COMMISSION STAFF WORKING DOCUMENT EVALUATION of 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 Accompanying the document Proposal for a Regulation of the European Parliament and of the Council on the screening of foreign investments in the Union and repealing Regulation (EU) 2019/452 of the European Parliament and of the Council

EN EN
EUROPEAN
COMMISSION
Brussels, 24.1.2024
SWD(2024) 23 final
COMMISSION STAFF WORKING DOCUMENT
EVALUATION
of 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
Accompanying the document
Proposal for a Regulation of the European Parliament and of the Council
on the screening of foreign investments in the Union and repealing Regulation (EU)
2019/452 of the European Parliament and of the Council
{COM(2024) 23 final} - {SWD(2024) 24 final}
Offentligt
KOM (2024) 0023 - SWD-dokument
Europaudvalget 2024
Table of contents
1. INTRODUCTION.......................................................................................................1
1.1 General introduction................................................................................................ 1
1.2 Purpose and scope of the evaluation ....................................................................... 1
2. WHAT WAS THE EXPECTED OUTCOME OF THE INTERVENTION?.............2
2.1. Policy context.......................................................................................................... 2
2.2 Description of the Regulation and its objectives..................................................... 3
2.3 Points of comparison............................................................................................... 4
3. HOW HAS THE SITUATION EVOLVED OVER THE EVALUATION
PERIOD?.....................................................................................................................6
3.1. Changes in the geopolitical environment ................................................................ 6
3.2. Trends of FDI in the EU.......................................................................................... 7
3.3. Policy and legislative developments in Member States: adoption of and updates to
national screening mechanisms ...................................................................................... 8
3.4. National trends in FDI screening activity.............................................................. 10
3.5. Implementation of the core part of the Regulation: cooperation on individual
transactions ................................................................................................................... 11
3.6. Implementation of the Regulation’s other rules .................................................... 13
3.7. Adoption and implementation of screening mechanisms among the EU’s major
trading partners ............................................................................................................. 17
4. EVALUATION FINDINGS .....................................................................................17
4.1. To what extent was the intervention successful and why?.................................... 17
4.2. How did the EU intervention make a difference and to whom? ........................... 30
4.3. Is the intervention still relevant? ........................................................................... 31
5. WHAT ARE THE CONCLUSIONS AND LESSONS LEARNED?.......................33
5.1 Conclusions ........................................................................................................... 33
5.2 Lessons learned ..................................................................................................... 34
ANNEX I: PROCEDURAL INFORMATION.................................................................42
1. Lead DG, Decide planning / Commission work programme references............... 42
2. Organisation and timing ........................................................................................ 42
3. Limited exceptions to the better regulation guidelines.......................................... 42
4. Consultation of the Regulatory Scrutiny Board .................................................... 42
5. Evidence, sources and quality ............................................................................... 43
ANNEX II. METHODOLOGY AND ANALYTICAL MODELS USED.......................45
1. Methods and sources ............................................................................................. 45
2. Limitations............................................................................................................. 55
ANNEX III. EVALUATION MATRIX ...........................................................................62
ANNEX IV. OVERVIEW OF BENEFITS AND COSTS................................................76
ANNEX V. STAKEHOLDER CONSULTATION – SYNOPSIS REPORT...................79
1. Targeted consultation ............................................................................................ 79
2. Call for evidence launched by the European Commission.................................... 79
3. Targeted surveys.................................................................................................... 81
Glossary
Term or acronym Meaning or definition
ECA report Special report by the European Court of Auditors:
Screening foreign direct investments in the EU:
First steps taken, but significant limitations remain in
mitigating security and public order risks effectively
(published on 6 December 2023)1
FDI Foreign direct investment as defined in Article 2 of
Regulation (EU) 2019/452
FOI The ‘Freedom of Investment’ process hosted by the
OECD Investment Committee monitors investment
policy developments in the 61 economies that
participate in the process
INTA International Trade Committee of the European
Parliament
OECD Organisation for Economic Cooperation and
Development
OECD report Report by the OECD Secretariat:
Framework for Screening Foreign Direct Investment
into the EU: Assessing effectiveness and efficiency
(published in November 2022)2
TFEU Treaty on the Functioning of the European Union
1
https://www.eca.europa.eu/en/publications/SR-2023-27
2
https://www.oecd.org/investment/investment-policy/oecd-eu-fdi-screening-assessment.pdf
1
1. INTRODUCTION
1.1 General introduction
On 19 March 2019, the European Parliament and the Council adopted Regulation (EU)
2019/452 establishing a framework for the screening of foreign direct investments into
the Union (‘the FDI Screening Regulation’ or ‘the Regulation’). The EU market is based
on openness to FDI. However, there are certain risks that need to be tackled, such as
where foreign investors seek to acquire assets critical to the EU’s security or public
order. The EU is an integrated market: any foreign investor established in one Member
State can benefit from the internal market as an EU company. Due to the high degree of
integration between Member States’ markets, interconnected supply chains and common
infrastructures between Member States, a foreign investment could pose a security risk
for more than one Member State, hence the need for an EU-wide response. In this
respect, the Regulation has played an important role by providing the EU with a
framework to identify, assess and mitigate security and public order risks related to the
acquisition or control of these critical assets.
The EU framework is not exactly the same as a national screening mechanism, as the
latter gives a Member State the power to impose conditions on a transaction, or, as a last
resort, prohibit its completion. The objective of the Regulation is rather to help Member
States in their national screening decisions, by identifying and addressing security and
public order risks that affect at least two Member States or the EU as a whole. It provides
a cooperation mechanism between Member States and the Commission for exchanging
confidential information and raising awareness about specific circumstances where an
FDI may affect security or public order. It also allows recommending measures to the
Member State where the FDI is planned or has already been completed to mitigate the
risks identified.
1.2 Purpose and scope of the evaluation
Article 15(1) of the Regulation requires the Commission to evaluate the functioning and
effectiveness of this Regulation and present a report to the European Parliament and to
the Council by 12 October 2023, i.e. no later than 3 years after its full implementation. In
line with the Better Regulation Guidelines3
, the Commission is assessing the relevance,
effectiveness, efficiency, coherence and EU added value of the FDI Screening
Regulation. Annex III lists in detail the evaluation criteria and questions for this
evaluation.
The evaluation covers the period from the entry into force of the Regulation on 11 April
2019 until 30 June 2023 and covers the entirety of the Regulation (‘reporting period’).
3
Brussels, 3.11.2021 SWD(2021) 305 final.
2
Where the analysis involved sensitive or classified information, the main findings are
aggregated and anonymised to comply with the Regulation’s confidentiality
requirements4
.
The evaluation also builds on the findings of a report carried out by the OECD at the
Commission’s request and co-financed by the EU, which assessed the effectiveness and
efficiency of the framework for screening foreign direct investment in the EU and was
published in November 20225
. In addition, the Commission invited Member State
screening authorities, private sector stakeholders and the general public to provide their
views, including through a targeted public consultation and a call for evidence. Where
relevant, this evaluation also integrates the findings of the very recent special report of
the European Court of Auditors (ECA) on the screening of foreign direct investments in
the EU.
This Staff Working Document provides a qualitative and quantitative analysis of the
application of the Regulation and looks at lessons learned from its implementation. On
the basis of the evaluation and the recognition that a ‘chain is only as strong as its
weakest link’, the Commission proposes a revision of the Regulation to ensure that all
Member States have a screening mechanism to address any missing links and proposes a
number of improvements to address shortcomings experienced and loopholes identified
following the 3-year implementation of the Regulation, during which the Commission
and the Member States collectively assessed more than 1100 cases.
2. WHAT WAS THE EXPECTED OUTCOME OF THE INTERVENTION?
2.1. Policy context
In the years before the adoption of the Regulation, there had been growing concerns
about certain foreign investors seeking to acquire control of or influence in EU firms
where those investments could have had repercussions on technologies, infrastructure,
inputs or sensitive information critical for more than one Member State or on a project of
EU interest. Given the high degree of integration of the internal market, a foreign
investment can pose a risk to security or public order beyond the Member State where the
investment is made. An input, a service or a technology provided by a company
established in one Member State may be critical to the security or public order of another
Member State or to a project of EU interest, such as the EU’s research programmes
(Horizon 2020 and Horizon Europe), the Space Regulation or the trans-European
networks for energy, transport, and communication. This is particularly the case when
foreign investors are owned or controlled by the state, including control through
financing or other means of influence6
.
4
Article 10 of the Regulation.
5
https://www.oecd.org/investment/investment-policy/oecd-eu-fdi-screening-assessment.pdf
6
This was recalled in the Commission’s reflection paper on ‘Harnessing Globalisation’ issued on 10 May
2017.
3
The proposal for the Regulation was accompanied by a staff working document7
providing a factual description of foreign takeovers. In March 2019, the Commission
presented an in-depth analysis of investment flows into the EU with a focus on strategic
sectors or assets that may raise security or public order concerns8
. The report confirmed a
continuous rise in foreign-company ownership in key sectors in the EU and an increase
in investments from emerging economies, such as China, Russia and countries of the
Gulf Cooperation Council. It also illustrated the need for effective implementation of the
FDI Screening Regulation.
2.2 Description of the Regulation and its objectives
This subsection describes the logic of the Regulation: its objectives, inputs and actions as
well as the outcomes and impact that were expected to be achieved. It also explains how
all these aspects are linked to each other. The framework (‘intervention logic’) used for
this evaluation is summarised below.
Figure A: Intervention logic
The FDI Screening Regulation applies to inward FDI by any non-EU investor in any
economic sector. It is not subject to any thresholds on the value of the investment.
Recognising that concerns about security and public order can potentially arise from
anywhere, non-discrimination among foreign (non-EU) investors is a key principle of the
Regulation. The only criteria for screening an FDI are risks to security and public order,
and the assessment needs to be carried out with due consideration of the circumstances of
each case in a holistic manner.
7
Commission Staff Working Document Accompanying the document Proposal for a Regulation of the
European Parliament and of the Council establishing a framework for screening of foreign direct
investments into the European Union (SWD/2017/0297 final - 2017/0224) (COD).
8
Commission Staff Working Document on Foreign Direct Investment in the EU Following up on the
Commission Communication ‘Welcoming Foreign Direct Investment while Protecting Essential Interests’
of 13 September 2017 (SWD(2019) 108 final).
4
To achieve its overall objective to protect security and public order in the context of FDI,
the Regulation provides six complementary measures.
1. Empowering Member States to review FDI on the grounds of security and public
order and to take measures to address specific risks (Article 3).
2. Rules to align national screening rules and policies (Article 3 and, to some extent,
Article 4).
3. A cooperation mechanism on specific individual FDI transactions via secure
channels between Commission and the Member States, which underpins the
assessment of FDI and facilitates the ultimate decision by the Member State
where the FDI is planned or completed (Articles 6 to 9).
4. A forum (expert group) for the exchange of information and dissemination of
good practices on the design and implementation of FDI screening mechanisms
among Member State FDI screening experts (Article 12).
5. A legal basis for international cooperation with non-EU countries (Article 13).
6. Transparency rules (mainly in Articles 5 and 15).
The Regulation has been fully applicable since 11 October 2020, after an 18-month
transitional period following its entry into force. While the Regulation is binding on all
Member States, the decision on whether to set up a national screening mechanism
remains a national one. Additionally, where a national screening mechanism is in place,
the scope, processes and the decision whether to screen a particular foreign direct
investment is the sole responsibility of the Member State where the investment is
planned or completed. Member States are free to adopt and maintain a screening
mechanism (or not), determine the design of the mechanism and decide whether a
particular FDI that falls under the scope of their system should undergo formal screening.
At the same time, participation in the cooperation mechanism is mandatory to the extent
that Member States must notify the Commission and other Member States of any FDI in
their country that they formally screen. Furthermore, Member States have to share
information requested by the Commission or other Member States on any FDI through
secure channels.
2.3 Points of comparison
Before the adoption of the FDI Screening Regulation, there was no formal EU-wide
cooperation among Member States and the Commission on FDI that was likely to affect
the EU’s collective security. The Commission had no role in screening FDI in the EU
and there was no instrument to identify security or public order risks from foreign
investments in EU companies participating in flagship projects of Union interest. These
projects or programmes relate to critical infrastructure, critical technologies or critical
inputs, which are essential for security or public order such as the trans-European
networks for energy, telecommunication and transport or research funded by the Horizon
programme. This was because these wider European aspects were not taken into
5
consideration by national screening mechanisms when respective national authorities
considered authorising a foreign investment in their country. Furthermore, there was a
lack of legal certainty under EU law for Member States that maintained an FDI screening
mechanism on security or public order grounds or intended to adopt such a mechanism.
This was due to the EU’s exclusive competence in the area of the common commercial
policy, which includes FDI9
.
The intervention logic described in Section 2.2 explains how the inputs and activities
required to meet the objectives of the FDI Screening Regulation are expected to
generate outcomes, namely short-term outputs, medium-term results and long-term
impacts. These will be used as the main points of comparison to assess the Regulation.
The following points are directly linked to the evaluation matrix presented in Annex III.
- Point 1: relation between the observed results (medium term) and impacts (long
term) and the objectives of the FDI Screening Regulation. This is the extent to
which the main objectives of the FDI Screening Regulation have been achieved –
measured through the effectiveness criterion (see Section 4.1.1 for the results of
the evaluation). The analysis considered: (i) the most relevant success factors for
implementation of the Regulation; and (ii) the gaps and challenges hindering the
achievement of the objectives.
- Point 2: relation between the inputs and activities put in place for the
implementation of the Regulation and the observed outputs. The costs borne to
achieve the outcomes of the Regulation – measured through the efficiency
criterion, i.e. the extent to which the provisions of the Regulation produced
outputs at a reasonable cost (see Section 4.1.2).
- Point 3: relation between the inputs and activities conducted to implement the
Regulation and the problems to be addressed. This is the extent to which the
Regulation is complementary to other legislative and policy initiatives at EU and
national levels – measured through the coherence criterion, i.e. the coherence of
the Regulation with other legislative and policy interventions, identifying any
complementarities or inconsistencies. In addition, an evaluation of the internal
coherence of the Regulation was also carried out (see Section 4.1.3).
- Point 4: the difference made by the EU in achieving the outcomes of the
Regulation. This is the extent to which EU-level action has produced outcomes
that Member States could not have achieved on their own – measured through the
EU added value criterion (see Section 4.2).
- Point 5: relation between the inputs and activities conducted to implement the
Regulation and the objectives. This is the extent to which the Regulation is
9
Foreign direct investment falls under the scope of the common commercial policy pursuant to Articles
3(1)(e) and 207(1) TFEU.
6
relevant to achieve its initial objectives – measured through the relevance
criterion (see Section 4.3).
For each of these five points, the evaluation matrix10
explains the key questions set out to
perform the evidence-based assessment and describes the related indicators and data
sources used to evaluate the performance of the FDI Screening Regulation.
3. HOW HAS THE SITUATION EVOLVED OVER THE EVALUATION PERIOD?
3.1. Changes in the geopolitical environment
In the period covered by this evaluation, we observe a changing security landscape and a
heightened political awareness of FDI security or public order risks due to the COVID-19
pandemic and Russia’s war of aggression against Ukraine.
The COVID-19 crisis revealed vulnerabilities in our critical healthcare-related assets and
caused serious volatility or undervaluation of significant companies. In its March 2020
guidance to Member States11
, the Commission encouraged all Member States to adopt
and use national screening mechanisms12
. In the reporting period, the cooperation
mechanism assessed almost 90 health-related and more than 50 biotechnology-related
transactions, showing the importance of screening in the health sector.
Soon after Russia’s full-scale invasion of Ukraine, in April 2022, the Commission
published guidance for Member States13
on addressing the heightened threats to the EU
from Russian and Belarusian investments. It called for close cooperation between
authorities involved in investment screening and those responsible for enforcing
sanctions. It also called on Member States to urgently set up comprehensive investment
screening mechanisms if they had not done so already. Until the end of the reporting
period, the cooperation mechanism assessed approximately a dozen Russian and
Belarusian cases, which showed the usefulness of the recommendations.
In June 2023, at the launch of the Economic Security Communication14
, Commission
President Ursula von der Leyen stressed the importance of being ‘clear-eyed about a
world that has become more contested and geopolitical’. The Communication highlights
FDI screening as one of the tools that the EU deploys to protect itself from commonly
identified risks that affect its economic security. The Commission repeated the call to
Member States who had not yet implemented national FDI screening mechanisms to do
10
Annex III.
11
Communication from the Commission: Guidance to the Member States concerning foreign direct
investment and free movement of capital from third countries, and the protection of Europe’s strategic
assets, ahead of the application of Regulation (EU) 2019/452 (FDI Screening Regulation) (C/2020/1981).
12
This call was repeated by the Commission in February 2021 in its 2021 Communication on the Trade
Policy Review - (COM/2021/66 final).
13
Communication from the Commission: Guidance to the Member States concerning foreign direct
investment from Russia and Belarus in view of the military aggression against Ukraine and the restrictive
measures laid down in recent Council Regulations on sanctions (C/2022/2316).
14
Joint Communication to The European Parliament, the European Council and the Council on ‘European
Economic Security Strategy’ (JOIN/2023/20 final).
7
so without further delay. It also announced a legislative proposal to revise the FDI
Screening Regulation.
In brief, since 2017 the issue of security and public order has only grown in importance,
driven by events, such as the COVID-19 pandemic, Russia’s war of aggression against
Ukraine and other geopolitical tensions. This calls for strengthening the EU framework
for FDI screening.
3.2. Trends of FDI in the EU15
This section highlights some key trends on FDI transactions (foreign acquisitions and
greenfield investments) in the EU between January 2019 and June 2023 based on
transaction-level data extracted, processed and analysed by the Commission’s Joint
Research Centre (JRC)16
.
The analysis found that 22.7% of foreign acquisitions and 20% of greenfield projects
were in Member States without a fully applicable investment screening mechanism
(‘non-screening Member States’)17
. Based on its own methodology, the ECA report
found that approximately 42% of the average FDI stock can be accounted for by non-
screening Member States18
. Most acquisitions by Russian investors went to non-
screening Member States. It was also found that investors often use subsidiaries
registered in the EU to conduct investments. Between 2019 and the first half of 2023,
foreign entities invested using their EU subsidiaries in 31% of acquisitions and 28.2% of
greenfield investments on average. This gives an indication of the volume of transactions
currently not covered by the cooperation mechanism.
In brief, these findings confirm that a significant share of FDI into the EU goes to
Member States without screening mechanisms; therefore, it is appropriate to require all
Member States to have a screening mechanism.
15
The research carried out by the Commission’s Joint Research Centre for this staff working document is
available in Annex II. The annual reports of the Commission on the screening of foreign direct investments
into the EU and the accompanying staff working documents provide more information about FDI trends
into the EU. Ref. no: COM(2021) 714 final and SWD(2021) 334 final; COM(2022) 433 final and
SWD(2022) 219 final; COM(2023) 590 final and SWD(2023) 329 final.
16
Raw data on acquisitions of equity stakes and greenfield projects was retrieved from a commercial
dataset (Bureau van Dijk’s Orbis M&A and Orbis Crossborder database respectively), which was further
elaborated by the JRC. This chapter does not rely on information available in the Commission’s
confidential database for FDI cases notified to the cooperation mechanism.
