Merger control’s younger, fast-growing sibling: foreign investment control plans in the EU

A new EU Regulation, published today, will give greater scope to vet foreign investments into the EU for reasons of security, public order and threats to European technological advantages in key sectors. The Regulation will apply from 11 October 2020 (and is available here).

“Foreign Investment control by Member States has taken off. The Regulation is an attempt to coordinate Member State action and to ensure that information is shared among the Member States and the Commission. It remains to be seen whether this first step will be a precursor to a more harmonised review system within the EU.” - Christian Ahlborn, Partner

Currently fewer than half of EU Member States have legislation in place that allows them to review foreign investments outside of merger control rules. This new Regulation addresses a perception that a number of foreign investments are not being made for economic reasons; rather, by the desire of some foreign governments (for which read, China) to control European industry icons, including Toulouse Airport in France, the Port of Piraeus in Greece and KUKA, a German robotics maker.

Now that this EU Regulation has worked its way through the legislative process, it introduces an EU framework, viewed as a key priority by the EU, and enables EU-wide screening of inward investments.

The Regulation addresses the following concerns:

  • opaque state-owned enterprises or private firms

    with close government links are acquiring EU firms that have developed cutting-edge or dual-use technologies (such as artificial intelligence, robotics or nanotechnologies) or strategic infrastructure assets that could have a potential impact on the EU's security or public order; and 
  • Western companies will lose their technological edge in key sectors and industries.
What will the Regulation do?

The Regulation confirms that foreign investment may be screened by Member States on the grounds of security or public order. Various factors can be taken into account, including the potential effects on: critical infrastructure; critical technologies; critical inputs; and access to and ability to control sensitive information. The Regulation also provides for a “cooperation mechanism” whereby Member States will have to inform the Commission of their intention to screen inward investment and invite comments from other Member States.