangerous foreign investments. He said this information sharing has already allowed “several” member states to catch non-notified investments that should have been reported. “The regime has served to reduce the threat of risky FDI, not just to the screening member states themselves,” Redonnet said, “but in terms of the wider EU impact.”
The EU has screened about 400 investments since October 2020 (see 2111230077), but Redonnet expects the pace to increase “as a consequence of the overall economic situation and the overall trend in terms of foreign direct investment,” which he said should rebound as the global economy recovers from the COVID-19 pandemic.
Notified transactions also will rise as more EU member states implement their own screening regimes, he said. “The number of cases that are being screened is on the rise effectively already,” Redonnet said. ‘We don't expect that trend will be reversed going forward.”
As more investments are screened, Redonnet said the commission will “give serious consideration” to publishing FDI guidance, which would describe “commonalities in practices and approaches” among the member states’ regimes. But the commission doesn’t have immediate plans to issue those guidelines, mostly because it’s still assessing how the EU-wide screening mechanism can be improved.
“In our view, a full assessment of the operation and the effectiveness of the regulation would probably be premature at this juncture,” Redonnet said. “We need to exercise a bit of institutional patience there.”
Several members of parliament said the commission should work to convince member states to set up their own screening mechanisms if they haven’t already done so. A few specifically pointed to Cyprus, Croatia and Bulgaria, which “have not yet indicated that they have any intention to set up a screening mechanism,” Kathleen Van Brempt of Belgium said.
EU members should “pressure” those three countries and others to move faster, Butikofer Reinhard of Germany said. “We should clearly express our dissatisfaction with the fact that these countries are undermining the necessary cohesiveness of our approach,” Reinhard said.
Their failure to set up a screening regime may give foreign investors a back channel to access the European market and evade other countries’ screening tools, Van Brempt said. “We need to have an implementation in every single member state because otherwise we (have) loopholes,” she said. “What is the toolbox that you have to more or less force these member states to create such a mechanism?”
Redonnet said the commission can’t force all member states to adopt a screening regime and dismissed the notion that this may lead to loopholes. Even if an EU country doesn’t have an FDI mechanism, he said, other countries can intervene by “raising questions and raising issues with respect to a transaction” taking place there. Redonnet said this has already happened.
“I think that should limit the notion that (just because) some member states have not yet put in place legislation,” he said, “(that) constitutes in and of itself a loophole.”
Redonnet also tempered fears among some members of parliament that the screening regime could create trade and investment conflicts with other countries. “On the contrary,” he said, “I would say we actually are building international cooperation with a number of like-minded countries on these issues.” He specifically pointed to the U.S. and said there is “a lot to be gained” from the recently established U.S.-EU Trade and Technology Council, which includes working groups on export controls and FDI screening (see 2111290014). He did say, however, that the forum is sometimes limited because they can’t discuss “individual investment transactions” involving specific companies.
But the forum has been helpful, he said, and the EU is also collaborating with other G-7 countries on FDI screening. “I think there is a very broad acceptance that the EU would equip itself with an instrument of this kind,” Redonnet said. “We do not operate in a different manner than any other big jurisdiction that has screening in place.”
Redonnet declined to answer some questions from members of parliament about how the screening regime is specifically scrutinizing Chinese investments. He called the EU tool a “country-neutral” mechanism.
“We look at factors, not the actual origin of the investment, from the point of view of screening and regulation,” Redonnet said. “Different countries pose different risks, and that’s as far as I would want to go on this point.”