17
For the purpose of this analysis, Member States without a screening mechanism between 2019 and the
first half of 2023 are Belgium, Bulgaria, Cyprus, Estonia, Greece, Croatia, Ireland, Luxembourg and
Sweden. For Member States that introduced mechanisms between those years (Malta in 2020, Czechia and
Denmark in 2021, Slovakia in 2022 and Slovenia in 2023), the figures include transactions targeting those
countries in the ‘screening Member State’ category from those years of implementation on. The analysis
does not take into consideration differences in the scope (sectors and investors covered) and ownership
thresholds of screening mechanisms, i.e. the fact that a transaction may not be subject to screening despite
the Member State maintaining a screening mechanism. Therefore, the share of non-screened FDI is even
higher.
18
Point 35 of the ECA report.
8
3.3. Policy and legislative developments in Member States: adoption of and
updates to national screening mechanisms
When the Commission’s legislative proposal for the FDI Screening Regulation was
tabled in September 2017, only 14 Member States (including the UK) had a screening
mechanism19
.
As of June 2023, eight additional Member States adopted screening mechanisms20
, and
two Member States with only sectoral mechanisms enacted broader cross-sectoral
mechanisms21
.
Furthermore, by the end of the period covered by this evaluation, all Member States
without a screening mechanism had initiated a policy discussion and, in most cases, a
legislative procedure to set up a mechanism.
The Commission has strongly encouraged at all levels and facilitated the adoption of
national screening mechanisms by providing technical and policy guidance to Member
States. It has also organised meetings and information exchanges, particularly on best
practices.
Against this background, even though the Regulation does not impose a formal
obligation for Member States to adopt and maintain a screening mechanism, there is a
clear trend in that direction.
The map provides an overview of the legislative situation of Member States as of 30 June
2023.
19
Austria, Denmark, Germany, Finland, France, Latvia, Lithuania, Italy, the Netherlands, Poland, Portugal,
Romania, Spain, and the UK.
20
Hungary (2018), Malta (2020), Czechia (2021), Slovakia (2022), Belgium (2023), Slovenia (2023),
Estonia (2023, the mechanism started to apply on 1 September 2023), Luxembourg (2023, the mechanism
started to apply on 1 September 2023).
21
Denmark (2021), the Netherlands (2023).
9
Figure B: Screening mechanisms and legislative activities of Member States (state of play on 30
June 2023)
Source: notifications by Member States to the Commission pursuant to Article 3(7) of the Regulation
In addition, a number of Member States revised their screening mechanisms to tackle
emerging security and public order risks from the COVID-19 crisis. Some Member
States added biotechnology (e.g. Austria, France, Italy) and critical health infrastructure
(e.g. Austria, Italy) to the sectors to which investment screening applies, while others
started to apply tighter procedural rules in health-related sectors (e.g. Germany, Spain).
Four Member States adjusted their screening mechanisms to respond to heightened
concerns about security and public order risks: France (approval is temporarily required
for acquisitions of 10% interest instead of 25%), Hungary (lower and additional trigger-
thresholds apply temporarily), Austria (extension in 2022 until 31 December 2023 of the
10% screening threshold for FDI in R&D in pharmaceuticals, vaccines, medical devices
and personal protective equipment) and Italy (stricter rules temporarily apply to EU and
European Economic Area investors). Two countries, Hungary and Slovenia, introduced
new temporary mechanisms in response to the security and public order challenges
arising during the pandemic22
. Many of these measures were renewed over time.
22
Source: Member States’ annual reports to the Commission; Inventory of investment measures taken
between 16 September 2019 and 15 October 2020. Report prepared by the OECD Secretariat, pp. 7-10,
https://www.oecd.org/daf/inv/investment-policy/FOI-investment-measure-monitoring-October-2020.pdf.
10
In parallel, several Member States updated their rules to cover strategic assets (e.g. in
2021, Lithuania introduced updates to the list of companies and strategic infrastructure
important to national security) or precise key definitions (e.g. in 2022, Spain amended
some definitions such as ‘critical technologies’ and ‘essential input’).
In brief, the direction many Member States are taking is clear, and there has been a
significant increase in the number of Member States with a screening mechanism and an
extension of their screening rules. Yet, there remains a number of missing links in the
chain of protection against potentially risky FDI transactions due to the fact that not all
Member State maintain and fully implement a screening mechanism.
3.4. National trends in FDI screening activity
According to Member States’ annual reports submitted to the Commission, the annual
trends shown in table are observed in screening by national authorities.
2020 2021 2022
Total number of requests for authorisations received 1 793 1 563 1 444
Share of cases formally screened 20% 29% 55%
Share of formally screened cases authorised without conditions or
mitigating measures
79% 73% 86%
Share of formally screened cases authorised with conditions or
mitigating measures
12% 23% 9%
Share of formally screened cases blocked by the national authority 2% 1% 1%
Share of formally screened cases withdrawn before a decision was
taken
7% 3% 4%
Share of top four Member States in the total number of authorisation
requests
87% 70% 66%
Source: Member States’ annual reports submitted to the Commission pursuant to Article 5(1) of the Regulation
In summary, these findings give rise to the following observations.
- Although the total number of requests for authorisation has decreased, Member
States have examined the requests with greater attention as the proportion of
formally screened cases has steadily increased over time. This can be explained
by a higher degree of scrutiny of what national authorities consider as potentially
‘critical’ as well as a change in overall investment trends.
- Authorisation requests have been unevenly distributed across Member States, but
the share of the top four notifying countries has decreased in the reporting period.
This is due to the increase in the number of Member States with a screening
mechanism and an expanding group of Member States actively using their
mechanisms.
- Most transactions screened were authorised without conditions or additional
action required by the investor.
- The proportion of formally screened cases where mitigating measures were
imposed has fluctuated between 9% (2022) and 23% (2021). In these cases,
national screening authorities required certain action, assurances, and
commitments by the investor and/or the target company before approving the
planned FDI.
11
- Only 1% of the transactions were blocked by Member States in 2021 and 2022
(compared to 2% in 2020). This confirms that the EU is still open to FDI, and
Member States prohibit only a relatively limited number of cases.
3.5. Implementation of the core part of the Regulation: cooperation on individual
transactions
For this section, the Commission relied on its own internal confidential database, which
records certain key information about transactions notified by Member States. In the
period covered by this evaluation (11 October 2020-30 June 2023), the EU cooperation
mechanism assessed 1 125 cases notified by Member States. Approximately 14% of
these cases were FDI where the Commission could establish a link with projects and
programmes of EU interest23
. In the same period, less than 10 cases were initiated by the
Commission or other Member States on FDI that had not undergone screening
(Article 7).
Looking at cases notified, these were highly concentrated in just a few Member States:
six Member States24
account for 90% of the notifications, whereas the remaining 10% of
notifications is divided among 11 Member States25
.
Approximately 27% of the total notifications concern transactions with a multi-country
dimension, i.e. a transaction that was subject to a formal screening in more than one
Member State. While, on average, these multi-country transactions were screened by two
to four Member States, in some cases, the cooperation mechanism looked at transactions
screened by up to seven Member States. This phenomenon was not anticipated when the
Regulation was being prepared, hence the current rules do not offer a solution for
handling these cases effectively and efficiently. These cases are assessed in parallel by
several national authorities based on their own procedures, timelines and requirements
without any coordination among them. This requires investors and their advisers to
navigate these uncoordinated proceedings and wait until all of the authorities to approve
the transaction so that the deal can be closed.
The Commission considered that approximately 70% of the notifications were eligible
for their review under Regulation. The other 30% of notifications were either:
- Investments by EU investors where the criteria for circumvention, which could
bring it into consideration at EU level, were not met;
23
According to the Regulation, projects and programmes of Union interest include those projects and
programmes that involve substantial EU funding or are covered by EU legislation on critical infrastructure,
critical technologies or security of supply of critical inputs. They serve the EU as a whole and are an
important contribution to growth, jobs and the competitiveness of the EU economy. Examples include
Galileo, the trans-European networks for energy, transport and telecommunication, Horizon Europe and the
European Defence Fund. The list of projects and programmes of Union interest is published as an annex to
the Regulation and is updated by the Commission through delegated acts when necessary.
24
Austria, Denmark, France, Germany, Italy and Spain.
25
Czechia, Estonia, Finland, Hungary, Latvia, Lithuania, Malta, the Netherlands, Poland, Romania and
Slovakia.
12
- internal reorganisations of companies without a change to their ultimate
owner/controller;
- investments where the foreign investor’s aim to establish or maintain lasting and
direct links with the EU target could not be identified.
Lastly, there were some transactions that were not inward investments.
The top foreign jurisdictions from where the direct investors came26
were the US, the
UK, Switzerland, China, Singapore and the United Arab Emirates. Approximately 4% of
the transactions involved a direct investor from Bermuda, the British Virgin Islands, the
Cayman Islands, Guernsey and Jersey.
Approximately 38% of the notifications were related to investments made directly by a
single EU investor. The top three Member States where these investors came from were
Luxembourg, the Netherlands and Germany, accounting for more than half of these intra-
EU notifications. In those cases, where such intra-EU transactions were considered to be
a structure enabling the direct investor to circumvent EU FDI controls, the case was
considered eligible for the Commission’s internal analysis and potentially a Commission
opinion27
.
The top foreign jurisdictions from where the ultimate beneficial investor came28
were the
US, the UK, China, Canada, Japan and the United Arab Emirates. Approximately 10% of
the transactions involved an ultimate beneficial investor from Bermuda, the British
Virgin Islands, the Cayman Islands, Guernsey and Jersey.
Cases where the Commission considered that the foreign investor was directly or
indirectly controlled by the government of a non-EU jurisdiction29
accounted for
approximately 10% of all notifications received.
The Commission considered approximately 12% of all the notifications to be potentially
sensitive30
, and an opinion was issued for less than 3%31
of all notifications. Of those
opinions, approximately 20% were on projects or programmes of Union interest. In the
period covered by this evaluation, the Commission did not adopt any opinions on
investments that it looked at using its ex officio powers and which were not undergoing
screening. This reflects the fact that either no risks were identified in light of the
information provided by the Member State or the transaction changed course while the
26
Jurisdictions of origin of foreign investors with more than 20 transactions.
27
Article 3(6) of the Regulation.
28
Jurisdictions of origin of foreign investors with more than 30 transactions.
29
Article 4(2)(a) of the Regulation.
30
This refers to notifications where the Commission requested additional information from the screening
Member State pursuant to Article 6(6) of the Regulation.
31
Pursuant to Article 6(6) of the Regulation, the Commission may issue an opinion where it considers that
an FDI undergoing screening is likely to affect security or public order in more than one Member State or
has relevant information in relation to that FDI. Therefore, the figure includes opinions sharing relevant
information with the notifying Member State where the Commission did not establish a view on the likely
impact on security or public order.
13
cooperation between the Commission and the relevant national authorities of the host
Member State was ongoing.
Member States submitted comments on approximately 6% of the notifications32
, which is
more than double the number of Commission opinions. These comments came from 12
Member States33
, which shows that less than half of the Member States have used the
cooperation mechanism to formally signal concerns or provide information to the
screening Member State. Most of these Member States had a screening mechanism in
place, which shows that Member States without a mechanism were less active in sending
comments. Additionally, some comments were issued by Member States on FDIs not
being screened in other Member States.
In brief, the overall cooperation between all national authorities and the Commission
has been intense and has helped identify and tackle risky FDI transactions that would
otherwise have been missed. However, the management of multi-jurisdiction notifications
is complex and raises efficiency issues, in particular for foreign investors, EU target
companies, their employees and shareholders.
3.6. Implementation of the Regulation’s other rules
The Commission Expert Group on the Screening of FDI into the EU was set up under
the Regulation in November 201734
, shortly after the Commission tabled its legislative
proposal for the FDI Screening Regulation. The group held 17 formal meetings, and four
meetings took place before the entry into force of the Regulation (between December
2017 and April 2019). These meetings were instrumental in preparing the full
implementation of the Regulation and discussing related practical issues (for example,
notification forms or technical matters about the exchange of sensitive information),
receiving updates on policy and legislative developments in Member States, organising
workshops with third countries (in particular, the US and Japan) and exchanging
information on FDI screening and good practices. In addition to these formal meetings,
the network of screening authorities benefited from informal exchanges coordinated by
the Commission on good practices on the design and implementation of national
screening rules. To strengthen the spirit of cooperation among the screening authorities
involved in implementing the Regulation, the Commission organised two in-person
events (‘Screeners’ Academy’) in March 2022 and March 2023 with workshops and
presentations covering a wide range of issues.
The cooperation mechanism described in Section 3.5 enables the Commission to identify
and, if necessary, propose action when FDI in a project or programme of Union interest
32
Pursuant to Article 6(5) of the Regulation, where a Member State considers that an FDI undergoing
screening in another Member State is likely to affect its security or public order, or has information
relevant for such a screening, it may provide comments to the Member State carrying out the screening.
33
Austria, Belgium, Czechia, Denmark, France, Germany, Italy, Latvia, Lithuania, Malta, the Netherlands
and Sweden.
34
Commission Decision of 29.11.2017 setting up the group of experts on the screening of foreign direct
investments into the European Union (C(2017)7866 final).
14
is likely to affect EU security or public order (see footnote 23 in Section 3.5 for more
information). The list of projects and programmes of Union interest is annexed to the
Regulation and, pursuant to Article 8(4), it is updated by the Commission by means of a
delegated regulation when necessary. In the reporting period the Commission adopted
two delegated regulations35
to clarify the scope of projects and programmes of Union
interest and update the list with the legal basis of newly adopted programmes, including
initiatives covered by the 2021-2027 EU long-term budget (also known as the
multiannual financial framework).
Article 9 of the Regulation sets out the requirements for information that Member States
need to provide about the FDI transactions they screen as well as, upon request, other
FDI planned or completed in their territory. After the first months of cooperating on FDI
transactions, it has become clear that, in most cases, presenting detailed and accurate
information in a standardised format helps the other national authorities and the
Commission complete their assessment in the 15 calendar days following the receipt of a
notification. Conversely, if the information provided is insufficient or ambiguous, the
other 26 Member State authorities and the Commission may have to request further
information from the notifying country and reserve the right to provide comments or an
opinion respectively. This may have the effect of extending EU cooperation until the
information requested by other Member State authorities or the Commission is provided
and the additional 20-day period for the final analysis comes to an end. To facilitate
gathering relevant, specific and targeted information to enable a faster assessment by the
Commission and Member States, the Commission prepared, in close cooperation with
Member State FDI Screening experts, a template that Member States are encouraged
to use when notifying an FDI undergoing screening to the cooperation mechanism36
.
This form requests more information than is formally required under Article 9 of the
Regulation. Although using the form is not mandatory, it has become a regular part of
notifications, enabling a faster assessment of whether the transaction represents a risk to
security or public order. It has helped to align practices across Member States.
- Investment screening is a confidential process in all Member States and
national authorities do not usually comment publicly on specific transactions
they screen. Similarly, the EU cooperation on individual FDI transactions is
subject to strict confidentiality rules as they concern the national security of
one or more Member States or the EU as a whole. To create the technical
conditions for the exchange of sensitive and classified information,
Article 11(2) of the Regulation requires the Commission to provide a secure
35
Commission Delegated Regulation (EU) 2020/1298 of 13 July 2020 amending the Annex to Regulation
(EU) 2019/452 of the European Parliament and of the Council establishing a framework for the screening
of foreign direct investments into the Union (C/2020/4721) and Commission Delegated Regulation (EU)
2021/2126 of 29 September 2021 amending the Annex to Regulation (EU) 2019/452 of the European
Parliament and of the Council establishing a framework for the screening of foreign direct investments into
the Union (C/2021/6924).
36
The template notification form is published on the Commission’s website on investment screening,
https://policy.trade.ec.europa.eu/enforcement-and-protection/investment-screening_en
15
and encrypted system to support direct cooperation and exchange information
between the contact points. To fulfil this obligation, the Commission
implemented or initiated several measures to handle different categories of
information from sensitive non-classified information to EU restricted or
secret information, accompanied by appropriate technical solutions37
.
Article 5(3) of the Regulation requires the Commission to report annually on
implementation of the FDI Screening Regulation. These reports provide transparency on
the operation of FDI screening in the EU and inform the public about FDI screening
developments in Member States. They contribute to the EU’s accountability in an area
where, given the security interests at stake, transparency of individual transactions is
neither possible nor appropriate. The reports build on information provided by the
Member States in their confidential annual reports to the Commission as well as
information gathered from commercial sources and the Commission’s own databases.
The Regulation does not provide guidance on the scope and granularity of the EU or
national reports. As a result, the Commission had to find the right balance between the
different practices of Member States (many of whom do not report at all about their
screening activities) and the obligation to inform the public about EU activities in this
policy area38
. In line with the requirements of the Regulation, the Commission has issued
three annual reports in the reporting period of this evaluation39
.
As required under Article 3(7) of the Regulation, since June 2019, the Commission has
published the list of screening mechanisms notified by Member States40
. The list is
updated immediately when a Member State notifies the Commission about the adoption
of a new mechanism or an amendment to an existing mechanism.
As the exchange of FDI information in the cooperation mechanism regularly involves
processing personal data (for example, names and addresses of natural persons
involved in a transaction), the Member States and the Commission concluded a joint
controllership arrangement, in line with data protection rules (particularly
the GDPR41
(Article 26), the EDPR42
(Article 28), the FDI Screening
37
The development of the IT solution for SECRET UE/EU SECRET information is currently in pilot phase
and has been significantly slowed by external circumstances, such as travel restrictions and supply chain
disruptions during the COVID-19 pandemic.
38
The ECA report took the view that the Commission’s annual reports do not contain enough information
to assess the effectiveness and efficiency of the cooperation mechanism and that it should provide more
information in general terms on the sectors affected and types of risks identified. (Point 57 of the ECA
report).
39
Reference number of the Annual Reports of the Commission on the screening of foreign direct
investments into the Union and the accompanying Staff Working Documents: COM(2021) 714 final and
SWD(2021) 334 final; COM(2022) 433 final and SWD(2022) 219 final; COM(2023) 590 final and
SWD(2023) 329 final.
40
The list is available on the Commission’s website on investment screening:
https://policy.trade.ec.europa.eu/enforcement-and-protection/investment-screening_en
41
Regulation (EU) 2016/679 of the European Parliament and of the Council of 27 April 2016 on the
protection of natural persons with regard to the processing of personal data and on the free movement of
such data, and repealing Directive 95/46/EC (General Data Protection Regulation).
16
Regulation (Article 14) and the underlying Commission Decision43
. The joint
controllership agreement is between Member States and the Commission on the
processing of these personal data. It sets out the respective roles, responsibilities and
practical arrangements44
. The joint controllership agreement entered into force on
28 April 2022, and it was the first arrangement of this kind adopted by Member States
and the Commission.
Article 13 of the Regulation encourages Member States and the Commission to
cooperate with the competent authorities of like-minded third countries on issues on
screening foreign direct investments on the grounds of security and public order. This
cooperation includes sharing experiences, best practices and information on screening
mechanisms and investment trends, but it does not allow cooperation on specific FDI
transactions. The EU has pursued such cooperation bilaterally, including within
dedicated working groups of the Trade and Technology Council with the US45
and in the
Trade and Technology Council with India46
. Cooperation has also extended to other
partners, for example, Japan, and in plurilateral formats, such as the G7 and the OECD.
In brief, the cooperation mechanism’s supporting arrangements, such as the Expert
Group and the rules and tools for the confidential exchange of information have worked
well. The recommended notification form became widely used by national authorities to
notify transactions to the network, even though its use is voluntary. The annual reports of
the Commission and the up-to-date list of national screening mechanisms have increased
the transparency of screening in the EU. Through the adoption of delegated acts, the
Commission ensured that FDI in EU companies critical for the functioning of newly
adopted programmes of Union interest can be duly scrutinised. The Commission’s
engagement with like-minded countries have strengthened the EU’s preparedness to
address FDI through the exchange of information and good practices with international
partners.
42
Regulation (EU) 2018/1725 of the European Parliament and of the Council of 23 October 2018 on the
protection of natural persons with regard to the processing of personal data by the Union institutions,
bodies, offices and agencies and on the free movement of such data, and repealing Regulation (EC)
No 45/2001 and Decision No 1247/2002/EC.
43
Commission Decision (EU) 2020/1502 of 15 October 2020 laying down internal rules concerning the
provision of information to data subjects and the restriction of certain of their rights in the context of the
processing of personal data by the Commission in the cooperation mechanism established by Regulation
(EU) 2019/452 of the European Parliament and of the Council.
44
Its main elements are available in the EU Register of the Data Protection Officer:
https://ec.europa.eu/dpo-register/detail/DPR-EC-03306.
45
More information about the activities of the EU-US TTC Investment Screening Working Group is
available on the Commission’s website: https://futurium.ec.europa.eu/en/EU-US-TTC/wg8
46
https://ec.europa.eu/commission/presscorner/detail/en/ip_23_2728
17
3.7. Adoption and implementation of screening mechanisms among the EU’s
major trading partners
According to an analytical note by the OECD Secretariat47
, the number of countries that
operate mechanisms to manage the security implications of foreign investment is
growing steadily, and this is a trend that is unlikely to slow or stop in the medium term.
The note found that, at present, over 80% of the 61 economies that participate in the
Freedom of Investment Roundtables have some instruments in place to manage the
security implications stemming from foreign investments. In addition, in over half of
these economies, the mechanisms cover large parts of the economies or at least more than
one sectors. The note also points out that most countries that operate investment
screening mechanisms and report case statistics have used these mechanisms more
frequently since 2017.
Among the top 10 trading partners of the EU48
, nine jurisdictions (the US, China, the UK,
Russia, Norway, Türkiye, Japan, South Korea and India) maintain a screening
mechanism49
, and Switzerland is in the process of establishing one50
.
In brief, the EU has moved in the same direction as the rest of the world to protect itself
against risky FDI.
4. EVALUATION FINDINGS
This section summarises the findings of the external study presented by the OECD at the
request of the Commission, the consultations organised by the Commission for the
purposes of this evaluation51
and the findings of the ECA Report that are relevant for the
evaluation of the effectiveness, efficiency, coherence, EU added value and relevance of
the Regulation. The Commission’s own conclusions are set out in the next section.
4.1. To what extent was the intervention successful and why?
4.1.1 Effectiveness of the Regulation
The OECD report and the consultations organised by the Commission found that the
cooperation mechanism has broad support, not only from Member States but also from
private sector stakeholders. National screening authorities considered that they take better
informed screening decisions thanks to the exchange of transaction-specific information
under the cooperation mechanism. The cooperation mechanism has also made several
47
Investment policy developments in 61 economies between 16 October 2021 and 15 March 2023.
https://www.oecd.org/daf/inv/investment-policy/Investment-policy-monitoring-April-2023.pdf
48
Top trading partners 2022 by total trade (import and export) based on Eurostat Comext data.
49
This information is based on the research note by the OECD Secretariat (May 2020): Acquisition- and
ownership-related policies to safeguard essential security interests – Current and emerging trends, observed
designs, and policy practice in 62 economies, https://www.oecd.org/investment/OECD-Acquisition-
ownership-policies-security-May2020.pdf
50
https://www.admin.ch/gov/en/start/documentation/media-releases.msg-id-95018.html
51
The contributions received in these consultations are summarised in Annex V.
18
Member State authorities aware of many transactions taking place in their own
jurisdictions. This is because another Member State notifies to the cooperation
mechanism the part of a transaction that it has dealt with or been involved in52
.
A significant majority of respondents to the targeted consultation53
agreed with the
statements below.
- The EU’s framework for FDI screening has been effective in assessing the likely
impact of specific FDIs on security and public order in the EU.
- The EU’s framework for FDI screening has generally been effective in assessing
the likely impact of specific FDIs on security and public order in the EU and in
identifying and sharing information about FDIs in the EU both between the
Member States themselves, and between the Member States and the Commission.
- The FDI Screening Regulation has enabled Member States and the Commission
to correctly identify FDI transactions likely to have an adverse impact on projects
or programmes of Union interest in cases where security or public order is
affected.
However, views were more nuanced, albeit still positive, on whether the current EU
framework – which leaves Member States free to decide on most of the parameters of
their national screening mechanisms – has been effective in identifying risks to security
and/or public order for projects and programmes of Union interest. There were similarly
diverging views on whether the current EU framework has been effective in identifying
cross-border risks to security and/or public order.
National screening authorities’ responses to an additional consultation organised by the
Commission highlighted the European aspect of security, the value of information
exchange and the importance of obtaining the views of other Member States on specific
transactions and the usefulness of informal exchanges on risks and how best to deal with
them. Some Member States without a screening mechanism considered it a good way of
informing policy decisions and prompting them to looking into security risks related to
FDI.
However, a number of shortcomings were identified, which ultimately undermine the
cooperation mechanism’s ability to protect the EU’s public order and security from risky
FDIs.
a) Issues related to the design of the Regulation
The OECD report, the consultations organised by the Commission and the ECA report
identified several fundamental flaws related to the design of the Regulation, likely to
52
OECD report, point 135.
53
In the targeted consultation the Commission received 47 responses, including 18 from Member State
authorities involved in EU cooperation on FDI screening and, where applicable, the implementation of
national screening mechanisms.
19
undermine the protection of the EU’s security and public order. These flaws result in
potentially risky transactions going unnoticed by the Commission and Member States,
despite the risk that they could present.
- The OECD report found that the absence of a screening mechanism in some
Member States results in these Member States having few or no effective means of
managing risk related to FDI in the EU, in these Member States not building
institutional capacity, and therefore not being able to benefit fully from
information exchanges with other Member States and the Commission under the
cooperation mechanism. More importantly, the absence of a screening mechanism
impedes effectiveness. Problematic foreign investors wanting to invest in sensitive
assets may choose non-screening Member States as a gateway into the internal
market, relying on the freedoms granted by the internal market rules to companies
established in any EU Member State54
. The targeted consultation has confirmed
that this is a major issue, with many respondents considering it a major
impediment to the cooperation mechanism’s effectiveness. The ECA report also
concluded that the lack of screening mechanisms in all Member States is
detrimental to the effectiveness of the EU framework55
.
- Under the Regulation, Member States that screen FDIs are free to define the
scope of their national screening mechanisms56
. According to the OECD report,
Member States with a too narrow definition of the scope have limited ways of
identifying and addressing risks of transactions not screened, with potential
spill-over effects on the security and public order interests of other Member States.
For sectors, transactions, or investors from certain non-EU jurisdictions not
subject to screening, the consequences of this are similar to those of the total
absence of a screening mechanism. The ECA report also took the view that
Member States’ freedom to determine the scope of their screening mechanisms in
areas such as what investments to screen and which sectors to include as critical
for security or public order result in significant differences in scope and approach
between screening systems thus limiting the effectiveness of the EU framework57
.
On the other hand, the responses to the targeted consultation did not agree entirely
with this assessment as most respondents considered a minor problem the fact that
Member States are free to decide which sectors, assets (for example infrastructure,
technologies, inputs) and economic activities they screen.
- The OECD report found no clear reason why foreign investments made
through an entity established in the EU, where the direct investor established
in the EU is controlled by a non-EU person (‘intra-EU transactions’) should
not be covered by the cooperation mechanism58
. These investments could carry
54
For more information, see page 65 of the OECD report.
55
Point 27 of the ECA report.
56
For more information, see page 66 of the OECD report.
57
Point 27 and 34 of the ECA report.
58
For further details, see p. 81 of the OECD report.
20
the same risks to public order and security as FDIs carried out through a legal
entity not established in the EU. The targeted consultation has confirmed an
interest in clarifying and expanding the scope of the Regulation in this direction,
with most respondents in favour of covering transactions where the direct investor
is established in the EU but is ultimately owned by a natural person or an entity
from a third country that can effectively participate in the management or control
of the target company. Information Member States’ screening authorities gave the
Commission on a confidential basis has revealed that there are precedents for
transactions falling outside the scope of the cooperation mechanism for this reason
that the competent Member State nonetheless has prohibited or authorised with
conditions since October 2020. This confirms that the current system does have
‘blind spots’ resulting from not covering intra-EU transactions. This limitation
was also observed by the ECA report59
.
- According to the OECD report, the Regulation contains very little possibility to
hold the Member State ultimately deciding on the transaction in question
accountable to the Commission or the other Member States, even if concerns
about security or public order have been formally expressed60
. The Member
State that decides on the transaction is only obliged to give due consideration to,
or take utmost account of (as the case may be), comments and opinions. However,
it is not required to inform the other Member States or the Commission (even if
they have issued a comment/an opinion) of its course of action. Nor is it required
to explain if, how and to what extent it has taken comments/opinions into account
or if, how and to what extent it has not done so. This undermines the effectiveness
of the Regulation and may deter other Member States from providing substantial
input for the assessment of specific FDI transactions. The targeted consultation
confirmed the seriousness of this issue, with many respondents considering the
fact that the Member State screening the transaction does not have to report to
other Member States or the Commission on the outcome of its assessment of
security or public order risks a major impediment to the effectiveness of the
Regulation. The ECA report reached the same conclusion61
.
A second set of issues are procedural or technical62
.
- The OECD report found that Member States with a screening mechanism have
very different rules for deciding when to start screening, and for deciding
how long they have to screen before taking a final decision63
. These differences
cause problems, especially in multi-country transactions, when, for example,
clearance of the same transaction is requested in a number of Member States (in
59
Point 29(b) of the ECA report.
60
For further details, see p. 75 of the OECD report.
61
Point 27 of the ECA report.
62
Although these issues also affect the cooperation mechanism’s efficiency and, to a certain extent, the
coherence between the Regulation and national screening mechanisms, as they have a significant impact on
the Regulation’s effectiveness, they are presented in detail in this section on effectiveness.
63
For more information, see p. 76 of the OECD report.
21
which subsidiaries are located), with the result that the same transaction is notified
by several Member States because several entities of the target group of
companies are concerned64
. The OECD report states that the screening of such
transactions is inefficient, time-consuming and unpredictable for the investor, the
target group of companies, the screening authorities involved and the
Commission. These transactions, a significant proportion of all notifications
(27%), result in repeated, asynchronous and uncoordinated use of the cooperation
mechanism, even if investors apply for authorisation at the same time in all
Member States concerned.
- Member States with a screening mechanism are free to determine their
screening procedures65
. Some national authorities screen (and notify to the
cooperation mechanism) all the requests for authorisation they get, while others
make a selection and formally screen (and notify) certain sensitive transactions.
This creates an imbalance in Member States’ use of the Regulation; inefficiencies
because not all transactions notified would in principle warrant being assessed by
the cooperation mechanism or the mechanism’s being made aware of them; and
ineffectiveness as some potentially sensitive transactions go unnoticed (they are
not notified because they are never formally screened under national screening
mechanisms).
The targeted consultation has confirmed this shortcoming, with only a few
respondents in favour of maintaining the current rules for notifying FDI
undergoing formal screening to the cooperation mechanism, leaving it to the
Member State’s discretion to decide what is formally screened and what is to be
notified to the EU. On possible solutions, respondents have said they would prefer
national screening authorities to notify only FDIs that meet certain criteria66
.
Considerably fewer respondents were in favour of the other option, whereby host
Member States only notify FDIs that they had initially identified (‘pre-screened’)
as potentially risky for security or public order.
- According to the OECD report, challenges lie in the cooperation mechanism’s
deadlines67
. The deadlines for Member States to comment and for the
Commission to issue an opinion on notified transactions are the same. As a result,
the Commission may not have enough time to incorporate other Member States’
comments into its assessment, if those comments are provided at an advanced
stage of the Commission’s assessment. Some national deadlines are also too short
to incorporate Member States’ comments or Commission opinions.
64
For more information, see p. 82 of the OECD report.
65
For more information, see p. 79 of the OECD report.
66 For example specific sensitive sectors, critical technologies, likely impact of the FDI on more than one
Member State – for example due to significant cross-border sales or the existence of a ‘sister company’ of
the target in one or more other Member States.
67
For more information, see p. 76 of the OECD report.
22
The graph below shows the interplay between selected Member States’ deadlines for
decisions and deadlines specified in the Regulation. Day ‘0’ in the visualisation
corresponds to when Member State’s screening authorities receive a formal and complete
filing.
Figure C: EU and selected Member States’ deadlines: schematic presentation of the base
scenario
Source: OECD Report, Figure 4 (p. 35). Finland has not set a timeline for decisions under its domestic screening mechanism under
the Act on the Screening of Foreign Corporate Acquisitions (Act 172/2012 as amended) for companies in the defence and security
sectors (shown on the graph).
The OECD report found that some Member States, such as France, may need to
announce their final decision before receiving comments from Member States or
opinions from the Commission, even if no additional information is requested. This is
mainly due to short national deadlines for decisions, set in some Member States before
the Regulation was drafted or came into force.
Another difficulty for the Commission is that, in the scenario described in Article 6(7),
Member States and the Commission are given the same amount of time – 35 days after
receiving a notification – to issue comments or opinions. If Member States use the full 35
days, the Commission has no time to incorporate these comments into its own
assessment, making it difficult for the Commission to issue an opinion if it considers, on
the basis of these comments, that the security or public order of more than one Member
23
State risks being affected. If additional information is requested about a transaction
undergoing screening, the domestically set timelines in some Member States’ deadlines
may have expired before the process under the cooperation mechanism has ended,
preventing the screening Member State from having all the relevant information before
taking its decision. The graph below shows this.
Figure D: EU and selected Member States’ deadlines where additional procedural steps are
taken under the cooperation mechanism
Source: OECD report, Figure 5 (p. 36). Finland has not set a timeline for decisions under its domestic screening mechanism under
the Act on the Screening of Foreign Corporate Acquisitions (Act 172/2012 as amended) for companies in the defence and security
sectors (shown on the graph).
Member States adopt different strategies to avoid situations in which they cannot take
into account comments or opinions on a transaction for their final screening decision.
- Some have set deadlines for national screening that are long enough to
accommodate the cooperation mechanism’s deadlines, even if the deadlines are
extended (e.g. Finland, Germany).
- Deadlines can be extended for transactions that fall under the scope of the
Regulation or are extended automatically if a Member State or the Commission
have indicated they intend to provide comments or opinions.
- The clock ticking for the screening decision is stopped or suspended for as long as
comments or opinions can be received.
24
- The national screening process and its deadlines only apply once the cooperation
process has fully ended68
.
The targeted consultation confirmed that the lack of harmonisation of Member States’
deadlines for screening FDI transactions, and the fact that the timing of notifications to
the cooperation mechanism is determined only by the start of formal screening (therefore
determined by the Member State), are major problems. On how to make the cooperation
mechanism more efficient in identifying and assessing threats to the EU’s security or
public order, many respondents were in favour of harmonising national deadlines for
screening FDI transactions subject to the cooperation mechanism and harmonising
deadlines for requesting additional information from the parties concerned and for
submitting such information. Most respondents also called for the establishment of
minimum common criteria to assess which transactions screened by the Member States
pose a risk to public order or security. The ECA report reached the same conclusion,
pointing out that the ‘pre-screening’ procedure used in some Member States and the
different treatment of multi-country transactions had a negative impact on the efficiency
and effectiveness of FDI screening at national and EU level69
.
In response to a Commission questionnaire, private sector stakeholders with proven
direct experience of FDI screening procedures identified the following issues, partially
related to national screening mechanisms, that undermine the effectiveness of the EU
framework for FDI screening.
- Differences between key concepts, such as the definition of FDI (or the
investments covered by national mechanisms) and the substantive test to
determine if an FDI is likely to affect security or public order, including the risk
factors related to the foreign investor.
- Differences between Member States’ thresholds of influence over a target
company that a foreign investor must meet to trigger a review.
- The lack of clarity about activities that fall under the scope of national
mechanisms because the list of sectors covered is vague and non-exhaustive.
- Procedural differences between national mechanisms, such as filing deadlines that
are too short, imposed by certain Member States, from the date a transaction is
signed (such as the date a Share Purchase Agreement is signed); the significant
divergence in deadlines among Member States and differences between national
screening mechanisms and the cooperation mechanism (some Member States start
their national screening procedures only after the cooperation mechanism has
ended, while others conduct theirs at the same time as the cooperation
mechanism, and, in some cases, Member States do not notify transactions to the
cooperation mechanism at all if an in-depth investigation is not launched).
68
For more information, see p. 37 of the OECD report.
69
Point 34 of the ECA report.
25
- The lack of a legal basis for direct formal interaction between the investor/target
company and other Member States and the Commission during the screening
procedure.
- The lack of notifying parties’ access to comments made by other Member States
and Commission opinions.
b) Issues stemming from the implementation and/or interpretation of the
regulation by the Member States
The OECD report, the consultations organised by the Commission and the ECA report
found that the following issues also undermine the ability of the Member State deciding
on a transaction to address the public order or security concerns identified by other
Member States.
- The OECD report pointed out that only a few Member States have equipped
themselves with a legal basis and procedures to take into account or mitigate
the security or public order risks identified by other Member States or the
Commission70
. At national level, there is often no measure in place for the
institutional review of Member States’ comments or Commission opinions. Some
national deadlines are too short to take the Commission’s or other Member States’
concerns into account; and many Member States do not have the legal means to
impose mitigating measures with a cross-border effect (e.g. continuity of supply
from the target company in the Member State hosting the investment to a client
(for example, the armed forces) in another Member State).
- Very few national screening authorities have the power to take into account
the material public order or security concerns of other Member States in
their screening decisions71
. With some limited exceptions, under national law,
Member States can only prohibit a transaction or impose mitigating measures if
their own public order or security is affected. Member States often make a security
assessment before notifying (or not) transactions to the cooperation mechanism
taking into account only their own security or public order interests, with the result
that the mechanism may not even become aware of FDIs that may affect the
security or public order of Member States other than the one hosting the
transaction or projects or programmes of Union interest.
- There are only limited possibilities for identifying and addressing FDIs
which, for whatever reason, are not screened nationally (e.g. no screening
mechanism, narrow scope of the existing screening mechanism, transaction not
filed by the parties concerned, etc.)72
. In cases of non-notified transactions, many
national screening authorities are not legally empowered, under national law, to
70
For more information, see p. 76 of the OECD report.
71
For more information, see p. 71 of the OECD report. Page 49 of the OECD report gives an overview of
explicitly legislated powers to act in the interests of other Member States or projects or programmes of
Union interest.
72
For more information, see p. 68 and p. 70 of the OECD report.
26
obtain from the parties to the transaction information requested by other Member
States or the Commission.
The Regulation does not make the provision of information conditional on the fact
that a transaction is undergoing screening. In practice, this means that very little
use can be made, and is made, of Article 7 of the Regulation, which allows
cooperation on any FDI not screened by a Member State. As a result, transactions
that could affect the EU’s public order or security could go unnoticed and, even if
identified thanks to the cooperation mechanism, might not be investigated and
addressed because the host Member State does not have a legal basis for doing so.
In their responses to a Commission questionnaire, most national screening
authorities took the view that cooperation on non-screened FDI is only effective if
the Member State where the transaction takes place maintains a screening
mechanism that can address the concerns raised. Without an applicable screening
mechanism, the Member State where the transaction is planned or completed is
unlikely to have the necessary means to take measures in response to a
Commission opinion or other Member States’ comments.
