Published on: May 7, 2020

The EU Investment Screening Framework

Industry Blogs

In October 2020, a new EU regulation will become effective that enables member states and the Commission to exchange information regarding the screening of specific investments. Its objective is to better equip the European Union (EU) with means to identify and assess risks for security or public order.

The EU has one of the world’s most open investment regimes. There is also the fact that many high-tech companies have offices located in the EU. This makes the economic and political union a very attractive destination for Foreign Domestic Investment (FDI).

The goal of the new regulation is to implement an EU-wide framework to protect its companies, workers and citizens. Because member states are highly integrated, foreign investment in one member state could present risks to security or public order in other member states. According to the European Commission, increasing information sharing and cooperation between states in the EU is necessary to identify new challenges and to react accordingly.

In a study on foreign ownership of EU firms carried out by the Commission, the importance of foreign investment in the EU economy becomes clear. Foreign ownership has risen constantly in the last ten years. This increase is largely due to acquisitions of increasingly large, listed companies.  

In the study, only 3 per cent of European companies in the sample were owned or controlled by non-EU investors. However, they represent more than 35 per cent of total assets and account for roughly 16 million jobs.

The data shows that advanced economies such as the US, Switzerland, Norway, Canada, Australia and Japan remain well ahead and still control more than 80 per cent of all foreign-owned assets. These economies have invested for years now and kept their acquisition rates constant.

However, there is also a surge of new investors. There is a larger variety of countries of origin, with China standing out amongst them.

Even though foreign ownership is spread across all sectors, there are some crucial ones at the heart of the economy in which foreign ownership is high:

Sector *%
Oil refining 67
Pharmaceuticals 56
Electronic and optical products 54
Insurance 45
Electrical equipment 39

 *per cent of foreign-owned assets of the sector

The risk involved with FDI could result from a number of factors. For example, when a foreign investor seeks to acquire control of a European business whose activities affect critical technologies, infrastructure, inputs or sensitive information.  In some cases, the risk may be aggravated by the fact that investors are owned or controlled by the state of a third country.

The EU framework for screening investments gives member states and the Commission the possibility to cooperate on incoming foreign direct investment affecting security and public order.

*Length of the procedure takes approximately 35 days