At last the EU foreign direct investment screening becomes fully applicable

The long-awaited application of the European Union (EU) Regulation on a framework for the screening of foreign direct investment (FDI) in the EU started yesterday, 11 October 2020. It is still early days to anticipate how the EU rules will be implemented in practice by the member states and the European Commission, and what impact will lie ahead in national FDI vetting proceedings.

Regulation (EU) 2019/452 establishing a framework for the screening of foreign direct investments into the EU (the Framework Regulation) entered into force on 10 April 2019 and became fully applicable on 11 October 2020.

The Framework Regulation creates a framework for greater coordination in screening FDI in the EU on security and public order grounds, without establishing a mandatory screening mechanism at EU level. By contrast, member states remain solely responsible for protecting their essential security interests and having the final say in an FDI vetting procedure.

As we previously reported, the Framework Regulation sets out common requirements that national mechanisms must comply with and establishes a cooperation mechanism among member states, and between member states and the European Commission. The cooperation mechanism will facilitate the exchange of information on FDI in the EU and help identify threats or risks to security and public order across member states. The Framework Regulation also allows the European Commission to express its opinion if it considers that an FDI will likely affect a project or programme of Union interest (e.g., Horizon 2020), regardless of whether the member state in which the investment takes place has an FDI regime.

Parties to transactions should consider that the coordination of FDI reviews between member states and the European Commission is likely to add additional days to the timeline between signing and closing of transactions. Our international team can help you assess relevant rules in mergers and acquisition transactions and advise you on any FDI filings and procedures you might be required to do.

 

Authored by Lourdes Catrain, Falk Schoening, Stefan Kirwitzke, and Eleni Theodoropoulou.

 

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