One respondent believed that if the ‘host’ Member State does not have the power
to at least investigate a transaction, other Member States may be less inclined to
comment on the transaction. Some respondents pointed out that the obligation for
all Member States to maintain a screening mechanism would address this
shortcoming.
The ECA report found out that, although the Commission may assess FDI not
undergoing screening at its own initiative, these provisions have limited value,
given the lack of information available on the FDI transactions taking place,
except for information that is in the public domain73
.
The OECD report and the Commission consultations have not revealed shortcomings in
the arrangements and mechanisms complementing the cooperation mechanism, such as
the expert group on the screening of FDI into the EU, the rules on the confidential
handling of sensitive information and the arrangements for international cooperation with
like-minded partners, such as the US, Japan and the G7 countries74
.
4.1.2 Efficiency of the Regulation
Efficiency covers the resources used by an intervention (in this case, the FDI Screening
Regulation) to obtain the desired outcome. The evaluation has identified two main types
of costs of FDI screening: the administrative costs borne by public administrations and
businesses in order to comply with the Regulation, and the possible decrease of FDI
inflows due to the adoption and implementation of the EU framework for FDI screening.
73
Point 27 of the ECA report.
74
Canada, France, Germany, Italy, Japan, UK, US.
27
On administrative costs, according to stakeholders interviewed for the OECD report, the
EU framework has not significantly changed the processes or deadlines for, or outcomes
of, investment screening in Member States. Responses to a Commission questionnaire
confirm this. Like Member States, most private sector respondents were unable to
provide detailed cost estimates for the administrative burden of EU cooperation on
FDI screening. Their replies indicated that the cooperation mechanism’s average costs
were rather limited compared to the overall costs of most FDI reviews. However, several
respondents reiterated that where a transaction is notifiable in more than one Member
State, the lack of procedural alignment among national mechanisms and the different
national requirements and practices have substantial cost implications and administrative
burden (including legal and consulting fees, compliance efforts and administrative
overheads).
Asked if the EU framework for FDI screening deterred investors from investing in the
EU, all Member State respondents considered that the Regulation and national
mechanisms did not have a dampening effect on FDI. Most private sector respondents
shared the view that the EU framework for FDI screening, while not without flaws, had,
on the whole, not deterred investors from investing in the EU.
Another private sector respondent who contributed on behalf of a foreign investor said
that the workflow to get clearance from FDI screening authorities had become heavier
than the workflow to get merger control clearances.
As part of the evaluation, the Commission assessed whether it was methodologically
feasible to give a quantitative estimation of the likely current, past or future impact of the
FDI Screening Regulation and its possible amendments on the economy and society and
on FDI inflows. The conclusion arrived at was that this was not possible for the reasons
explained in Section 2.4 of Annex II.
4.1.3 Coherence of the Regulation
Internal coherence
The evaluation found that the provisions of the Regulation are generally internally
coherent and work well together to achieve its objectives. The Regulation’s various
obligations fit well together, with minimal rules and a lot of flexibility on the design and
implementation of national screening mechanisms by Member States. National screening
authorities’ responses to a Commission questionnaire confirmed this as they considered
that the purpose of the Regulation was on the whole coherent with the provisions for its
implementation (for example: the confidentiality of information exchanged, the
Commission expert group on the screening of FDI into the EU, and the list of projects
and programmes of Union interest annexed to the Regulation).
Coherence with Member States’ legislative frameworks
To achieve the Regulation’s objective, the screening by Member States of FDI likely to
affect security or public order is of paramount importance. The OECD report therefore
28
examined the screening mechanisms maintained by the Member States and concluded
that certain definitions and provisions of the Regulation were being interpreted and
applied in different ways across Member States (for example, who is considered a
‘foreign investor’ and what constitutes ‘formal screening’)75
.
Furthermore, the Regulation only has minimal rules (primarily procedural requirements)
on designing screening mechanisms76
. This means that differences in the sectoral scope
of national mechanisms, or the application of rules to greenfield investments, or their
exemption from those rules, could be seen as an inconsistency.
Finally, the lack of certain Member States’ explicit competences to act effectively on
other Member States’ comments or Commission opinions could be seen as inconsistent
with the obligation to take these comments and opinions into ‘due consideration’ or take
‘utmost account’ of them. These obligations concern behaviour, not outcomes, but
certain Member States’ inability to act in line with the Regulation can also be considered
to be related to coherence.
The consequences of different scopes and definitions, or the consequences of certain
Member States’ inability to take action in the interests of other Member States have
repercussions on the effectiveness of the Regulation. These shortcomings were evaluated
in detail in the section on efficiency. The ECA report considered the lack of definitions
or the uniform interpretation of key concepts (such as ‘likely’ or ‘security or public
order’) a shortcoming of the Regulation77
. However, the Commission consultations did
not receive comments suggesting this was very problematic in practice.
In response to a Commission questionnaire, national screening authorities considered that
the Regulation had promoted the adoption of, and a certain degree of similarity among,
national screening mechanisms. At the same time, respondents pointed out that
differences remained among national screening mechanisms, for example in the sensitive
economic sectors subject to screening and deadlines. Generally, national screening
authorities were in favour of promoting greater harmonisation of national rules without
affecting the responsibilities of Member States in screening.
Coherence with relevant EU interventions
The Regulation clarifies that its application is without prejudice to the application of
Article 21(4) of Regulation (EC) No 139/2004 (the Merger Regulation), and both the
Regulation and Article 21(4) of Regulation (EC) No 139/2004 should be applied
consistently78
. It clarifies that the Regulation does not affect EU rules on the prudential
assessment of acquisitions of qualifying holdings in the financial sector, which is a
distinct procedure with a specific objective79
. The Regulation also states that it is
75
Paragraphs 161-165 of the OECD report.
76
These rules are set out in Article 3(2)-(6).
77
Points 29 and 33 of the ECA report.
78
Recital (36).
79
Recital (37).
29
consistent with and without prejudice to other notification and screening procedures set
out in sectoral EU law80
.
In the reporting period, the Commission has not become aware of specific cases in which
a transaction was subject to multiple authorisation procedures, and these were carried out
in a conflicting manner. However, the respondents to the targeted consultation were
almost evenly divided on the overall consistency of the processes required by the FDI
Screening Regulation with other scrutiny and authorisation procedures.
In response to a Commission questionnaire, many private sector respondents called for
greater consistency between nationality criteria (used to determine an investor’s country
of origin and ultimate ownership) and other EU instruments, in particular the EU
sanctions regime, anti-money laundering and EU merger control rules, and key concepts,
such as ‘control’ and the consideration given to security and public order (in particular in
the context of EU merger control rules).
The evaluation found that the Regulation was cited in several relevant EU policy
instruments81
, but no major inconsistencies or overlaps were identified between the
Regulation and these instruments, whose purpose is distinct from that of the FDI
Screening Regulation. Rather, the evaluation showed that there was a certain degree of
complementarity between the Regulation and the EU instruments applicable to sectors or
actions relevant for security or public order.
Finally, the evaluation found that the Regulation was consistent with EU restrictive
measures (sanctions), which, on the basis of Article 215 of the TFEU, take precedence
over other EU regulations and may prohibit or stand in the way of authorising FDI by
certain third countries or nationals of third countries. On FDI not prohibited by EU
restrictive measures, the Commission has called for systematic scrutiny of FDI by or
related to Russian or Belorussian persons, with particular attention to the threats posed by
investments by persons or entities associated with, controlled by or subject to influence
by the governments of these two countries82
.
80
Recital (38).
81
For example:
- Regulation (EU) 2022/2560 on foreign subsidies distorting the internal market;
- Regulation (EU) 2021/696 establishing the Union Space Programme and the European Union
Agency for the Space Programme;
- Proposal for a regulation establishing a framework of measures for strengthening Europe’s
semiconductor ecosystem (Chips Act) (COM/2022/46 final); and
- Joint Communication of the European Commission and the High Representative of the Union for
Foreign Affairs and Security Policy on ‘European Economic Security Strategy’ (JOIN/2023/20
final).
82
Communication from the Commission: Guidance to the Member States concerning foreign direct
investment from Russia and Belarus in view of the military aggression against Ukraine and the restrictive
measures laid down in recent Council Regulations on sanctions (C/2022/2316).
30
4.2. How did the EU intervention make a difference and to whom?
The evaluation found that the Regulation had generated more added value than Member
States could individually have achieved when it comes to the screening of potentially
risky investments on the grounds of EU security or public order. Respondents to the
targeted consultation generally agreed that the FDI Screening Regulation had increased
the effective protection of EU security and public order from the risks posed by certain
FDIs more than Member States could individually have done. In particular, respondents
said that the Regulation:
- provided security-relevant information to Member States that they would not
otherwise have access to (without the cooperation mechanism);
- had an impact on the decision taken by the Member State screening a
transaction83
;
- had increased convergence among Member States on what may constitute a
risk to security or public order;
- had increased convergence among Member States on how risks to security or
public order should be assessed; and
- had promoted the adoption or modernisation of national screening
mechanisms84
.
Responses were more nuanced about the degree to which the Regulation had generated
added value by increasing convergence between national rules on what may constitute a
risk to security or public order, how such risks are assessed, and the procedural aspects of
national screening mechanisms.
In response to a Commission questionnaire, national screening authorities said that the
Regulation had increased their awareness of cross-border risks to security or public order
and drawn their attention to the security relevance of EU projects and programmes, as
well as the potential risks to the continuity of these projects and programmes from certain
FDI. Overall, Member State respondents considered that the Regulation and the
cooperation mechanism had allowed the Commission and Member States to became
more familiar with screening mechanisms in the EU, and increased awareness of FDI
risks, and the cooperation mechanism had made it more difficult for parties to
transactions to hide risky investments from Member States. Furthermore, even when
assessing FDI made in only one Member State, more attention is paid to possible impacts
at EU level.
83
The lack of information on the outcome of national screening procedures notified to the cooperation
mechanism meant that it was not possible to do a comprehensive factual evaluation of how Commission
opinions and Member States’ comments have influenced the outcome of national screening investigations,
for example by providing information or drawing attention to considerations not identified by the screening
Member State. This was also pointed out in the ECA report (point 29.c), which presented it as a limitation
of the effectiveness and efficiency of EU-wide screening.
84
This was confirmed by the OECD report. For more information, see paragraphs 44-46 of it.
31
On the same matter, private sector respondents to a Commission questionnaire saw the
Regulation’s added value in the following areas.
- It has prompted Member States to establish, where necessary modernise, and
effectively implement, their national screening mechanisms. However, two
respondents considered that in a way, the Regulation had decreased legal certainty
by promoting the use of screening on grounds of security and public order in a
way that gives Member States too much discretion to determine the scope of
sectors or economic activities covered by their screening mechanism, the
notification triggers, the procedural framework and screening deadlines, as well
as the substantive concerns assessed.
- It has increased the efficiency of risk assessment by the Member States, and given
Member States security-relevant information on FDI transactions subject to
screening.
- It has improved awareness of cross-border security risks, as well as risks on
security and public order grounds to projects and programmes of Union interest.
- It has fostered a degree of consistency and convergence in the approach to FDI
screening across the EU – without the coordinated framework, it is reasonable to
assume that newly adopted screening rules would vary more widely in terms of
criteria, procedures and thresholds.
- It has drawn political attention in Member States to the importance of FDI
screening, which may have resulted in additional resources being allocated to the
implementation of screening mechanisms, which in turn might have improved the
quality of risk analysis.
- It has increased the private sector’s awareness to and understanding of national
screening mechanisms.
Lastly, the Commission’s annual reports on FDI screening in the EU, which provide
information about FDI trends, national screening activities, legislative and policy
developments in Member States and the implementation of the EU cooperation
mechanism, increase the transparency of screening in the EU. At the same time, the ECA
report considered that the Commission’s reports contained insufficient information and
data and recommended that they focus more on critical risks and approaches to
mitigating them, and that, in cooperation with Member States, the Commission also
improve the scope and quality of the underlying data85
.
4.3. Is the intervention still relevant?
The evaluation found that the Regulation’s objective of protecting the EU’s security and
public order from risky FDI remained very relevant, particularly given the evolving
geopolitical situation (presented in Section 3.1), the trends of FDI in the EU (presented in
85
Points 57 and 66 of the ECA report.
32
Section 3.2), and the international policy context (presented in Section 3.7). The
increasing number of Member States maintaining and updating their screening
mechanisms (presented in Section 3.3), and the more than 400 cases reviewed by the
cooperation mechanism each year, confirm the continued relevance of FDI screening as a
policy tool, and of EU cooperation, for identifying and addressing the cross-border risks
of FDI to security or public order. Respondents to the targeted consultation confirmed
this assessment.
The shortcomings found by the OECD report, the consultations organised by the
Commission and the ECA report point to three key shortcomings limiting the current
rules’ relevance.
- Firstly, the gap between the aggregated number of cases received and screened by
Member States and the number of cases reviewed by the cooperation mechanism
raises the question of whether the scope of investors covered by the Regulation
and the criteria for notifications to the cooperation mechanism remain
relevant. The comparative analysis of national screening mechanisms and the
annual reports published by some Member States found that several Member
States went beyond the scope of investors covered by the Regulation by screening
certain intra-EU investments86
, which can pose the same security and public order
risks as FDI the Regulation covers. This was confirmed by national screening
authorities, whose confidential replies to a Commission questionnaire showed
that there were precedents for transactions outside the scope of the cooperation
mechanism that were prohibited or authorised with conditions since October
2020. This confirms that the current system has ‘blind spots’ and that the
Regulation could be improved by covering investments by investors established
in the EU and controlled by third country investors. This may be particularly
relevant given patterns of past investment by investors from countries of potential
concern in the EU predating the current focus on screening.
- Secondly, given the difference between the proportion of transactions that
Member States find risky under their national systems and the proportion of
notified transactions in which the Commission or another Member State
intervened, it appears that the trigger for mandatory notification to the
cooperation mechanism often results in very low-risk cases being brought to the
attention of the network of screening authorities, while relevant cases go
unnoticed due to the limitations concerning intra-EU FDI. The OECD report
pointed out that the current design resulted in both oversharing (the notification of
transactions that are manifestly irrelevant for other Member States who are
themselves unlikely to contribute useful information) and undersharing, whereby
a transaction likely to affect the security or public order of other Member States is
not brought to their attention, with varying practices in Member States being
86
For more information, see paragraphs 166-167 of the OECD report.
33
another contributing factor87
. The ECA report also highlighted the overburdening
of the system with ineligible (out of scope) and low-risk cases88
.
- Thirdly, because Member States may decide not to maintain and implement a
screening mechanism, the current system leaves leeway for circumventing
national FDI mechanisms if a foreign investor establishes a subsidiary in a
Member State without a screening mechanism, then organises its future
investments through that subsidiary, or if the target company’s assets are
transferred, before the actual FDI is made, to an entity in another Member State
without a screening mechanism or with less stringent screening procedures.
In response to a Commission questionnaire, national screening authorities were in favour
of maintaining the cooperation mechanism while addressing the shortcomings in its
efficiency and effectiveness. Several private sector respondents acknowledged that the
Regulation had played a major role in promoting a degree of harmonisation and
coherence that might not have existed across the EU otherwise. At the same time, they
took the view that the current system could be improved, with greater harmonisation to
provide clarity, and that screening in the EU could be made more consistent. They
suggested some rules and practices, where harmonisation or alignment would be
beneficial. These recommendations are set out in Annex V.
5. WHAT ARE THE CONCLUSIONS AND LESSONS LEARNED?
The overall objective of this staff working document is to evaluate the FDI Screening
Regulation using the five standard evaluation criteria of the better regulation toolbox:
effectiveness, efficiency, coherence, EU added value and relevance. This section presents
the main findings of the Commission and the lessons learned from the evaluation.
5.1 Conclusions
On effectiveness, the evaluation shows that the Regulation has had a positive impact on
protecting EU security or public order from risky FDI. It also shows that the Regulation
itself has not slowed down or deterred the inflow of FDI into the EU. That said, several
shortcomings were identified that result in blind spots in the system (such as Member
States without a screening mechanism or the lack of screening of foreign-controlled
intra-EU investments), ultimately undermining the ability of the Commission and
Member States to identify a wide scope of potentially risky transactions. This may
undermine the protection of security or public order in the EU, including in but not
limited to the Member State where the investment takes place. These shortcomings are
described in detail in the next section on lessons learned.
On efficiency, the evaluation concluded that the administrative burden of implementing
the Regulation is reasonable, both for Member State public authorities and for parties to
87
For more information, see p. 79 of the OECD report.
88
Point 38 of the ECA report.
34
transactions undergoing screening. However, the evaluation found that certain procedural
aspects of the cooperation mechanism limit its efficiency. These are, for example, the
lack of harmonisation of Member States’ timelines for screening FDI transactions, the
lack of predictability of the stage of national screening at which EU cooperation is
initiated because their start is only determined by the start of formal screening by the
Member State concerned, and the lack of an efficient cooperation procedure for
transactions screened by multiple Member States. As the number of Member States
screening FDI increases, the Commission expects these problems to increase
significantly, which may undermine the functioning of the market for investments and
‘corporate control’ of EU legal entities. This calls for an appropriate regulatory solution
in the upcoming revision of the Regulation.
The evaluation shows that the Regulation is internally coherent to a satisfactory degree.
No significant inconsistencies were identified in relation to the cooperation mechanism
and between the cooperation mechanism and other aspects of the Regulation. At the same
time, the evaluation revealed that the minimum requirements for national screening
mechanisms are insufficient to achieve the necessary level of coherence (consistency)
between the FDI Screening Regulation and national screening mechanisms (and between
national mechanisms themselves) for the efficient and effective functioning of the
cooperation mechanism. On external coherence, no procedural inconsistencies were
found between the Regulation and other EU legislation and policies, while certain
stakeholders pointed out the lack of harmonisation of certain concepts and the
consideration given to security or public order, which could result in inconsistencies
when the same FDI transaction is subject to more than one authorisation procedure.
The evaluation shows that the Regulation has provided added value by setting up a
cooperation mechanism, which has increased the effective protection of security and
public order from the risks posed by certain FDIs beyond what would have been
achieved by Member States each operating individually.
On relevance, the evaluation found that the objective of the Regulation (protecting
security and public order from the risks posed by certain FDIs) remains relevant. That
said, the relevance of the current system is limited by the shortcomings identified in the
evaluation concerning the limitations to the origin of investors and the trigger set by the
Regulation for notifying transactions to the cooperation mechanism.
5.2 Lessons learned
The main lessons learned and some possible solutions are set out below. These are not
exhaustive and are without prejudice to future decisions to be taken by the Commission
in its proposal for a revision of the Regulation.
35
Lesson 1: The lack of ‘ex ante’ screening mechanisms in some Member States and
the divergence between existing mechanisms undermine the effectiveness of the
Regulation.
The absence of screening mechanisms in some Member States that make it possible to
scrutinise transactions before they are completed (‘ex ante’) diminishes the effectiveness
of the EU framework for investment screening considerably: Member States that have no
mechanism have few or no effective means to manage risks related to foreign investment
in the EU, do not build institutional capacity, and cannot benefit fully from exchanges
under the cooperation mechanism89
. Furthermore, the evaluation concluded that
limitations to the coverage of investment screening mechanisms in Member States
diminish the effectiveness of the EU framework for investment screening considerably:
Member States that exclude important areas from the application of their screening
mechanisms – including by narrowly defining their sectoral scope or exempting investors
associated with certain non-EU jurisdictions – have limited effective means to manage
risks related to foreign investment in the EU. This may have spillover effects on EU
security or public order interests in other Member States and on projects or programmes
of Union interest.
