The long and complex road to EU outbound investment screening

On 24 January 2024, the European Commission published a White Paper on Outbound Investment and a consultation on its proposed next steps. Rather than provide details of the potential measure - as had been originally anticipated when the Commission published its European Economic Strategy in June 2023 (which we covered in an earlier post) - the White Paper instead proposes further steps for gathering information before any more concrete proposals are made. 

This suggests that there is a long road ahead before we might see an outbound investment screening regime in the EU, with any proposed policy responses not expected until at least Autumn 2025. This post sets out the approach outlined by the Commission and what this might mean for outbound investment screening going forward. 

A gradual approach to outbound investments to ensure a proportionate and targeted response…

In the White Paper, the Commission emphasises the complex and sensitive nature of the field of outbound investments, and the tentative steps it must take to ensure that the EU’s response is proportionate and targeted. 

Despite the Commission having already gathered information from Member States, and the Expert Group on Outbound Investment (that was set up last July) having met three times in 2023, the conclusion reached so far is that more data is needed - as data on outbound investments is not routinely collected and what is available has “significant limitations”. 

To gather more information, the Commission has proposed the following stages:

• April 2024: The Commission is consulting until 17 April 2024 to help it refine its proposed methods for monitoring and reviewing outbound investments. It has invited comments from all interested stakeholders and those with EU outbound investment experience. 
• Summer 2024: There will be a Commission Recommendation to Member States to launch the proposed monitoring and review of outbound investments for one year, following the Commission’s review of the consultation responses.
• Autumn 2025: Following the conclusion of year-long monitoring by Member States, the Commission will assess the need for, and potential policy responses to, any risks identified in relation to outbound investments.

The Commission’s White Paper also states that making full use of any existing instruments to address any identified concerns (such as dual-use export controls or FDI screening mechanisms) will take priority over establishing a new outbound investment screening regime. 

Monitoring the risks of outbound investment…

The Commission has invited comments on the scope of the monitoring it has proposed, including:

• Which activities? The Commission considers that a wide range of transactions, including all kinds of active investments (excluding portfolio investments – described in the White Paper as non-direct foreign investments without any intention to influence management or acquire control), should be included within scope. It is also inviting comments on whether other critical activities, such as research and development cooperation, or the transfer of highly specialised personnel, should be within scope.
• Which technology? The Commission is inviting comments on which technologies should be monitored and whether these should initially focus on the most sensitive technologies and know-how, such as those highlighted in the Commission’s Recommendation on critical technology areas for further risk assessment of October last year. The four focus areas highlighted in the Recommendation were: advanced semiconductors, artificial intelligence, quantum technologies, and biotechnologies.
• Which countries? While specific destinations should not be ruled out at this stage, the Commission suggests that Member States should prioritise their monitoring based on their own risk assessment of certain countries. This risk assessment should include the past behaviour of the countries concerned and the potential for the technology to be used in war or conflict situations, breaches of human rights, or weapons of mass destruction.
• Which dates? The Commission suggests that Member States should assess transactions completed as far back as 1 January 2019, but it has also invited comments on this point.

What does this mean for EU outbound investment screening?

The brakes have been applied when it comes to an EU outbound investment screening regime, with the White Paper not going much further than to make proposals for how to gather information relevant to further assessing the need for such a tool. The overarching tone also appears to be one of caution. If existing measures can be used, they will, and extensive information must be gathered by Member States before any more definitive decisions can be made.

The extent of the information to be gathered by Member States is likely to pose a challenge, and it remains to be seen whether the Commission will receive the detail it seeks. In addition, with the EU Parliamentary elections in June this year, we expect that these proposals could change – or potentially be kicked into the long grass.