Increasingly tight regulatory regimes around Europe are making the landscape around foreign direct investment (FDI) harder to navigate.
That is the view posited by law firm Ashurst in its newly released Foreign Investment in Europe: A World of Opportunity report, looking at the new and various hurdles that have been put in place.
“In recent years, there has been a proliferation of FDI regimes worldwide, including in the EU,” write the report’s authors. “It is therefore increasingly important to consider what FDI approvals may be required early on in any investment/M&A activity and to ensure the deal timetable factors in the relevant review periods.”
The countries Ashurst looked at specifically were Belgium, France, Germany, Italy, Luxembourg, Spain and the UK. The report was produced in response to the screening of FDI transactions by the European Commission. The EC had said in its most recent annual report, published in September last year, that 86% of transactions were assessed in 15 calendar days and fewer than 3% of transactions resulted in a European Commission opinion.
There has been growing concerns in recent years over the amount of FDI into Europe and its possible ramifications for national security. In April last year, the EC suggested Europe was vulnerable to pressure arising from FDI due to the continent’s close-knit nature.
It wrote: “The EU framework for investment screening is part of the Commission’s commitment to a Europe that protects its companies, workers and citizens. Due to the high degree of integration within the EU, foreign direct investment in one member state could pose risks to security or public order in another member state, or in the whole Union.”
‘Evolving appreciation’
Others law firms have weighed in on the subject. In March, Norton Rose Fulbright published a note on the growth of FDI and national security regimes. It wrote: “Many countries are continuing to introduce and strengthen their FDI and national security regimes, due to an evolving appreciation of what is a risk to national security and lines being blurred with economic stability. There is also much greater focus on new technologies and the risks potentially posed by these – especially if dual-use, i.e. with military and civilian uses. And the COVID-19 pandemic has put greater emphasis on medical equipment/vaccines, and supply chains generally.”
In March 2019, the EU Screening Regulation was enacted, which provides for a co-operation mechanism for screening FDI in EU member states. The regulation came into effect on 11 October 2020 and gives EU member states and the EC the ability to exchange information, provide comments and issue opinions on foreign direct investment. However, member states retain decision-making power in relation to FDI in their jurisdictions.
In March 2020, the European Commission issued guidance to member states on foreign direct investment and the protection of Europe’s strategic assets. The guidance was issued ahead of the EU Screening Regulation entering into force and as a reaction to the economic effects of the Covid-19 pandemic. In the guidance, the European Commission urged member states without a “fully-fledged screening mechanism” to implement one and in the meantime to use all other available options to address cases where a foreign acquisition would create a risk to security or public order in the EU.