In the absence of a common scope of transactions subject to screening in all Member
States or other ways to harmonise the conditions that should trigger screening at national
level, the number and scope of notifications that the cooperation mechanism receives
from the Member States are likely to continue to vary greatly. Furthermore, foreign
investors may continue taking advantage of jurisdictions in the EU that do not have an
FDI screening mechanism or whose mechanism does not apply to the sector concerned.
Under the current system, such FDI might be identified, and assessed if an ex officio
cooperation is initiated under the mechanism provided by Article 7 of the Regulation.
However, the evaluation has revealed a very limited use of this cooperation compared to
the number of transactions assessed pursuant to a national screening procedure. Hence,
the whole cooperation mechanism is only as strong as its weakest link.
Possible measures
- In line with the positions taken by the Commission in its relevant
communications since March 2020 and the recommendation of the ECA report90
,
a revised Regulation could require all Member States to adopt an ‘ex ante’
screening mechanism.
89
Some national mechanisms only carry out ex post screening of FDI, which deprives these Member States
of an important tool if they (or the Commission or another Member State) identify a risk in relation to an
FDI undergoing screening in another Member State and there is a subsidiary of the same company in their
jurisdiction.
90
Point 60 of the ECA report.
36
- These mechanisms should meet certain substantive criteria91
, otherwise there is a
risk that the current inefficiencies will prevail (e.g. minimum scope of sectors or
economic activities where the transaction cannot be completed without
authorisation; types of investments and investors covered).
Lesson 2: The current definition of FDI is too limiting.
The evaluation found that the current scope of the Regulation (covering transactions that
fall under its definition of ‘foreign direct investment’) excludes certain important
transactions and transaction types. The most consequential issue is the definition of
‘foreign investor’ in the Regulation, which means that the cooperation mechanism cannot
be used for investments by non-EU investors if these investors invest via an entity set up
in the EU, even though the public order or security implications of such transactions can
be the same as in scenarios where the foreign investor directly invests from abroad. The
only exception to this is the case of circumvention of the screening mechanism, for
example by using an EU shell company. Member States confirmed to the Commission
that they had prohibited or conditioned certain intra-EU transactions since October 2020
that were not notified to the cooperation mechanism before the national decision, as the
transaction fell outside the scope of FDI as defined by the Regulation. In relation to these
transactions, the other 26 Member States and the Commission were not able to make
their own analysis and share possible concerns, as they were not aware of the transaction
undergoing screening.
Possible measure
- A revised Regulation could explore extending the cooperation mechanism to
cover intra-EU transactions where the EU direct investor is controlled by a
foreign investor. The screening of such intra-EU transactions should be carried
out in full conformity with the principle of proportionality and other principles
enshrined in the Treaties and the objective of preserving an open and inclusive
internal market in the EU.
Lesson 3: Notification of all transactions undergoing screening is a suboptimal filter
to identify risky transactions across the EU.
The current set-up, where Member States are required to notify to the cooperation
mechanism all FDIs that they screen, creates several shortcomings. These issues result in
a mechanism that assesses a significant number of transactions (including many non-
critical FDIs) and devotes resources to checking the eligibility of transactions that are
found to be ineligible or obviously non-critical, while still risking overlooking potentially
critical transactions.
- First, the evaluation found that an overwhelming number of transactions notified
to the cooperation mechanism have no impact on public order or security of the
91
It should be noted that point 61 of the ECA report recommends that the Commission assesses whether
national screening mechanisms comply with the standards set out in Article 3 of the Regulation.
37
notifying Member State or other Member States, or through projects and
programmes of Union interest.
- Second, there are no harmonised conditions to determine what may or must
constitute a formal screening of a transaction at national level, which is the trigger
for Member States to notify transactions to the cooperation mechanism. As a
result, certain transactions might be dismissed when they are considered
non-sensitive by the screening Member State from a purely national security
perspective while they could be relevant to other Member States or projects or
programmes of Union interest. It is not appropriate for the screening Member
State to decide on its own criteria for determining which transactions should be
withheld from the cooperation mechanism.
These shortcomings severely impair the effectiveness of the Regulation while
undermining the efficient use of resources in national administrations and creating
unnecessary administrative burden for businesses.
Possible measures
- Laying down some common criteria for the transactions that Member States must
notify to the cooperation mechanism, for example a common minimum scope of
sectors or transactions that need to be screened and notified to the cooperation
mechanism. This would allow the cooperation mechanism to focus on the most
critical transactions.
- The list of minimum criteria could be further developed over time to adapt to
changing risks or new technologies.
- In addition to this, a mechanism could be put in place to avoid missing
transactions considered critical by one or more Member States but falling outside
of the common minimum scope.
Lesson 4: The differences between national screening mechanisms can seriously
undermine the effectiveness and efficiency of the cooperation mechanism.
The Regulation provides very little framing as regards the scope (‘what actually needs to
be screened’), the objective and criteria in light of which the screening takes place. In the
absence of harmonised EU rules, the evaluation found significant conceptual differences
between national screening legislations with regard to the expression of concepts such as
‘security’, ‘public order’, ‘national security’ and ‘essential security interests’, as well as
the probability thresholds to indicate the likelihood of an adverse effect on impact on
security and public order (‘likely, ‘disrupt’, ‘threaten’, ‘may affect’)92
. The ECA Report
suggested improvements in this regard to ensure that investors are not discriminated
against and that the free movement of capital is not unduly restricted93
. Given the current
vague safeguards, some Member States may justify prohibiting a transaction in a
92
Page 57 of the OECD report.
93
Point 60 of the ECA report.
38
situation underlying the Xella case94
, where the European Court of Justice was very clear
on the breach of the freedom of establishment committed by such refusal. The continued
lack of alignment of the scope, objective and criteria of national screening mechanisms
combined with an increasing number of such mechanisms risk infringing the Treaty free
movement rules and create obstacles to the Treaty freedoms.
In addition to the lack of alignment of substantive rules procedural divergences also
create further problems for the cooperation mechanism. Member States with a screening
mechanism are free to determine their timeframes for screening and the moment when
they notify the cooperation mechanism of a specific transaction. This issue is notably
problematic in the case of multi-country notifications, i.e. when several Member States
notify their respective national screening procedure of the same broader transaction. As a
result, transactions that are screened in several Member States because the target
company has subsidiaries in these Member States are not necessarily notified
simultaneously to the cooperation mechanism. In the evaluation period, these multi-
country transactions accounted for about 25% of the transactions reviewed by the
cooperation mechanism.
However, the timelines of EU cooperation are such that the Commission and the other
Member States need to assess each leg of the transaction upon receipt of the notification.
Consequently, they may assess the same transaction at several points in time with an
uneven level of information, and after the respective deadline, they may not have the
possibility to reopen the assessment of a transaction notified earlier.
This has consequences for resources and leads to duplication of work, but most
importantly, it compromises the quality of the risk assessment. The worst-case scenario
would be for the Commission or Member States to close their assessment of the first
leg(s) of a transaction without identifying a concern, and identifying a risk only after a
later notification by a Member State in relation to its own leg of the transaction. As the
completion of a transaction is subject to the receipt of screening authorisation from all
Member States where the parties filed a request, aligning the timelines would not delay
the completion of transactions.
Possible measures
- Harmonisation could be considered for the scope of screening mechanisms and
the threshold for what is to be screened on the basis of which criteria, and what
sort of finding can trigger Member States’ decisions that impose conditions or
prohibit a transaction.
- Member States could be required to notify the cooperation mechanism within a
specified time following receipt of the filing by the investor.
- Further procedural harmonisation could be considered for ‘multi-country
notifications’ to ensure a parallel and possibly coordinated handling of
94
Judgment of 13 July 2023, Xella Magyarország, C-106/22, EU:C:2023:568.
39
transactions (including their assessment and the final decision) in all Member
States concerned. This action was also recommended by the ECA report95
.
Lesson 5: The information provided to the cooperation mechanism about individual
transactions is not sufficient.
Currently, the scope of the information that must be provided in the notification to the
other Member States and the Commission under the Regulation is rather limited. The
notification form, which was prepared by the Commission in close cooperation with the
Member States, goes beyond the formal initial information requirements under the
Regulation and it has proven useful and widely used by Member States. However, it does
not address the fact that certain transactions may require more than one request for
information from the screening Member State, and in some cases, the necessary
information is only known to Member States other than the one screening the transaction.
Possible measures
- The revised Regulation could formalise and standardise the information
requirements provided in the notification template currently in use.
- The revised Regulation could explicitly allow the Commission and Member
States to ask questions to other Member States than the one hosting the
transaction, if the assessment of a case requires this.
- The revised Regulation could provide more flexibility for requesting additional
information from the screening Member State (or through them from the investor)
with safeguards against abuse and unjustified delays.
Lesson 6: The timelines of the cooperation mechanism are too short for potentially
critical transactions, and they are suboptimal for the cooperation between the
Commission and Member States.
In general, the timelines of the cooperation mechanism appear too short, in particular for
potentially critical transactions. Furthermore, the fact that the Member States and the
Commission are bound by identical timelines to make comments or issue an opinion
prevents the Commission from factoring in the assessment of Member States concerned
by a transaction when assessing the impact on security or public order in more than one
Member State. The Commission may only become aware of a Member State’s security
concern on the day it is supposed to issue an opinion. Given the time required for internal
procedures, the current timeframes do not leave sufficient room for concluding the
substantive analysis.
Possible measure
- In potentially sensitive cases, the Commission should have more time to conclude
its assessment under the cooperation mechanism than the Member States. This
would allow the Commission to take due account of Member States’ comments
95
Point 61 of the ECA report.
40
when preparing an opinion, without unduly delaying the screening procedures at
national level.
Lesson 7: Member States do not have sufficient power to address the interests or
concerns of other Member States.
The evaluation found that a number of Member States with an FDI screening mechanism
believe they do not have the power to take into consideration the protection of security or
public order of other Member States or the EU. They argue they do not have the power to
ask questions to foreign customers, suppliers or competitors of targets on their territory.
They also argue they do not have the possibility to impose mitigating measures with a
cross-border effect. This seriously undermines the effectiveness of the Regulation, whose
aim is precisely to address the concerns expressed by other Member States. Only if
Member States can effectively address the concerns of others, the whole cooperation
mechanism is worth the effort and the resources for all stakeholders involved.
Possible measure
- The obligation for the Member State hosting the FDI to at least take into account
concerns of other Member States is already enshrined in the Regulation. The
revised Regulation could improve this.
Lesson 8: The network of screening authorities does not have sufficient information
about the outcome of national screening procedures notified to the cooperation
mechanism.
The current Regulation does not require screening Member States to provide information
about the outcome of their screening decisions, for example a copy of their final decision,
even when the Commission issued an opinion or other Member States made comments
based on their security interests or concerns. As a result, the network of screening
authorities has only limited information, if any, about FDIs that were considered risky by
one or more Member States or the Commission and even less information is available
about the reasons for Member State intervention in specific transactions. Furthermore,
this limitation prevents the Commission from monitoring whether screening decisions are
strictly motivated by public order or security concerns and meet the risk threshold
required by the Regulation.
Possible measures
- The revised Regulation could require a Member State that has received comments
or opinions to provide an explanation of its course of action in specific
transactions to increase accountability within the cooperation mechanism (this
would be in line with the recommendation of the ECA report)96
.
- Member States could be required to provide information, on a confidential basis,
about the outcome of screening of transactions notified to the cooperation
96
Point 66 of the ECA report.
41
mechanism, on the basis of which the Commission could publish general or
aggregate information in its annual reporting (this would be in line with the
recommendation of the ECA report97
and could improve the scope and quality of
underlying data for the Commission’s annual reports, also recommended by the
ECA report)98
.
In brief, the evaluation found that several missing or weak links remain in the EU’s
‘chain’ of protection against risky FDI transactions. While the cooperation between all
national authorities and the Commission has been intense and has helped in identifying,
assessing and addressing risky FDI transactions that would otherwise have been missed99
,
it is appropriate for the Commission to propose a revision of the Regulation to ensure
that the chain does not have missing links and all links have the same sufficient level of
strength.
97
Point 60 of the ECA report.
98
Point 66 of the ECA report.
99
In the reporting period, the Commission and the relevant Member State authorities reviewed more than
1 100 transactions.
42
ANNEX I: PROCEDURAL INFORMATION
1. Lead DG, Decide planning / Commission work programme references
This evaluation forms part of the initiative to evaluate and possibly revise the FDI Screening
Regulation, which was published by the European Commission’s Directorate-General for
Trade (DG TRADE) on the Commission’s ‘Have your say’ website100
on 12 February 2023.
The agenda planning (Decide) reference assigned to the evaluation is PLAN/2023/92. The
evaluation was required under Article 15 of the Regulation and was announced in the
Commission work programme for 2023.
The report prepared by the OECD and co-funded by the EU assessed the effectiveness and
efficiency of the cooperation mechanism almost 2 years after the full entry into force of the
Regulation. The OECD started its work under a delegation agreement in October 2021 and
published its report in November 2022.
2. Organisation and timing
In line with the better regulation guidelines, an existing interservice steering group of the
Commission oversaw the evaluation. This steering group includes almost 20 Commission
Directorates-General that play a part in the Commission’s analysis of FDI transactions on a
case-by-case basis where their specific expertise is required.
The steering group is led by DG TRADE. In the course of the evaluation, it was consulted on
the questionnaire for the targeted consultation and the evaluation questions and indicators
summarised in the evaluation matrix (Annex III).
3. Limited exceptions to the better regulation guidelines
In conducting the evaluation, an exception was granted to certain procedural requirements of
public consultations described in the better regulation guidelines due to the specialised focus
of the instrument. These exceptions concerned the duration (4 weeks instead of 12 weeks)
and the language of publication of the online questionnaire (English only). Otherwise, the
targeted consultation published by the Commission complied with better regulation rules for
public consultations.
4. Consultation of the Regulatory Scrutiny Board
Not applicable. Tool #3 of the better regulation toolbox concerning the role of the Regulatory
Scrutiny Board provides that the Board scrutinises only selected evaluations. This report has
not been selected for scrutiny.
100
https://ec.europa.eu/info/law/better-regulation/have-your-say/initiatives/13739-Screening-of-foreign-direct-
investments-FDI-evaluation-and-revision-of-the-EU-framework_en
43
5. Evidence, sources and quality
DG TRADE used an external contractor to support the evaluation of the FDI Screening
Regulation. The OECD Secretariat (Investment Division of the Directorate for Financial and
Enterprise Affairs) carried out a study on the effectiveness and efficiency of the FDI
Screening Regulation and offered conclusions and broad recommendations on how to address
the shortcomings identified in the study101
. The study was co-financed by the Commission
and was carried out between October 2021 and June 2022. It reflects information as of
30 June 2022.
The analytical work carried out by the OECD Secretariat was based on desk research and
interviews with Member State authorities, the Commission and other stakeholders (mainly
legal advisers) involved in FDI screening. The OECD interviewed experts from all Member
States. However, because of resource constraints, the study focuses on 15 of them only102
.
They were selected with a view to achieving a balance between smaller and larger
economies, and a presentation of all situations under the current Regulation: long-standing
FDI screening mechanism, recent FDI screening mechanism and absence of FDI screening
mechanism.
The study assesses the ability of the cooperation mechanism to screen and address FDIs that
likely affect the security or public order of Member States or projects or programmes of
Union interest (effectiveness). It also assesses the ability of the system to fulfil its objectives
while keeping the administrative burden for investors and other stakeholders proportionate to
the policy goals and relevant security or public order concerns (efficiency). The study reports
that the cooperation mechanism enjoys broad support, not only from Member States but also
from stakeholders. National screening authorities notably consider that they take better
informed screening decisions thanks to the exchange of transaction-specific information
under the cooperation mechanism. Stakeholders consider that the EU framework has not
significantly changed processes, timelines, or outcomes of investment screening in Member
States. Nevertheless, as mentioned above, the study has identified several shortcomings that
diminish the effectiveness and efficiency of the screening of FDIs in the EU. Some of these
shortcomings stem from the design of the Regulation, others from the interpretation and
implementation of the Regulation by Member States. The study’s findings and final
recommendations have helped the Commission to identify the key problems and set out the
priorities for the revision of the FDI Screening Regulation.
The evaluation also considers evidence provided by Member States in their annual reports to
the Commission pursuant to Article 5(1) of the Regulation.
101
The study was published in November 2022: https://www.oecd.org/investment/investment-policy/oecd-eu-
fdi-screening-assessment.pdf.
102
Austria, Belgium, Croatia, Czechia, France, Germany, Greece, Ireland, Italy, Luxembourg, Malta, Slovakia,
Slovenia, Spain and Sweden.
44
The Commission published a targeted consultation and a call for evidence that ran between
14 June and 21 July 2023. The Commission received 47 replies to the consultation103
and 10
contributions to the call for evidence104
. Member States and stakeholders (law firms, business
associations and businesses) with proven experience in implementing the EU rules on FDI
screening were invited by DG TRADE to provide further written input based on a
questionnaire. These replies were collected between 3 August and 1 September 2023. A
summary of replies is available in Annex V.
103
The summary report of the targeted consultation is available on the Commission’s website:
https://policy.trade.ec.europa.eu/consultations/screening-foreign-direct-investments-fdi-evaluation-and-possible-
revision-current-eu-framework_en#consultation-outcome.
104
Contributions to the call for evidence are available on the Commission’s website:
https://ec.europa.eu/info/law/better-regulation/have-your-say/initiatives/13739-Screening-of-foreign-direct-
investments-FDI-evaluation-and-revision-of-the-EU-framework/feedback_en?p_id=32186570.
45
ANNEX II. METHODOLOGY AND ANALYTICAL MODELS USED
1. Methods and sources
1.1 External report and consultation activities
The evaluation relied on a supporting study provided by an external contractor (OECD
Secretariat)105
. The supporting study was based on information collected from multiple
sources, such as:
- desk research, based on information from publicly accessible government sources, in
particular legislation, parliamentary documentation and public reports, and
conversations with experts and practitioners during and before the research period;
and
- 27 semi-structured interviews with 65 different interlocutors from Member State
governments and authorities, the Commission, as well as legal counsels involved in
international transactions that were screened in Member States.
In addition, DG TRADE has carried out the following activities for the purpose of this
evaluation report:
- an open consultation – namely the targeted public consultation with a mix of open and
closed questions and a call for evidence launched by the Commission – held between
14 June and 21 July 2023;
- targeted surveys with open questions to Member State screening authorities and
stakeholders (law firms, businesses and business associations) with proven practical
experience in screening FDI transactions – open between 3 August and 1 September
2023;
- desk research relying on confidential data concerning the FDI transactions notified to
the cooperation mechanism; and
- desk research relying on open-source information about FDI transactions, legislation
and policy developments at EU and national level.
The results of the stakeholder consultations are summarised in Annex V.
The evaluation is thus based on a combination of extensive desk research and a broad range
of stakeholder feedback from consultations carried out by the external contractor and by the
Commission. These provided a solid basis for the findings of the evaluation.
1.2 Analysis of FDI trends between 2019 and the first half of 2023
This section presents a detailed description of trends in FDI flows in the EU between January
2019 and June 2023, prepared by the Commission’s Joint Research Centre (JRC). A
105
Further information about this study is available in Annex I, point 5.
46
summary of this section is available in Chapter 3.2 of the main report. The figures shown are
based on detailed transaction-level data for acquisitions of equity stakes above 10% of the
capital of the EU-based target company and greenfield investments106
.
Since 2019, 9 084 foreign acquisitions have taken place in the EU, with a total value of more
than EUR 832 billion. In the same time period, a higher number of greenfield projects (a total
of just over 12 000 projects) were recorded, however with a lower associated total value of
EUR 342.5 billion107
.
