EU Proposed Screen Framework on FDI - Substantial Influence on Foreign Investment

On 13 June 2018, EU ambassadors agreed on the Council’s position on the Proposal for a Regulation of the European Parliament and of the Council establishing a framework for screening of foreign direct investment into the European Union (hereinafter referred to as the “Regulation Proposal”). The Commission submitted the Regulation Proposal on 13 September 2017 and the European Parliament voted and approved the Regulation Proposal at its plenary session on 5 June 2018 after reviewing and amending it as a whole. Currently, the responsible committee, the Committee on International Trade (INTA), will force the Commission and the Council of the EU to enter into negotiations on this position. It is expected to reach a final approval in 2019 after which the regulation will be directly applicable in all EU Member States, including the Netherlands, without any further steps to incorporate it into the national legislation.

Purpose of the Regulation

The Commission and the European Parliament expressed that the purpose for launching the Regulation Proposal was to ensure security and public order in the EU. The EU acknowledged the contribution to the EU’s economic and social development made by foreign direct investment.

Meanwhile, as a reaction to the reinforcement of the investment screening mechanism by all the G7 countries, the European partner countries as well as the thirteen of the EU Member States, the Regulation Proposal was introduced at EU level to increase the legal certainty on screening foreign direct investments from third countries threatening the security or public order in the EU. 

Key Concepts in the Proposed Screen Mechanism

Which kind of foreign investment is covered?

The Regulation Proposal covers a broad range of investments, including foreign government-controlled  direct investments, irrespective of the volumes or participation thresholds. Notably, the aforementioned investment shall establish or maintain lasting direct or indirect links between a foreign investor, including ultimate investor, and undertakings carrying out an economic activity in the territory of the EU Member States, their Exclusive Economic Zone and continental shelf.

Highly concerned projects or programmes

The potential effects on the following projects or programmes made by foreign investments may be considered:

  • Critical and strategic infrastructure, including energy and water distribution, transport networks, ports, rails, airports and shipyards, transport services, communications and media, aerospace and space infrastructure, data storage facilities large-scale data analysis, election-infrastructure, financial services infrastructure as well as sensitive facilities;
  • Critical and strategic technologies, including artificial intelligence robotics, quantum technology, nano-, bio- and medical technologies, information and communication technologies, electronic chips, semiconductors, energy storage, dual use items, defence, cybersecurity and cyber technologies, the automotive sector, rail, aerospace or nuclear technologies, research and development facilities;
  • The strategic autonomy of the Union, the security and continuity of supply of critical inputs, including commodities, raw materials, rare earths, agricultural assets, farmland and agri-food production; or
  • Access to sensitive information or to the personal data of EU citizens.

A list of factors to be considered in determining the impact on security or public order

The Regulation Proposal provide a non-exhaustive list of factors to be taken into account when determining whether a foreign investment might affect security or public order. The main factors include:

  • Whether a disruption, failure, loss or destruction of supply exists, which could have an impact in a Member State or in the EU;
  • Whether the foreign investor is controlled by a government of a third country, directly or indirectly, or foreign government-controlled investment for strategic industrial goal or as a part of state-led project;
  • Whether there is a serious and legitimate risk that the foreign investor engages in illegal or criminal activities;
  • Whether the investment might lead to a monopolistic structure;
  • Whether the market in the foreign investor’s country of origin is open, restricted or closed;
  • Whether there is reciprocity and a level playing field; and
  • The previous relations between the EU and the foreign investors.

Reporting liabilities by the Member States

If Member States have a domestic screen mechanism, they shall report the mechanism its application to the Commission. The Member States which not have such mechanism shall report the foreign direct investments to the Commission on an annual basis.

Non-binding opinion by the Commission

In the event that the Commission or one or more Member States consider that a foreign direct investment is likely to affect projects or programmes of Union interest on grounds of security or public order, the Commission shall issue an non-public opinion addressed to the Member State where the foreign direct investment is planned or has been completed. Nevertheless, the Member State that receives the foreign direct investment shall have the right to decide either following the opinion or not. If the opinion was not been followed, an explanation is required to be submitted.  

Attitude of the Dutch Government

The Netherlands will enact a screening mechanism for foreign direct investment after a legislative proposal for (ex-ante and ex-post) investment screening in the telecom sector is approved in the future, which was submitted to the Dutch Council of State in April 2018. In addition, the Dutch government has identified the following sectors with vital infrastructure that might warrant FDI screening: information and communications technology, energy, defense, transport, chemical water, drinking water, nuclear, financial, and public order and safety.

Impacts on Foreign Investment from China

  • The Regulation Proposal did not impose an obligation on all Member States for launching a screening mechanism against the foreign investments.
  • The Member State where the foreign direct investment is planned or has been completed, shall have the ultimate right to decide either accepting the investment or not. The attitude of the Member States receiving the foreign investment will be respected by the EU. The Dutch government continuously cherish and welcome the investment from Chinese investors, which will remain and enhanced.
  • Having said that, the involvement of the Commission, the other Member States and the cooperation within the EU may affect the time frame of an investment. Although the opinion of the Commission is non-binding, the whole process could prolong the investment process which shall be taken into consideration when making the investment timetable.
  • It is notable that the EU may review the foreign investment even if it has already been completed. The foreign investors should be aware of it and take it into account when preparing transaction documents to be protected from any potential losses.
  • Last but not least, it is always important for a foreign investor to understand the market as well as the local legal regime, or engaging trusted advisers when proceeding with an overseas investment project.


European Union: 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, 13 September 2017, COM(2017) 487 final, available at: