In response to emerging national security risks in global trade, screening of foreign investment has become an important autonomous tool for States in international economic regulation. The European Union (‘EU’) is a latecomer in the field in comparison with its trading partners such as the United States (‘US’) and Australia, due to its more liberal stance towards free movement of capital among the four fundamental market freedoms. This chapter analyses the EU foreign direct investment (‘FDI’) screening mechanism and vertical and horizontal relations within this legal framework. It reviews its key aspects in relation to the EU internal constitutional framework and external obligations under trade and investment agreements with third countries. Due to the specific nature of involved competences under EU law, the EU’s FDI regulatory framework does not lead to harmonisation but to primarily procedural coordination of national screening mechanisms, leaving to the Member States the final decision on the admission of FDI into their territories. Nevertheless, placing the EU mechanism within the Common Commercial Policy should give to the European Commission more leverage in carrying out the EU’s external trade and investment agenda.
- European Union
- Investment screening
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Council Regulation (EC) No 139/2004 of 20 January 2004 on the control of concentrations between undertakings (OJ L 24, 29.1.2004, 1).
Directive 2007/44/EC of the European Parliament and of the Council of 5 September 2007 as regards procedural rules and evaluation criteria for the prudential assessment of acquisitions and increases in holdings in the financial sector (OJ L 247, 21.9.2007, 1).
Regulation (EU) 2019/452 of the European Parliament and of the Council of 19 March 2019 establishing a framework for the screening of foreign direct investments into the Union (OJ L 79I, 21.3.2019, 1).
In the meantime, three Baltic countries have left the 17 + 1 initiative. Its importance has been losing ground since COVID-19 pandemic.
Total Chinese investment to Europe peaked in 2016 with €47.4 billion.
Art. 17 Regulation 2019/452.
Opinion 2/17, ECLI:EU:C:2019:341, para. 82.
Opinion 2/15, ECLI:EU:C:2017:376, para. 36
Opinion 2/15, para. 147.
Case 203/80 Casati  ECR 2595, para. 10 (emphasis added).
Casati, para. 9.
Art. 64 TFEU. This in particular concerns four types of capital movements, with respect to which any restrictions under EU and Member States’ national laws that existed on 31 December 1999 have been grandfathered: Art. 64(1) TFEU.
See Case C-274/06 Commission v. Spain  para. 38, and Case C-171/08 Commission v. Portugal, para. 72; Case C-543/08 Commission v. Portugal, para. 84.
Case C-212/11 Jyske Bank Gibraltar ECLI:EU:C:2013:270, paras 61–64; Case C-190/17 Zheng ECLI:EU:C:2018:357, para 38; Case C-78/18 Commission v. Hungary ECLI:EU:C:2020:476, paras 89–90.
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Case C-367/98 Commission v. Portugal  ECR I-4731, para. 52.
Église de Scientologie, paras 21–22.
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Case C-503/99 Commission v. Belgium  ECR I-4809, para. 52.
See also discussion in Sect. 7.4.1 below.
Case C-300/89 Commission v. Council (Titanium Dioxide)  ECR I-2867, para. 10.
See, inter alia, Titanium Dioxide‘, para. 10; Case C-269/97 Commission v. Council  ECRI-2257, para. 43; and Case C-211/01 Commission v. Council  ECR I-3651, para. 38; and Case C-338/01 Commission v. Council  ECR I-4829, para. 54
See, inter alia, Case C-155/91 Commission v. Council  ECR I-939, paras 19 and 21; Case C-36/98 Spain v. Council  ECR I-779, para. 59; and Case C-211/01 Commission v. Council, cited above, para. 39; and Case C-281/01 Commission v. Council  ECR I-12049, para. 57; Case C-338/01 Commission v. Council, para. 55; and Case C-91/05 Commission v. Council, para. 73.
Titanium Dioxide, para. 13; Case C-336/00 Huber  ECR I-7699, para. 31; Case C-281/01 Commission v. Council  ECR I-12049, para. 35; Case C-211/01 Commission v. Council  ECR I-8913, para. 40, Case C-91/05 Commission v. Council, para. 75; and Opinion 2/00  ECR I-9713, para. 23. In the case C-491/01 British American Tobacco (Investment) Ltd  ECR I-11453, the CJEU held that the internal market Article 114 TFEU legal basis was appropriate to adopt the directive on production, marketing and labelling of tobacco products and that the Common Commercial Policy legal basis was unnecessary and should not have been used. See paras 81–91.
Art. 3(1)(e) Regulation 2019/452.
Art. 1(1) Regulation 2019/452.
Art. 1(2) Regulation 2019/452.
C-194/06, Orange European Smallcap Fund  ECR I-3747, para. 100.
Opinion 2/15, para 80.
Opinion 2/15, para 83.
Art. 2(1) Regulation 2019/452 (emphasis added).
Opinion 2/15, para. 277. See also recital 9 Preamble Regulation 2019/452.
Cases C-511/18 and C-512/18, La Quadrature du Net  ECLI:EU:C: 2020:791, para. 135.
Case C-300/11, ZZ  ECLI:EU:C:2013:363, para. 38; Case C-187/16 Commission v. Austria  ECLI:EU:C:2018:194, paras 75–76; Cases C-715/17, C-718/17 and C-719/17 Commission v. Poland, Hungary and Czechia, ECLI:EU:C: 2020:257, paras 143 and 170.
ZZ, para 57.
See discussion in Sect. 7.3.1 above.
Recital 4 Preamble Regulation 2019/452. In virtue of Art. 65 TFEU, restrictions must not amount to ‘a means of arbitrary discrimination or a disguised restrictions on the free movement of capital’.
Case C-301/08 Irène Bogiatzi, married name Ventouras v. Deutscher Luftpool and Others  ECR I-10185, para. 23; Art. 216(2) TFEU. EU secondary legislation (including the Regulation on FDI screening) must be interpreted harmoniously with the international agreement: Case C-61/94 Commission v. Germany  ECR I-3989, para. 52. Art. 216(2) TFEU serves as a legal basis for declaring invalid secondary legislation that is inconsistent with a binding international treaty.
Art. I(2)(c) General Agreement on Trade in Services, Marrakesh Agreement Establishing the World Trade Organization, Annex 1B (signed 15 April 1994, entered into force 1 January 1995) 1869 UNTS 183, 33 ILM 1167.
These are general exceptions aimed at achieveing certain non-trade objectives. Under GATS, members are allowed to decide in which sectors and to what extent they want to liberalise their services. General exceptions thus allow members to impose restrictions on the level of liberalisation of services to which they agreed in their Schedule of Specific Commitments.
Footnote 5 to Art. XIV GATS.
See Case C-54/99 Église de Scientologie  ECR I-1335, para. 17 and Sect. 7.3.1 above. See also Case C-66/18 Commission v Hungary ECLI:EU:C:2020:792, paras 130–132.
See the wording of Art. XIV bis (1)(b) GATS.
War involves not only an armed conflict but also a ‘latent’ armed confict, such as the situation between Ukraine and Russia after 2014 but before February 2022. However, political or economic differences between members cannot in itself constitute an emergency: see WTO, Russia – Measures concerning Traffic in Transit, WT/DS512/R, Report of the Panel (5 April 2019), para. 7.76. This case concerned the identical provision on national security exception in Art. XXI(b) GATT. Other situations in which exception can be invoked are supply of services, which are directly or indirectly carried out for the purpose of a military establishment; or when they relate to fissionable and fusionable materials.
See also Sect. 7.4.3.
Russia – Measures concerning Traffic in Transit, para. 7.130.
Russia – Measures concerning Traffic in Transit, para. 7.138.
Footnote 33, Art. 28.3 CETA.
See Art. 28.6(a) and (b) CETA.
See Art. 2.3.3(a) EU-Singapore IPA, and related clarification in footnote 1.
See Art. 4.5 EU-Singapore IPA.
Recital 3 Preamble Regulation 2019/452.
Recital 12 Preamble Regulation 2019/452.
Art. 4(1) Regulation 2019/452 (emphasis added).
Art. 8(3) Regulation 2019/452.
Art. 8(4), Recital 20 Preamble Regulation 2019/452. Regarding delegated acts, see Art. 290 TFEU.
Art. 4(2) Regulation 2019/452 (emphasis added). The EP also wanted to include risks of different natures such as risk to intellectual property rights and human rights. However, this amendment was not accepted, and arguably it would go beyond the scope of the public order and national security exceptions under international law.
See Recital 11 Preamble Regulation 2019/452.
See Recital 14 Preamble Regulation 2019/452.
Art. 6(1) Regulation 2019/452.
To be established under Arts 6(10) and 11 Regulation 2019/452.
Art. 6(2) Regulation 2019/452.
Art. 6(5) Regulation 2019/452.
Art. 7(1) Regulation 2019/452.
Arts 6(4) and 7(3) Regulation 2019/452.
Arts 6(3) and 7(2) Regulation 2019/452.
Arts 6(3) and 7(2) Regulation 2019/452.
Arts 6(4) and 7(3) Regulation 2019/452.
Arts 6(9), 7(7), 8(2)(c) Regulation 2019/452.
Arts 6(6)–(8) and 7(6)–(8) Regulation 2019/452.
See by analogy the non-binding nature of the Commission opinions under Art. 37 EURATOM. See in particular, Case 187/87 Saarland v. Minstères de l’Industrie  ERC I-5013.
See Recital 17 Preamble and Art. 6(9) Regulation 2019/452.
Art. 8(2)(c) Regulation 2019/452.
Art. 3(6) Regulation 2019/452.
Arts 3(2), 3(7)–(8) Regulation 2019/452.
Art. 3(3) Regulation 2019/452.
Art. 3(4) Regulation 2019/452.
Art. 3(2) Regulation 2019/452.
Art. 3(5) Regulation 2019/452.
Case 222/86 Unectef v. Heylensand Others  ECR 4097, paragraphs 14 and 15.
Art. XIV GATS.
See Russia – Measures concerning Traffic in Transit case and Sect. 7.4.1 above.
Art. 5(3) Regulation 2019/452.
Art. 5(4) Regulation 2019/452.
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Damjanovic, I., de Sadeleer, N. (2023). Screening Foreign Direct Investment in Europe: Having a Tiger by the Tail?. In: Quirico, O., Kwapisz Williams, K. (eds) The European Union and the Evolving Architectures of International Economic Agreements. Springer, Singapore. https://doi.org/10.1007/978-981-99-2329-8_7
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