The number of acquisitions declined in the beginning of 2020, corresponding with the
beginning of the COVID-19 pandemic and related public health restrictions, with a year-on-
year reduction of 29.4% in 2020 compared to 2019 (Figure 1, left). In line with global FDI
trends108
, foreign acquisitions experienced post-COVID-19 growth and recovered gradually
through 2021 (with a 36.4% year-on-year increase in 2021 compared to 2020). However the
increasing trend was interrupted in early 2022, linked to higher interest rates and the trade
tensions following Russia’s war of aggression against Ukraine. Despite this, at the end of the
reporting period, foreign acquisitions in the EU remained above 2020 levels.
The decline in investment coinciding with the beginning of the COVID-19 pandemic was
even more dramatic for foreign greenfield projects (Figure 1, right), with a 43% drop in
projects and a 40% drop in values between 2019 and 2020. Foreign greenfield investments
also started a post-COVID-19 recovery in 2021, which lasted until the end of 2022. However,
and in contrast with foreign acquisitions, foreign greenfield investments did not reach
pre-pandemic levels. Finally, the number of foreign greenfield projects remained stable in
2022 (with a small 4% increase compared to 2021). However, a declining trend started at the
end of 2022, which continued in the beginning of 2023.
Figure 1: Number of transactions and value of foreign investments in the EU – acquisitions
(left) and greenfield projects (right), trend
106
See the end of the analysis for details on the datasets used and the methodology, and for definitions.
107
Values are available for 32% of acquisitions, and roughly 95% of greenfield projects.
108
Pitchbook, 2022 Annual Global M&A Report, January 2023.
47
Source: JRC elaboration based on Bureau van Dijk data, extracted on 13 July 2023 from Orbis M&A and Orbis Crossborder. The spike in
the value of foreign greenfield projects in the first half of 2022 was largely due to two Intel investments in semiconductor manufacturing
plants in Magdeburg (Germany), worth EUR 17 billion; and in Leixlip (Ireland), worth EUR 12 billion:
https://www.intel.com/content/www/us/en/newsroom/news/eu-news-2022-release.html.
The US and Canada, carrying out 3 202 acquisitions worth a total of EUR 419.5 billion, were
the main countries of origin of foreign acquisitions in the EU between 2019 and the first half
of 2023, accounting for 35.2% of transactions and 50.4% of the total value (Figure 2, left).
The UK and European Free Trade Association (EFTA) countries followed, accounting for
25.7% and 11.7% of total acquisitions, respectively. Firms originating in China and Hong
Kong carried out 298 acquisitions of EU firms, with an observed value of EUR 12.2 billion
(1.5% of the total value, which corresponds to 3.3% of the total number of acquisitions). For
foreign greenfield projects, a similar pattern in terms of main foreign jurisdictions of origin
can be observed (Figure 2, right). The most important origin jurisdiction was the US and
Canada, which accounted for a share of 42.7% of greenfield projects in the period analysed
(and almost 50% of the total value). The UK and EFTA countries followed in second and
third place, accounting for 20% and almost 10% of total foreign greenfield projects,
respectively. Finally, China and Hong Kong were the fifth most important origin jurisdiction,
accounting for just over 6% of total foreign greenfield projects.
Figure 2: Number of acquisitions of equity stakes, and values (left); number of greenfield
projects, and values (right) – by foreign jurisdiction (January 2019-June 2023)
Source: JRC elaboration based on Bureau van Dijk data, extracted on 13 July 2023 from Orbis M&A and Orbis Crossborder. OFCs:
offshore financial centres109
. EFTA includes Iceland, Norway and Switzerland. Developed Asia includes Japan, Singapore, Taiwan and
South Korea. GCC-ME (Gulf Cooperation Council and Middle East) includes Bahrain, Kuwait, Oman, Qatar, Saudi Arabia, United Arab
Emirates, Iran, Iraq, Israel, Jordan, Lebanon, Palestine, Syria, Türkiye and Yemen. RoW: rest of the world.
Foreign investment originating in all foreign jurisdictions experienced somewhat comparable
trends between 2019 and the first half of 2023, which largely followed the general trends
depicted in Figure 1. In terms of foreign acquisitions, all jurisdictions experienced a year-on-
year decline in 2020 compared to the previous year (Figure 3, left), with acquisitions
originating in China and Hong Kong (-52.6%) and Russia (-60%) experiencing a particularly
steep decline. Foreign greenfield projects originating in EFTA countries experienced the
109
Offshore financial centres (OFCs) include Andorra, Antigua and Barbuda, Barbados, Bermuda, Bahamas,
Gibraltar, Saint Kitts and Nevis, Cayman Islands, Liechtenstein, Monaco, Marshall Islands, Panama, Seychelles,
Saint Vincent and the Grenadines, and British Virgin Islands.
48
largest drop (-60%) in 2020 compared to 2019 (Figure 3, right). In 2021, acquisitions
originating in the US and Canada and Russia recovered at the fastest pace, increasing in
number by 51.3% and 158%, respectively, by the beginning of 2022 compared to 2020. For
greenfield projects, transactions originating in the US and Canada also recovered in 2021
compared to 2020 (+18%).
Figure 3: Number of acquisitions (left) and greenfield projects (right) – trend by foreign
jurisdiction (top 5)
Source: JRC elaboration based on Bureau van Dijk data, extracted on 13 July 2023 from Orbis M&A and Orbis Crossborder. OFCs:
offshore financial centres. EFTA includes Iceland, Norway and Switzerland. Developed Asia includes Japan, Singapore, Taiwan and South
Korea.
Investors often use subsidiaries registered in other countries to make investments. Between
2019 and the first half of 2023, foreign entities used their EU subsidiaries for 31% of foreign
acquisitions, and 28.2% of greenfield investments identified in the reporting period, on
average (Figure 4). Looking at the geographical breakdown by investor origin, the use of EU
subsidiaries ranges from 21.9% of acquisitions by investors originating in the US and Canada
(15% for greenfields) to 49.8% of acquisitions by investors originating in offshore financial
centres (50% for greenfields).
Figure 4: Share of transactions performed by EU-based and non-EU-based direct investors
in total transactions, by origin of the investor’s controlling parent (January 2019-June 2023)
49
Source: JRC elaboration based on Bureau van Dijk data, extracted on 13 July 2023 from Orbis M&A and Orbis Crossborder. OFCs:
offshore financial centres. EFTA includes Iceland, Norway and Switzerland. Developed Asia includes Japan, Singapore, Taiwan and South
Korea. GCC-ME (Gulf Cooperation Council and Middle East) includes Bahrain, Kuwait, Oman, Qatar, Saudi Arabia, United Arab
Emirates, Iran, Iraq, Israel, Jordan, Lebanon, Palestine, Syria, Türkiye and Yemen. RoW: rest of the world. Shares calculated by dividing
the amount of transactions performed by EU-based and non-EU-based direct investors, respectively, by the total amount of transactions for
each foreign jurisdiction.
Information and communication (ICT) and manufacturing account for about half of total
acquisitions (Figure 5), making up 25.9% and 25.2% of total acquisitions between 2019 and
the first half of 2023, respectively. As regards foreign greenfield projects, retail accounted for
the largest share of total foreign projects (28.9%), followed by ICT (16.8%) and
manufacturing (12.5%).
Figure 5: Share of acquisitions and greenfield projects in total acquisitions and greenfield
projects – by sector (January 2019-June 2023)
Source: JRC elaboration based on Bureau van Dijk data, extracted on 13 July 2023 from Orbis M&A and Orbis Crossborder.
Prof&Scientific stands for professional, scientific and technical activities (NACE Rev. 2, Section M); it contains research and development
facilities, among other things. ICT corresponds to NACE Rev. 2, Section J. Retail stands for wholesale and retail trade (NACE Rev. 2,
Section G). Finance stands for financial and insurance activities (NACE Rev. 2, Section K). Transport stands for transportation and storage
(NACE Rev. 2, Section H). Manufacturing corresponds to NACE Rev. 2, Section C. Real estate corresponds to NACE Rev. 2, Section L.
Looking at trends in the number of acquisitions, ICT surpassed manufacturing in early 2020
and remained at the top in 2021 and the first half of 2022, while in the second half of 2022
and the first half of 2023 a similar number of transactions were observed in the two sectors
(Figure 6, left). Retail remained the sector that received the highest number of foreign
greenfield projects in the whole time period (Figure 6, right), while ICT remained the
second most important sector for greenfield projects. The number of acquisitions in
high-tech sectors (such as ICT and professional, scientific and technical activities) remained
relatively high from 2019 to the first half of 2023, while the number of greenfield projects in
the same sectors dropped significantly below 2019 levels in the following years (with a
partial exception in the first half of 2022).
50
Figure 6: Number of acquisitions (left) and greenfield projects (right) – trends by main
sectors
Source: JRC elaboration based on Bureau van Dijk data, extracted on 13 July 2023 from Orbis M&A and Orbis Crossborder.
Prof&Scientific stands for professional, scientific and technical activities (NACE Rev. 2, Section M); it contains research and development
facilities, among other things. ICT corresponds to NACE Rev. 2, Section J. Retail stands for wholesale and retail trade (NACE Rev. 2,
Section G). Finance stands for financial and insurance activities (NACE Rev. 2, Section K). Manufacturing corresponds to NACE Rev. 2,
Section C.
Between 2019 and the first half of 2023, the share of total foreign acquisitions in the EU that
targeted Member States without a fully applicable investment screening mechanism (‘non-
screening Member States’)110
was 22.7%, with a decrease in the number of foreign
acquisitions targeting non-screening Member States from 341 in the first half of 2019 to 154
in the same period of 2023 (a 54.8% decrease) (Figure 7a, left). Similarly, 20% of greenfield
projects targeted non-screening Member States in the same time period, down from 493
projects in the first half of 2019 to 126 in the first half of 2023 (a 74% decrease) (Figure 7a,
right). Most of the reduction in numbers was due to a general negative trend in transactions,
affecting screening and non-screening Member States similarly. The share of investments
taking place in non-screening Member States declined from 29% (25%) in the first half of
2019 to 19% (16%) in the first half of 2023 for acquisitions (greenfields). This decline can be
further explained by the progressive introduction of investment screening mechanisms in
several Member States in the period considered, which means that the cluster of non-
screening Member States became smaller.
110
For the purpose of this analysis, Member States without a screening mechanism between 2019 and the first
half of 2023 are: Belgium, Bulgaria, Cyprus, Estonia, Greece, Croatia, Ireland, Luxembourg and Sweden. For
Member States that introduced their mechanisms in this period (Malta in 2020, Czechia and Denmark in 2021,
Slovakia in 2022 and Slovenia in 2023), the figures include transactions targeting these countries in the
screening Member State category from these implementation years on. The analysis does not take into
consideration the difference between the scope (sectors and investors covered) and ownership thresholds of
screening mechanisms, i.e. the fact that a transaction may not be subject to screening, despite the Member State
maintaining a screening mechanism. Therefore, the actual share of non-screened FDI is even higher.
51
Figure 7a: Screening and non-screening Member States’ shares in number of transactions,
trends – acquisitions (left) and greenfield (right)
Source: JRC elaboration based on Bureau van Dijk data, extracted on 13 July 2023 from Orbis M&A and Orbis Crossborder. Shares
calculated by dividing the amount of transactions in non-screening (and screening) Member States by the total amount of transactions in
each half-year.
Figure 7b: Value of foreign acquisitions (left) and greenfield projects (right) in screening
and non-screening Member States – trend
Source: JRC elaboration based on Bureau van Dijk data, extracted on 13 July 2023 from Orbis M&A and Orbis Crossborder.
The US and Canada accounted for 31.4% of deals (649 investments) in non-screening
Member States between 2019 and the first half of 2023 (Figure 8, left), almost the same level
observed for the UK (30.2%). Almost half (46.7%) of greenfield projects in non-screening
Member States were completed by investors from the US and Canada, while the UK and
EFTA countries had much smaller shares (21.8% and 9.9%, respectively). Most acquisitions
by Russian investors went to non-screening Member States.
52
Figure 8: Number of acquisitions (left) and greenfield projects (right) in screening and non-
screening Member States – by foreign jurisdiction (January 2019-June 2023)
Source: JRC elaboration based on Bureau van Dijk data, extracted on 13 July 2023 from Orbis M&A and Orbis Crossborder. OFCs:
offshore financial centres. EFTA includes Iceland, Norway and Switzerland. Developed Asia includes Japan, Singapore, Taiwan and South
Korea. GCC-ME (Gulf Cooperation Council and Middle East) includes Bahrain, Kuwait, Oman, Qatar, Saudi Arabia, United Arab
Emirates, Iran, Iraq, Israel, Jordan, Lebanon, Palestine, Syria, Türkiye and Yemen. RoW: rest of the world.
Figure 9 reports public shareholding in FDI transactions (both deals and greenfield
projects) between 2019 and 2022. Public shareholding (this encompasses state-owned
companies) occurs when a state-controlled entity holds (control or minority) stakes in a
foreign investor. We focus the analysis of public shareholding on foreign investors coming
from the main jurisdictions of origin of investments in the EU (i.e. Switzerland, China, Japan,
South Korea, Russia, the UK, and the US).
The percentage of foreign acquisitions of equity stakes in the EU where the presence of
public shareholding from any of the main foreign jurisdictions was identified decreased from
16% in 2019-2020 to 13.7% in 2022. For greenfield investments, the trend was quite stable,
with a small increase in public shareholding, ranging from 10.5% in 2019 to 11.4% in 2022.
During these years, public shareholding was present through minority stakes; therefore,
focusing only on control stakes would give a limited picture of public shareholding of foreign
investments in the EU. Between 2019 and 2022, the overall average shares held by public
entities were around 7% (8% for acquisitions and 6% for greenfields).
53
Figure 9: Foreign acquisitions and greenfield investments with public participation, share by
amount of participation and country – by year
Source: JRC elaboration based on Bureau van Dijk data, extracted on 13 July 2023 from Orbis M&A and Orbis Crossborder. Russia is not
included in the chart for 2022 as available information was only based on one data point. Note that data on public influence depends on the
reconstruction of ownership links between subsidiaries. This can be very difficult for certain jurisdictions (for example China) due to the use
of offshore subsidiaries to enter the EU, or to their complex nested structures not fully captured by Bureau van Dijk raw data.
Between 2019 and 2022, the pattern of public shareholding varied somewhat across the
selected foreign jurisdictions.
Overall, in the time frame analysed, the largest proportion of transactions with public
shareholding (42%) originated in the US, with this proportion increasing from 39.8% in 2019
to 45.3% in 2022. These transactions mainly occurred through federal and local funds
controlled by public bodies, which usually hold small stakes (on average below 1% between
2019 and 2022) in foreign companies investing in the EU.
The second largest proportion between 2019 and 2022 originated in South Korea (22.3%,
again increasing from 18.8% in 2019 to 24.4% in 2022), with average stakes of around 1.4%
in this time period.
Similarly, all other foreign jurisdictions present very small average public shares in the period
analysed, with averages ranging from 2.1% for the UK to 8.3% for Switzerland. The main
54
exception is China with about 45%. However, the proportion of transactions originating in
China decreased from 13.4% in 2019 to 5% in 2022.
Methodology of and sources for the analysis of FDI trends
Raw data on acquisitions of equity stakes and greenfield projects comes from Bureau van
Dijk datasets (Orbis M&A and Orbis Crossborder, respectively). Data was retrieved on
13 July 2023, and has been further elaborated by the JRC.
The term ‘foreign investor’ is used whenever an investor is ultimately controlled by a non-EU
entity (either a company or an individual). When the ultimate owner cannot be established,
the location of the investor applies. This definition differs from the one of the FDI Screening
Regulation111
. Throughout this text, the term ‘acquisition’ means the acquisition of equity
stakes in EU companies, be it mergers and acquisitions or stakes below 50% but above 10%
of the capital. The term ‘transactions’ means the sum of acquisitions and greenfield
investments. The data provider regularly updates the raw data (including on old deals and
projects), so data extraction for the same time window, done at different points in time, can
lead to different figures due to update lags.
Values are only available for a fraction of the acquisitions because companies are not obliged
to report the deals’ financial details. For greenfield investment projects, the expected
investment is almost always available112
.
Deals include mergers, majority acquisitions, joint ventures, and minority acquisitions of
shares above the 10% threshold. All types of greenfield projects are accounted for in this
document, including construction of new sites, relocation of a foreign presence, and
expansion of existing sites. All tables and figures are based on announced and completed
transactions but report them with their announced date. Rumours and postponed
deals/projects are excluded. A multi-deal, i.e. a deal with multiple targets and/or multiple
investors, is considered a sum of multiple deals. For example, if a foreign investor acquires
two companies, this is recorded as two deals. Conversely, if a foreign investor acquires a
company with multiple subsidiaries (in different countries), the deal remains unique and is
attributed to the parent company’s country. Deals with multiple targets and multiple investors
(a negligible amount) are disregarded, as it is very difficult to devise a general rule to
attribute the transaction. This classification rule is also applied to greenfield investments that
are multi-purpose projects as part of which several sites are built and/or projects with
multiple investors.
In the analysis of public shareholding, for each investor, the ownership information available
at the time of the deal/project is used. Where not available for 2022, the ownership
information used is that of 2021, the latest information available.
111
See Article 2(2) of Regulation (EU) 2019/452.
112
Values are available for 32% of acquisitions, and roughly 95% of greenfield projects.
55
2. Limitations
The evaluation took place under favourable conditions. There was a high degree of interest
from Member State screening authorities and stakeholders, in particular certain law firms and
businesses with direct experience of FDI screening, or associations with a membership of
such companies.
However, certain limitations affected the findings. These are described in the following
sections.
2.1 Limitations due to the confidentiality of FDI screening procedures and the design of
the FDI Screening Regulation
FDI screening is a confidential process in all Member States. Some Member States disclose
certain information about the functioning of their screening mechanisms113
, but this
information is typically aggregated, and due to a lack of agreed methodology and
comprehensive data, it is not suitable to serve as a basis for an EU-level analysis.
The Commission has access to certain data due to its participation in the cooperation
mechanism. However, due to the lack of an ‘accountability mechanism’ (the obligation of
Member States to report on the outcome of screening procedures notified to the cooperation
mechanism) and the lack of data provided in Member States’ annual reports to the
Commission114
, the Commission cannot gather comprehensive information about the outcome
of transactions subject to the cooperation mechanism, i.e. whether the transaction was
authorised with or without conditions, prohibited, or withdrawn before the conclusion of the
national screening procedure, and on what grounds the national decision was taken (for
example, whether the Commission’s opinion or comments received from other Member
States influenced this decision). Due to this limitation, information was not available on the
impact of FDI screening cooperation on transactions subject to screening, and on the extent to
which national decisions are aligned with the outcome of the cooperation.
2.2 Lack of metrics to measure security and public order
Since security and public order are not objective conditions, there is no agreed methodology
to measure their level in a society in a way that could serve as an indicator for this evaluation.
Furthermore, as the ultimate objective of FDI screening is to avoid the manifestation of
possible future risks, it was not possible to develop clear scenarios to serve as hypothetical
points of comparison to assess the functioning of the FDI Screening Regulation.
113
According to information provided by the Member States in their annual reports to the Commission, the
following Member States publish (or will publish) a report about the implementation of their screening
mechanism: Austria, Czechia, Finland, Italy, Malta, the Netherlands, Romania and Slovakia. In addition,
France, Germany and Spain publish an overview with key figures. Further information about these reports is
available in the staff working document accompanying the third annual report of the Commission on the
screening of foreign direct investments into the Union (SWD(2023) 329 final).
