The EU’s Path to CFIUS-style Review for Inbound Investment, by Tuğçe Yalçın
This is the second part of a two-part post. For the first part of this post, click here.
The new FDI Regulation, which is applicable in all member states of the European Union (“EU”) since 11 October 2020, establishes a framework for the screening of foreign direct investment (“FDI”) into the EU.
Thus far, there had not been an EU-level tool to screen FDIs into the EU or an EU-wide framework to cooperate between EU member states and the European Commission. This is the reason why the new FDI Regulation marks a first step of the EU towards creating a centralised EU-level screening mechanism for FDIs into the EU and can be seen as EU’s way towards establishing a review process like the Committee on Foreign Investment in the United States (“CFIUS”) in the US that is an interagency committee authorised to review certain transactions involving foreign investment in the US.
Committee on Foreign Investment in the United States (CFIUS) as a Role Model for the EU?
Although the new FDI Regulation does not currently establish an EU-wide single and centralised blocking tool or suspension power like the CFIUS that would replace each national screening mechanism of the EU member states, it creates a cooperation and information-sharing tool between the European Commission and the EU member states.
An EU member state, for example, which is screening a certain FDI taking place in its territory under its national screening mechanism, shall notify the European Commission and the other EU member states of the respective FDI by providing certain information (eg, ownership structure of the foreign investor, approximate value of the FDI, products, services and business operations of the foreign investor, funding and source of the investment) “as soon as possible“.
Moreover, the new FDI Regulation grants the EU member states and especially to the European Commission certain rights to intervene in local FDI examination procedures which shows EU’s way towards establishing a CFIUS-style blocking and suspension mechanism for all EU member states.
To this end, the new FDI Regulation notably strengthened the role of the European Commission as it gives a kind of “special right” to the European Commission. The European Commission has the right to issue opinions addressed to the respective EU member state where the FDI is planned or has been completed, if it “considers that a foreign direct investment is likely to affect projects or programmes of Union interest on grounds of security or public order.“
The European Commission has not only the right to issue opinions on FDIs that are likely to affect the “projects and programmes of Union interests” – which is listed in the Annex of the FDI Regulation – but it has also the right to adopt the list as set out in the Annex. The power to adopt acts in accordance with Article 290 TFEU is delegated to the European Commission in order to amend the list of “projects and programmes of Union interests“. The amendment of the list could be relevant, for example, to consider any developments or changes referring to the “projects and programmes of Union interests“.
It shall also be noted that when it comes to an FDI that is likely to affect “projects or programmes of Union interest“, the EU member state (where the FDI is planned or has been completed) shall take “utmost account” of the European Commission’s opinion and additionally provide an explanation to the European Commission if its opinion is not followed.
Here, the special treatment of the “projects and programmes of Union interests” and the “additional and special power” delegated to the European Commission becomes clear which endorses EU’s step towards creating a CFIUS-like investment blocking and suspension mechanism at EU-level. Remarkable is also that the new FDI Regulation does neither define nor provide any further detail what exactly taking “utmost account” means.
It is obvious that the EU wants to protect its critical sectors and businesses through the implementation of the new FDI Regulation and by strengthening the role of the European Commission.
The shift of the EU member states’ sole responsibility and power to make the final decision on FDIs taking place in their territory to the European Commission by way of issuing opinions is remarkable. The new FDI-Screening-Scheme of the EU can therefore be seen as a first step of the EU towards establishing an uniform EU-level screening mechanism for FDIs similar to the review process of the CFIUS – thus, creating a kind of “European CFIUS”.
Finally, it is to be expected that numerous questions related to the new FDI Regulation will arise, in particular because terms such as “critical infrastructure” or “sensitive facilities” are not precisely defined in the FDI Regulation. A possible concretisation of these terms by the European Court of Justice (ECJ) could take years, which is why increased legal uncertainty within the EU may be expected when it comes to cross-border M&A transactions and inbound investments.
Tuğçe Yalçın is a Visiting Researcher at the University of Oxford Law Faculty and Senior Consultant in the M&A/Corporate team and Head of Austria-China-Desk at DLA Piper.
 REGULATION (EU) 2019/452 OF THE EUROPEAN PARLIAMENT AND OF THE COUNCIL of 19 March 2019 establishing a framework for the screening of foreign direct investments into the Union (OJ L 79I).
 European Commission, Press Release, EU foreign investment screening mechanism becomes fully operational <https://ec.europa.eu/commission/presscorner/detail/en/ip_20_1867> accessed 7 August 2021; European Commission, Press Release, EU foreign investment screening regulation enters into force <https://ec.europa.eu/commission/presscorner/detail/en/IP_19_2088> accessed 7 August 2021.
 Financier Worldwide, EU FDI screening <https://www.financierworldwide.com/eu-fdi-screening#.YDytsxP7RfV> accessed 29 July 2021; ipeg, Foreign Investment Control, EU Security and Intellectual Property <https://www.ipeg.com/foreign-investment-control-security-ipr/> accessed 7 August 2021.
 There are 18 EU member states that put a national FDI screening mechanism place; see “List of screening mechanisms notified by Member States – Last update: 14 July 2021” <https://trade.ec.europa.eu/doclib/docs/2019/june/tradoc_157946.pdf> accessed 7 August 2021.
 Article 6 No 1 in conjunction with Article 9 No 2 FDI Regulation.
 Article 8 (1) FDI Regulation.
 Article 8 No 4 FDI Regulation; Recital 20 FDI Regulation.
 Article 8 No 2 lit c FDI Regulation.