The European Commission is pushing ahead with a protective framework aimed at shielding the EU’s strategic sectors from third-country investments, including defence, semiconductors and financial services.
On Thursday, MEPs and the Council reached a provisional agreement to update EU rules on foreign direct investment screening to prevent security risks. The move aims to establish safeguards for investments from third countries, primarily targeting China.
Under the new rules informally agreed by EU co-legislators, foreign investments in sensitive sectors such as defence, semiconductors, artificial intelligence, critical raw materials and financial services will be subject to mandatory screening by member states to identify and address potential risks to security or public order.
Days ago, the Commission indicated it is examining a more aggressive policy towards foreign investments, requiring foreign businesses operating in the European market to use local workers and share their know-how, indirectly pointing to China.
The need to establish a safety net for investments from third countries has also occupied the Cypriot Parliament, based on provisions of a bill discussed in the Parliamentary Finance Committee and approved by the plenary.
The foreign direct investment (FDI) concerns enterprises of strategic importance, and it is clarified that FDI in land and property falls within the scope of the law only if the land and property are critical for the use of vital infrastructure, for example, in energy, defence, water supply and communications.
The European Commission announced yesterday that procedures applying to national screening mechanisms will be simplified, reducing complexity and making the EU a more attractive place for investment.
Cooperation between national screening authorities and the Commission will be strengthened, facilitating coordination and joint action on cross-border security risks. The new law will also cover intra-EU transactions where the investor is ultimately owned by persons or entities from a non-EU country.
In a statement approved as part of the political agreement on the new regulation, the European Parliament and the Commission agree on the need for further action at the EU level to address economic security risks arising from foreign investments.
The Commission also commits to taking the initiative to set terms for foreign investments in specific strategic sectors.
The current regulation on foreign direct investment screening was implemented on 11 October 2020. Its objective is to ensure the security and public order of the EU by providing a framework for identifying and addressing potential risks to security or public order related to foreign direct investment, whilst remaining open to foreign capital inflows.
It also established a cooperation mechanism between member states and the European Commission. Following an assessment of the current regulation’s functioning, the Commission submitted its proposal to revise the FDI screening regulation in January 2024.
The legislative proposal aims to address identified shortcomings and forms a key part of the EU’s economic security agenda.