114
This limitation was also pointed out in the ECA report (point 57).
56
2.3 Lack of directly applicable methodological models or widely used practices for
evaluating FDI screening mechanisms
Several countries evaluate or plan to evaluate the performance of their screening mechanisms
to assess if a legislative revision is necessary or justified. However, to the Commission’s
knowledge, there is no internationally established practice regarding evaluation questions,
criteria and indicators related to the functioning of FDI screening mechanisms that the
methodology of this evaluation report could draw on.
According to information provided by the Member States for the purpose of this report, some
of them are legally obliged to evaluate their screening mechanisms while others are planning
to conduct an evaluation without being legally required to do so. However, by the time of this
evaluation, only Germany had carried out and published the results of an internal evaluation
by the FDI screening division of the Federal Ministry for Economic Affairs and Climate
Action (BMWK) in cooperation with the Federal Statistical Office115
. The evaluation drew on
transaction-level data recorded in the BMWK’s own database for the purpose of
implementing the German screening mechanism, and on a survey of the business community
and the federal ministries concerned on the legal changes and the workload for the
administration and businesses associated with the enforcement of the regulations, carried out
in March 2023. The evaluation was thus interlinked with the review of the administrative
burden. The survey of the business community was conducted based on randomised samples.
As the parties to the transactions (investor and target company) are usually represented by
law firms, the BMWK considered them an appropriate group of experienced stakeholders for
assessing the impact of the legal changes on the economy. The survey of the law firms
covered a significant part of the relevant cases, and the law firms surveyed were those that
had a high degree of specialisation and particular expertise in the field of FDI screening due
to the high number of cases handled during the evaluation period.
2.4 Limitations to quantifying the impact of FDI screening and/or the FDI Screening
Regulation and its possible future amendments on the economy, society and the
inflows of foreign investment
From a methodological point of view it is rather difficult (if not impossible at all) to give a
quantitative estimation of the likely current, past or future impact of the FDI Screening
Regulation and its possible amendments on the economy, society and the inflows of foreign
investments. Anticipating future effects is particularly challenging for several reasons. First,
FDI inflows cannot be forecasted as they depend on aspects such as global economic
conditions, geopolitical events, and technological advancements, which are very difficult to
foresee. Second, the EU rules leave the final decision on any FDI with the Member State
where the transaction is planned or completed. Therefore, the Regulation’s impact on specific
transactions can only be indirect. Third, the adoption or modernisation of screening
115
https://www.bmwk.de/Redaktion/DE/Publikationen/Aussenwirtschaft/evaluierung-gesetze-aenderung-
aussenwirtschaftsgesetze-verordnung.pdf?__blob=publicationFile&v=2
57
mechanisms promoted (but not legally required) by the FDI Screening Regulation took place
at a different pace in the Member States concerned. This makes it extremely difficult to single
out and assess the likely effects of the EU framework for FDI screening on FDI flows.
Additionally, even if a flow of FDI could possibly be forecasted, it would be difficult to make
a quantitative estimation of the future impact of the revision of the current EU rules due to:
(1) the magnitude of changes in FDI flows (past experience suggests that changes in FDI
flows are likely too small to have a visible effect in certain types of evaluation models); (2)
the short length of time series of FDI transactions after the entry into force of the Regulation;
and (3) the difficulty to construct a sound ‘no-change’ scenario for comparison purposes
considering that the full implementation of the Regulation almost coincided with the
macroeconomic effects of the COVID-19 pandemic (making it impossible for quantitative
models to distinguish between effects of the pandemic and effects of the Regulation).
Methodological approaches to a quantitative Impact Assessment
Three different types of models are available to carry out a quantitative impact assessment.
Section 1 and 2 explain why it was not possible for the Commission to anticipate the
economic impact of the current FDI Screening Regulation before its adoption, and why the
same constraints apply when quantifying the impact of possible amendments to improve the
current rules. Section 3 elaborates on the limitations to providing an ex post evaluation of the
current Regulation based on econometric estimation.
1. Macroeconomic models
Macroeconomic models are generally used to forecast changes in macroeconomic variables,
such as gross domestic product or employment, or to simulate changes in structural
parameters (e.g. FDI inflows) that describe the economy116
, resulting from a policy change.
Macroeconomic models are based on equations describing the links between aggregated
production, consumption and trade in an economy. Due to these aggregated characteristics,
only relatively large shocks, i.e. changes in one of the variables/parameters, can have sizeable
effects in the forecasts. In order to be able to use these types of models, the change in FDI as
a result of a policy measure should be large enough to produce results in a macroeconomic
forecast or simulation. Therefore, targeted measures such as the FDI Screening Regulation
(which by design concerns only a very small share of the total number and value of
investment transactions in the EU) would not produce a visible effect in a macromodel.
2. Cost-benefit analysis
A second method for estimating the impact of future changes is an ex ante cost-benefit
analysis (CBA)117
. The objective of this family of models is to quantify the likely impact of a
new policy based on assumptions of what is likely to occur when the new policy is put in
116
Computable general equilibrium models are often used to evaluate trade policies, for example.
117
We refer to ex ante CBA, which implies the assessment of the likely effect of policy changes on a target
variable (here FDI inflows), and the associated quantification of future costs and benefits.
58
place. This usually entails creating scenarios and estimating the costs and benefits of these
different hypothetical policy options.
The difficulty of gathering accurate and reliable data quantifying the costs and benefits
related to the Regulation118
constitute an obstacle to applying a policy evaluation model based
on CBA.
A proper evaluation model should not only be able to carefully consider and quantify these
costs and benefits, but also to quantify the likely effects of proposed changes to the
Regulation on FDI inflows. However, the literature provides limited guidance on the
appropriate modelling approach. The literature evaluating the effects of screening measures
(which may include investment restrictions beyond pure national security considerations) is
still scarce and provides contradictory results.
Mistura and Roulet (2019)119
find a negative effect of restrictions on international investments
in a dataset covering 60 advanced and emerging countries over the period from 1997 to 2016.
Results of this paper suggest that reforms liberalising FDI restrictions by about 10% as
measured by the OECD FDI Regulatory Restrictiveness Index could increase bilateral FDI in
stocks by 2.1% on average. However, this Index does not score measures taken for reasons of
public order and essential security interests, such as screening mechanisms enabled by the
FDI Screening Regulation120
. In contrast, Gregori and Nardo (2021) 121
do not find a negative
effect of screening procedures per se on average when looking at EU countries in the period
from 2011 to 2018. They find a reduction in FDI inflows only for mergers and acquisitions
when the investor is from a ‘tax haven’ jurisdiction122
. This paper also suggests that a
reduction of FDI inflows, if at all, is rather linked to a country’s regulatory settings and the
presence of specific measures such as limitations on setting up branches or profit repatriation,
118
In this methodological framework, costs would include the fixed costs borne by Member States and the
Commission to manage any potential changes due to the likely increase in the number of transactions
subject to screening, or the costs borne by companies to learn and comply with the new set of rules.
Benefits of FDI screening include lowering the risk to security or public order related to FDI transactions.
Additional potential benefits of improved EU cooperation could include convergence of screening
procedures in Member States, peer learning on policy design and implementation, and improvement in
information sharing leading to increased efficiency and lower costs of screening at national level, greater
knowledge about FDI trends, and better detection of non-notified transactions. Some of these benefits
arising from a potential reform of the FDI Screening Regulation were already highlighted by the OECD
report.
119
Mistura, Fernando, and Caroline Roulet. ‘The determinants of Foreign Direct Investment: Do statutory
restrictions matter?’ OECD (2019).
120
Kalinova, B., A. Palerm and S. Thomsen (2010), ‘OECD’s FDI Restrictiveness Index: 2010 Update’, OECD
Working Papers on International Investment, No 2010/03, OECD Publishing,
Paris, https://doi.org/10.1787/5km91p02zj7g-en.
121
Gregori, Wildmer Daniel, and Michela Nardo. ‘The effect of restrictive measures on cross‐border investment
in the European Union.’ The World Economy 44.7 (2021): 1914-1943.
122
Andorra, Anguilla, Barbados, Bermuda, Bahamas, Belize, Cook Islands, Cyprus, Grenada, Guernsey, Hong
Kong, Saint Kitts and Nevis, Cayman Islands, Liechtenstein, Liberia, Monaco, Marshall Islands, Montserrat,
Mauritius, Maldives, Nauru, Niue, Panama, Seychelles, Turks and Caicos Islands, Saint Vincent and the
Grenadines, British Virgin Islands, U.S. Virgin Islands, Vanuatu and Samoa.
59
and not to the presence of a screening mechanism per se. Albori et al. (2021)123
specifically
consider restrictions on foreign investments motivated by national security considerations,
and they find no significant impact on FDIs flows.
All papers cited above observe transactions through time to be able to detect the effect of
changes in national policies on investments. This is not possible for the FDI Screening
Regulation, as it is a recent instrument and its quantitative effects on FDI flows, if present,
have still to materialise. Besides, as the final say on transactions and possible redressing
measures has remained with the Member States, the FDI Screening Regulation cannot be
considered a regulatory barrier comparable to a screening mechanism. Therefore, according
to the literature, it is reasonable to consider its influence on FDI inflows marginal (if any).
Additional data-related problems jeopardise the possibility of conducting a CBA. Besides the
uncertainty in determining the target variable (i.e. the change in FDI inflows due to the entry
into force of the FDI Screening Regulation), both costs and benefits have ‘qualitative’
features. Quantifying the advantages associated with indicators such as peer learning,
increased coordination, or decreased incentive to invest, is near to impossible.
Below is a list of additional technical problems when designing an IA based on CBA to
simulate the impact of possible changes to the FDI Screening Regulation.
- It is difficult to construct a counterfactual scenario: when evaluating policy
changes, one needs to find a benchmark for comparison, i.e. an alternative scenario.
Typically, this counterfactual is the ‘no-change’ situation. However, even in a
‘no-change’ situation, it would be reasonable to assume that many Member States –
against the background of geopolitical tensions and crisis situations – would continue
taking measures to set up or strengthen national screening mechanisms, and that they
would pay increased attention to their full implementation and enforcement.
Therefore, it is impossible to disentangle the portion of changes in FDI inflows due to
possible changes to the Regulation from the portion that would have been observed
anyway due to the tightening of national screening rules and their implementation.
- Certain risky transactions124
identified and addressed by the revised Regulation
would not materialise in the EU knowing that the revised Regulation is indirectly
tightening controls by increasing the awareness of Member States and the
Commission of relevant risks. Quantifying this deterrence ex ante is practically
impossible as it would imply guessing how many transactions would not be observed
only because investors are discouraged by the revised Regulation (and not by other
regulatory, geopolitical or economic factors).
- Changes depend – at least partly – on Member States. Any direct effect on FDI
inflow ultimately depends on Member States’ readiness for and timeliness in
123
Albori, M., Corneli, F., Nispi Landi, V., & Schiavone, A. (2021). ‘The impact of restrictions on FDI.’ Bank
of Italy Occasional Paper, (656).
124
Those affecting security or public order.
60
adopting, modernising and making full use of their national screening mechanisms to
identify and address risky transactions, including those that are likely to affect the
security of other Member States or the collective security of the EU through strategic
assets125
.
3. Ex post evaluation based on econometric estimation
A third option for a quantitative impact assessment is using the family of ex post evaluation
models. These make it possible to quantify the likely impact of a new policy (or a policy
reform) based on past experience of (and data on) similar policies. It looks for evidence of
causal effects between the policy and the outcomes (social, economic and environmental
changes).
This causal impact is usually estimated using counterfactual impact evaluation methods126
.
Counterfactual impact evaluation replies to the fundamental question of ‘what would have
happened if the Regulation had not been implemented’. The answer is based on a comparison
between two different groups: a ‘treated group’, which is formed by those, who were affected
by the measure and a ‘control group’, who have not experimented with the Regulation but
have the same characteristics as those in the treated group. However, for the FDI Screening
Regulation, it is not possible to identify distinct treated and control groups.
While the Regulation is binding in its entirety and directly applicable in all Member States,
which implies that the treated group is the entire EU, this is not necessarily the case in
practice (Riela, 2023)127
. As the Regulation does not require Member States to set up a
screening mechanism, and it is supplementary to any existing national mechanism, the impact
of the EU screening framework depends crucially on the presence and effectiveness of
national policies (OECD, 2022). Therefore, any estimation of the effect of the FDI Screening
Regulation is likely to depend on the existence and efficiency of national mechanisms, but
disentangling the two is not possible from an econometric point of view. Additionally,
differences in national screening mechanisms lead to heterogeneous treatment of companies
(foreign investors investing in the EU but also EU companies receiving foreign investments)
in different Member States in a way that is difficult to model and measure. Furthermore,
identifying the control group would also be difficult because Member States without a
screening mechanism have very different economic characteristics when compared to those
with a screening procedure in place. Besides, the FDI Screening Regulation is a very recent
tool and its medium- and long-term effects have still to materialise. Further complicating the
identification of any effects of the Regulation on FDI inflows, the COVID-19 pandemic
drastically changed the economic and social landscape in 2020-2021, which coincides with
125
This term refers to projects and programmes of Union interest.
126
See, for example, Heckman, James J., and Edward J. Vytlacil. ‘Econometric evaluation of social programs,
part I: Causal models, structural models and econometric policy evaluation.’ Handbook of econometrics 6
(2007): 4779-4874.
127
Riela, Stefano. ‘The EU’s foreign direct investment screening mechanism two years after
implementation.’ European View 22.1 (2023): 57-67.
61
the start of EU cooperation on FDI screening. Therefore, any effect of the Regulation on FDI
inflow cannot be really disentangled from the effects of the pandemic (e.g. some countries
adopted temporary travel restrictions due to lockdowns; this brought greenfield investments
down to zero). Finally, the lack of comprehensive reporting by Member States about their
screening decisions concerning transactions notified to the cooperation mechanism128
represents a serious obstacle to understanding the volume and legal effect (i.e. prohibition or
authorisation with conditions) of actual restrictions to FDI on grounds of security or public
order. For these reasons, it is not possible to quantify the economic impact of the Regulation
for the purpose of this evaluation.
128
See further details in Section 2.1 of this Annex.
62
ANNEX III. EVALUATION MATRIX
The table below summarises the evaluation matrix, which is structured around the five ‘better regulation’ evaluation criteria (effectiveness, efficiency,
relevance, coherence, EU added value) and corresponding evaluation questions.
Stakeholders’ responses to the targeted consultation (which included questions on each criterion), and in response to the call for evidence, were
considered data sources for all questions, so they are not mentioned in each line of the matrix.
63
Evaluation question Judgement criteria Indicators and descriptors Data sources
1. EFFECTIVENESS
Q1.1 How
successful has the
Regulation been in
achieving its
objective129
?
Q1.1.1 To what extent
has the Regulation
helped to identify FDI-
related risks to security
or public order in more
than one Member State?
The Regulation has
achieved its objective of
improving the
identification of FDI-
related risks to security or
public order in the EU.
• Number of transactions
notified to the cooperation
mechanism.
• Number of opinions issued
by the Commission and
comments from Member
States.
• Number of transactions not
in the scope of the
Regulation that could be
risky for security or public
order (estimate).
• Number of transactions
reported by Member States
that would not have known
about certain transactions
without the cooperation
mechanism (including
transactions subject to it
under Article 7 of the
Regulation).
• Desk research.
• Public reports of national
authorities if available and
relevant.
• OECD report.
• Questionnaire for screening
authorities of Member States.
Q1.1.2 To what extent
has the Regulation
helped to address FDI-
related risks to security
or public order in more
than one Member State?
The Regulation has
achieved its objective of
better addressing FDI-
related risks to security or
public order in the EU.
• Number of transactions
notified to the cooperation
mechanism over time.
• Number of opinions issued
by the Commission and
comments from Member
• Desk research.
• Questionnaire for screening
authorities of Member States.
• OECD report.
129
To improve security and public order in the context of investment screening.
64
Evaluation question Judgement criteria Indicators and descriptors Data sources
States.
• Member States’ views on
the mechanism’s
usefulness.
• Examples of risky
transactions not in the scope
of the Regulation.
• (In)ability in national
legislation to impose cross-
border obligations, and/or
take into account other
Member States’ concerns if
there is no risk to a Member
State’s own public order or
security, and/or to seek
information from economic
operators in other Member
States.
Q1.1.3 To what extent
has the Regulation
helped to identify FDI-
related risks to EU
projects and programmes
that are critical for
security?
The Regulation has
correctly identified the
relevant EU projects and
programmes that are
critical for security.
• List of projects and
programmes annexed to the
Regulation based on the
definition in Article 8 of the
Regulation.
• Number of transactions
notified to the cooperation
mechanism where the target
company participated/-s in
an EU project or
programme.
• Number of transactions not
in the scope of the
• Desk research
65
Evaluation question Judgement criteria Indicators and descriptors Data sources
Regulation that could be
considered risky.
Q1.1.4 To what extent
has the Regulation
helped to address FDI-
related risks to EU
projects and programmes
that are critical for
security?
The Regulation has
helped to better address
FDI-related risks to EU
projects and programmes
that are critical for
security.
• Number of transactions
notified to the cooperation
mechanism related to FDI
in companies benefiting
from EU projects and
programmes.
• Opinions issued by the
Commission and comments
from Member States on FDI
in companies benefiting
from EU projects and
programmes.
• Desk research
• Obtaining the views of lead
DGs managing projects and
programmes of Union
interest.
Q1.1.5 To what extent
has the effectiveness of
the Regulation been
undermined because not
all Member States adopt
or maintain screening
mechanisms?
The effectiveness of the
Regulation has been
negatively affected by the
fact that not all Member
States maintain a
comprehensive screening
mechanism.
• Number of Member States
who adopted a screening
mechanism or have
reformed their system since
2019.
• Number of cases not
screened by the Member
States but notified to the
cooperation mechanism that
were likely to affect
security or public order.
• OECD report
• Annual reports by Member
States submitted to the
Commission.
• Desk research.
• ECA report.
• Statistical/aggregated data on
inward FDI (proportion of
FDI going to non-screening
Member States divided by
the total FDI flows into the
EU).
Q1.1.6 To what extent
does the absence of
harmonisation of
national screening
mechanisms (procedural
The differences in
national screening
mechanisms and between
them and the EU
Regulation undermine the
Differences between:
• the scope and type of
investments covered,
• the sectors and economic
activities covered,
• OECD report
• Desk research (comparative
analysis of national
screening rules).
• Questionnaire for
66
Evaluation question Judgement criteria Indicators and descriptors Data sources
and substantive
differences) undermine
the effectiveness of the
Regulation?
effectiveness of the
Regulation.
• the nationality criteria for
foreign investors,
• the ability to take into
account comments from
other Member States or the
Commission’s opinion in
the final decision,
• deadlines.
stakeholders (law firms,
businesses and business
associations) with proven
practical experience of FDI
screening.
• Questionnaire for national
screening authorities.
Q1.1.7 To what extent
does the design of the
cooperation mechanism
(Article 6, 7, 8)
undermine the
achievement of the
Regulation’s objective?
The cooperation
mechanism has certain
limitations and
shortcomings that
undermine the efficiency
of the system.
Impact of:
• the obligation to notify all
transactions undergoing
formal screening to the
cooperation mechanism,
• the lack of clarity on what
constitutes formal screening
of an FDI (which triggers
mandatory notification to
the cooperation
mechanism),
• deadlines,
• information requirements
throughout the cooperation
procedure,
• the legal effect of
comments and opinions,
• lack of information about
the outcome of national
procedures.
• OECD report.
• Questionnaire for national
screening authorities.
Q1.2 What have the
quantitative and
qualitative effects
Q1.2.1 Has the EU
framework for FDI
screening become a
The Regulation has not
affected the EU’s
openness to FDI.
• Impact of the Regulation on
FDI inflows.
• Perception of Member
• Desk research (literature
review of methodologies for
measuring the impact of
67
Evaluation question Judgement criteria Indicators and descriptors Data sources
of the Regulation
been?
deterrent to FDI in the
EU?
States.
• Perception of businesses.
security screening
mechanisms on FDI
inflows).
• Questionnaire for national
screening authorities.
• Questionnaire for
stakeholders (law firms,
businesses and business
associations) with proven
practical experience of FDI
screening.
Q1.2.2 What is the effect
of the minimum
requirements (Article 3)
on the functioning of the
cooperation mechanism?
The minimum
requirements applicable
to national screening
mechanisms are not
sufficient to ensure that
the cooperation
mechanism is effective.
• Compatibility of national
screening mechanisms and
screening practices with the
requirements of the
cooperation mechanism set
out in Articles 6, 7 and 8,
including timing; the cross-
border reach of mitigating
measures; the procedural
and legal grounds for
considering input from the
Commission or other
Member States; the absence
of legal means in Member
States without a screening
mechanism to act in cases
initiated by the Commission
or other Member States
pursuant to Article 7; the
fact that even Member
• OECD report.
• Desk research.
• Questionnaire for national
screening authorities.
68
Evaluation question Judgement criteria Indicators and descriptors Data sources
States with a screening
mechanism are unable to
provide information in
Article 7 cases.
Q1.2.3 Is the EU
screening framework fit
for increasing the use of
investment screening by
the EU’s major trading
partners?
The EU’s screening rules
are comparable to those
of its main trading
partners.
• Factual information about
the screening mechanisms
of key trading partners of
the EU.
• Desk research.
• OECD analytical documents
on investment policies
related to national security.
2. EFFICIENCY
Q2.1 To what
extent has the
implementation of
the Regulation been
cost-efficient for
different
stakeholders?
Q2.1.1 How
proportionate is the
administrative burden on
Member States’
administrations and on
the Commission
compared to the possible
adverse consequences for
security or public order?
The administrative
burden is reasonable.
• Costs of notifying cases to
the cooperation mechanism
(where applicable).
• Costs of assessing cases
notified by other Member
States.
• Questionnaire for national
screening authorities.
• Desk research.
Q2.1.2 How
proportionate is the
administrative burden on
businesses (in particular
parties to transactions
undergoing screening)
compared to the possible
adverse consequences for
security or public order?
The administrative
burden is reasonable.
• Costs of providing
information required by the
EU cooperation mechanism
(in addition to the
information provided for
national screening
procedures).
• Costs of accessing
information about the
requirements and
• Questionnaire for
stakeholders (law firms,
businesses and business
associations) with proven
practical experience with
FDI screening.
69
Evaluation question Judgement criteria Indicators and descriptors Data sources
functioning of EU
cooperation on FDI
screening.
• Costs of the absence of
alignment with national
procedures, in particular the
divergent timeframe for the
assessment of multi-country
notifications.
Q2.2 Have any
inefficiencies been
identified? What is
the simplification
and cost reduction
potential?
Q2.2.1 To what extent
does the following
indicative list of features
of the Regulation enable
the cooperation
mechanism to efficiently
assess transactions:
deadlines, the factors for
screening, the secure and
encrypted IT system
provided by the
Commission, and the
mandatory notification of
all FDI undergoing
screening?
The efficiency of the
Regulation’s
implementation could be
improved by changing
certain features.
• Impact of these factors on
the quality of the collective
assessment of transactions
by all authorities
participating in the
cooperation mechanism.
• Questionnaire for national
screening authorities.
• Desk research.
• OECD report
• Questionnaire to
stakeholders (law firms,
businesses and business
associations) with proven
practical experience of FDI
screening
3. RELEVANCE
Q3.1 To what
extent do the scope
and objective of the
Regulation continue
to be relevant,
considering the
evolving policy and
Q3.1.1 Have the
objectives of the
Regulation been
relevant, considering
evolving policy
developments and the
regulatory context? Have
The Regulation has
complemented other
policy developments and
regulatory initiatives in
achieving its broader
objectives.
Relationship of the Regulation to
policy developments, such as:
• the Communication on
Economic Security,
• EU restrictive measures
(sanctions), in particular
• Desk research: review and
analysis of related EU policy
and legislation.
• Desk research on case trends
and relevant Commission
guidance.
70
Evaluation question Judgement criteria Indicators and descriptors Data sources
the regulatory
context?
recent developments,
such as the COVID-19
pandemic and Russia’s
war against Ukraine,
increased FDI-related
security risks?
The COVID-19 pandemic
and Russia’s war against
Ukraine have made it all
the more important to
effectively screen FDI in
the EU.
those concerning Russia
and Belarus130
.
Relationship of the Regulation to
regulatory developments,
including:
• the Foreign Subsidies
Regulation,
• the EU Chips Act,
• the Critical Raw Materials
Act.
Number/proportion of cases in
which the risks highlighted in the
relevant Commission guidance
were assessed.
Q3.1.2 Has the scope of
investments (limited to
FDI as defined by
Article 2 of the
Regulation) been
relevant, considering
FDI trends in the EU,
including ownership
structures and foreign
investors’ strategies?
The Regulation is still
relevant today,
considering FDI trends
and foreign investors’
strategies.
• Factual information and
stakeholders’ perception of
whether most of the
investors and investments
that can be relevant for
security or public order are
included in the scope of the
Regulation.
• Desk research.
• Questionnaire for national
screening authorities.
• Questionnaire for
stakeholders (law firms,
businesses and business
associations) with proven
practical experience of FDI
screening.
Q3.2 To what
extent do the needs
addressed by the
Regulation continue
Q 3.2.1 To what extent
do the identification and
assessment of FDI
transactions that
The Regulation has
helped to identify and
assess FDI transactions
that represent a risk to
• How the EU cooperation
mechanism has helped to
identify risks to security or
public order in the EU, in
• Desk research.
• Questionnaire for national
screening authorities.
130
All restrictive measures in force are available at www.sanctionsmap.eu.
71
Evaluation question Judgement criteria Indicators and descriptors Data sources
to require action at
EU level?
represent a risk to
security or public order
continue to require
action at EU level?
security or public order at
EU level.
particular where it gave the
competent national
authority additional
information.
Q 3.2.2 To what extent is
it necessary to take
action at EU level to
ensure a certain degree
of consistency of
national screening
mechanisms in the EU,
as well as their consistent
implementation?
The Regulation has
helped to ensure a certain
degree of consistency of
national screening
mechanisms in the EU, as
well as their consistent
implementation.
• How the Regulation has
contributed to coherent
rules and practices in the
EU concerning the
screening of FDI
transactions.
• Questionnaire for national
screening authorities.
• Questionnaire for
stakeholders (law firms,
businesses and business
associations) with proven
practical experience of FDI
screening.
4. COHERENCE
Q4.1 To what
extent is the
Regulation coherent
with other EU and
national
interventions that
have similar
objectives?
Q4.1.1 To what extent is
the Regulation coherent
with national screening
mechanisms?
The Regulation is
coherent with national
screening mechanisms.
Coherence of the
• scope,
• transactions covered,
• reasons for screening,
• deadlines.
• OECD report (comparative
analysis of national
screening mechanisms).
• Questionnaire for
stakeholders (law firms,
businesses and business
associations) with proven
practical experience of FDI
screening.
Q4.1.2 To what extent is
the Regulation coherent
with other authorisation
procedures in EU law?
The Regulation is
coherent with:
• merger control
(Article 21(4) of
Regulation (EC)
Coherence (lack of conflict) of
objectives and procedures.
• Desk research.
• Questionnaire for
stakeholders (law firms,
businesses and business
associations) with proven
practical experience of FDI
72
Evaluation question Judgement criteria Indicators and descriptors Data sources
139/2004),
• rules on the
prudential
assessment of
acquisitions of
qualifying
holdings in
financial sector
entities (Directive
2016/36/EU),
• the certification of
transmission
system operators
of electricity and
natural gas
networks in the
EU (Article 10 of
Directive
2009/72/EC and
Article 10 of
Directive
2009/73/EC),
• EU restrictive
measures
(sanctions) based
on Article 215
TFEU.
screening.
Q4.2 To what extent are the various parts of the
Regulation coherent with one another? Are
there any incoherent parts of the Regulation in
terms of its goals and provisions?
The different obligations
and mechanisms of the
Regulation work well
together to achieve its
• Coherence between the
cooperation mechanism for
FDI undergoing screening
(Article 6) and for FDI not
• Desk research on the
Regulation.
• Questionnaire for national
screening authorities.
73
Evaluation question Judgement criteria Indicators and descriptors Data sources
main objective. undergoing screening
(Article 7).
• The current definition of
‘projects and programmes
of Union interest’, the list in
Annex I and the procedure
for screening FDI affecting
security or public order
through projects or
programmes is coherent
with the Regulation’s
objectives.
• Coherence between the
Regulation’s objective and
the legal basis for
international cooperation
(the impossibility of sharing
case-specific information
with like-minded partners
under specific
arrangements).
• Coherence between the
purpose of the Regulation
and the provisions for
implementing it
(confidentiality of
information, Commission
expert group on the
screening of FDI into the
EU).
Q4.3 To what extent is the Regulation coherent The Regulation is Legislation, communications, • Desk research on relevant
74
Evaluation question Judgement criteria Indicators and descriptors Data sources
with current EU policies and priorities? coherent with other
relevant EU policies and
priorities. The notion of
FDI-related security or
public order risks is also
reflected in those
policies/actions.
guidelines referencing the FDI
Screening Regulation.
proposals, legislation and
policy documents, such as
Commission
communications.
5. EU ADDED VALUE
Q5.1 Could the
objective of the
Regulation have
been achieved
sufficiently by the
Member States
acting alone?
Q5.1.1 Could Member
States identify FDI
affecting the security or
public order of other
Member States or EU
projects and programmes
by implementing only
their national screening
mechanisms?
The Regulation generates
added value compared to
the results that could have
been obtained by
implementing national
screening mechanisms in
terms of identifying and
addressing FDI-related
risks to security or public
order.
• Greater awareness of cross-
border risks to security or
public order (for example,
FDI that is risky for other
Member States but not
necessarily the screening
Member State, or
transactions that are critical
for another Member State
for reasons other than those
for the screening Member
State.
• Greater awareness of the
security relevance of EU
projects and programmes
and the potential risks to
their continuity from certain
FDI.
• Questionnaire to screening
authorities of Member States.
• Desk research on
transactions in which EU
companies participating in
EU projects or programmes
were involved.
Q5.2 Has the implementation of the Regulation
increased legal clarity and certainty in FDI
screening?
Article 3(1) of the
Regulation and the list of
screening mechanisms
published by the
Commission have
• Level of awareness of
national rules.
• Greater clarity and
consistency of national
screening rules adopted or
• Desk research.
• Questionnaire for
stakeholders (law firms,
businesses and business
associations) with proven
75
Evaluation question Judgement criteria Indicators and descriptors Data sources
increased legal clarity
and certainty for
businesses.
revised after the Regulation
entered into force.
practical experience of FDI
screening.
Q5.3 What is the Regulation’s added value?
Is it still valid to think that the Regulation’s
objective can best be achieved by EU action?
The Regulation has added
value compared to the
results that could have
been obtained through
national interventions to
adopt and implement
screening mechanisms.
Identifying cross-border
risks to security or public
order requires an EU
coordination mechanism.
• Number of Member States
with a screening
mechanism.
• Convergence of screening
mechanisms (rules and
implementation).
• Better and more efficient
risk assessment by the
Member States.
• Awareness of cross border
risks to security or public
order.
• Awareness of security or
public order risks affecting
projects or programmes of
Union interest.
• Desk research.
• Questionnaire for national
screening authorities.
• Questionnaire for companies
involved in transactions
undergoing screening.
76
ANNEX IV. OVERVIEW OF BENEFITS AND COSTS
The table below summarises the costs and benefits of implementing the Regulation. A discussion of the Regulation’s efficiency, and of the limitations of
the collection of data on costs, were presented in Section 4.1.2 and Annex II to the evaluation report. The information in this annex draws on responses to
the targeted consultation and additional surveys of Member States and private sector stakeholders with practical experience of FDI screening in the EU.
77
Overview of costs and benefits identified in the evaluation
Citizens/Consumers Businesses Administrations
Quantitative Comment Quantitative Comment Quantitative Comment
Cost:
compliance
costs related
to the
cooperation
mechanism
Recurrent
Not applicable. The Regulation does not
impose obligations on
citizens or consumers.
No quantification
possible.
No reliable data or methodology
were identified to measure the
compliance costs for businesses
(in particular the party/-ies filing
for screening authorisation). The
Commission consultations
concluded that the average costs
related to the cooperation
mechanism were limited
compared to the overall costs of
FDI reviews (see details in
Annex V Section 3).
No
quantification
possible.
The consultations carried out by the
Commission did not provide
comprehensive information about the
costs for national administrations of
complying with the Regulation.
Information provided by the Member
States suggests that the financial
burden of the Regulation is minimal
(see Annex V Section 3).
For the reporting period, the
compliance costs borne by the
Commission can be summarised as
follows.
• Approximately EUR 2.7
million in operational
expenditure, most of which
was to purchase IT equipment
for secure communication
with Member States,
including the workstations to
be used in the Member
States).
• Approximately EUR 50 000
in administrative
expenditure (to reimburse
Member States’ travel costs
for the meetings of the
Commission expert group on
the screening of FDI into the
EU ).
• Approximately EUR 1.5
million in HR expenditure in
the coordinating DG (DG
78
TRADE), based on the
standard costs for FTEs in
2021.
Cost:
indirect costs
of deterring
certain FDI
transactions
Recurrent
Negligible
indirect costs (if
any) and
impossible to
quantify.
The results of
consultations carried out
by the Commission
concluded that the
Regulation had not
deterred FDI.
No reliable data or
methodology were
identified to measure the
indirect costs, if any, for
citizens and consumers of
deterring FDI.
No precise
quantification
possible and
anecdotal
evidence
suggests that the
cost is very low.
The results of consultations
carried out by the Commission
concluded that the Regulation
had not deterred FDI (see Annex
V Section 3).
While the existence or
implementation of a screening
mechanism may, in theory, deter
a very limited number of EU
companies from accepting
certain investments, there are no
reliable data or methodology to
measure these costs for the
economy as a whole (see Annex
II Section 2.2).
Not
applicable.
Not applicable.
Benefit:
greater
security and
public order
Recurrent
No
quantification
possible.
The results of
consultations carried out
by the Commission
concluded that, overall, the
Regulation had helped
improve security and
public order in the EU by
increasing awareness of
security risks related to
FDI and promoting the
adoption of screening
mechanisms in Member
States.
No reliable data or
methodology identified to
measure these benefits for
society as a whole.
Not applicable. Not applicable. Not
applicable.
Not applicable.
79
ANNEX V. STAKEHOLDER CONSULTATION – SYNOPSIS REPORT
This section presents the consultations undertaken by the Commission to evaluate the
FDI Screening Regulation. Consultations by the OECD Secretariat to get information for
their review are described in paragraphs 19-22 of the OECD report.
The number and profile of respondents to the open consultations confirm that FDI
screening is a targeted instrument, and it only applies to investments made by a limited
and well identified group of stakeholders who are well informed about its procedural
aspects.
1. Targeted consultation
The targeted consultation on the evaluation and revision of the FDI Screening Regulation
ran between 14 June and 21 July 2023. The European Commission received 47
contributions, including 18 from Member State authorities involved in the EU
cooperation on FDI screening and, when applicable, the implementation of the national
screening mechanism. The summary report of the consultation is published on the
Commission’s website along with the contributions received131
.
2. Call for evidence launched by the European Commission
The call for evidence was open from 14 June to 21 July 2023 and 10 contributions were
submitted in total132
. By category of respondent, contributions were submitted by
business associations (5), companies/businesses (2), a public authority (1), an EU citizen
(1) and other (1). The respondents were from the following countries: Belgium (4),
Germany (2), Sweden (1), Slovakia (1), Luxembourg (1) and Spain (1).
None of the respondents questioned the need for national FDI screening or for a
comprehensive EU framework that complements national mechanisms. Responses’
recurring themes can be summarised as follows.
General comments
- Maintaining the EU’s openness to FDI is important because FDI drives growth,
innovation and competition.
- FDI in the EU should be assessed on grounds other than those of security or
public order. For example, a reciprocity check should be done to assess openness
to FDI in the third country from which FDI originates. Also, among the criteria
131
https://policy.trade.ec.europa.eu/consultations/screening-foreign-direct-investments-fdi-evaluation-and-
possible-revision-current-eu-framework_en#consultation-outcome
132
All the responses received are on the Commission’s Have Your Say portal:
https://ec.europa.eu/info/law/better-regulation/have-your-say/initiatives/13739-Screening-of-foreign-direct-
investments-FDI-evaluation-and-revision-of-the-EU-framework/feedback_en?p_id=32186570.
80
for determining if a country represents a risk to security or public order, the EU
should include the criterion of respect for fundamental rights.
Comments on the design and implementation of national screening mechanisms
- All Member States should adopt screening mechanisms on grounds of security
and public order.
- There is scope for further alignment of national screening mechanisms, in
particular definitions, deadlines, criteria and the parameters of the substantive
assessment and triggering events. A common sectoral scope for mandatory
screening (for example FDI in ‘critical infrastructure’ and ‘critical technologies’
relevant to the transportation sector, critical raw materials and net zero industries)
should be considered. The administrative efficiency of screening should be
improved through standardised notification forms.
- The outcome of national FDI screening mechanisms should be predictable and the
development of common European guidelines should be considered. When a
transaction is subject to screening in more than one Member State, the assessment
should be based on similar standards and each assessment’s outcome should be
consistent.
- Businesses said that FDI screening reviews should be confidential, given the
possible reputational risks for investors. EU action could prevent inconsistent
disclosures and intentional information leaks. The citizen who responded to the
call for evidence called for greater transparency of screening decisions.
Comments on EU cooperation on FDI screening
- The FDI Screening Regulation should cover investments in which the direct
investor is an EU business but investors from non-EU countries are indirectly
involved.
- The criteria for transactions to be notified by national authorities to the EU
cooperation mechanism should be clarified, possibly by adding a definition of
‘pre-screening’, which does not entail an obligation to notify.
- Member States should be required to provide feedback to the relevant Member
States and the Commission on whether their comment/opinion was followed up
on or not, and, if it was followed up on, how so, and if not, why.
- If the Commission believes that an FDI is likely to affect the security or public
order of more than one Member State, all Member States concerned should have
access to the Commission’s opinion and be informed if and how the opinion was
followed up on, and if not, why.
- The list of projects and programmes of Union interest should be extended to other
initiatives that allocate a significant amount of EU funding to boosting
investments in critical infrastructure or technologies.
81
- There is scope for increasing the Commission’s involvement in FDI screening in
cases where projects or programmes of Union interest are at stake.
3. Targeted surveys
In addition to the open targeted consultation, the Commission sought the views of
national screening authorities and private sector stakeholders (law firms, businesses and
business associations) with proven practical experience of FDI screening on certain
matters related to the five evaluation criteria (effectiveness, efficiency, relevance,
consistency, EU added value). The consultation ran from 3 August to 1 September 2023.
It took the form of a questionnaire with open questions based on the themes identified in
the evaluation matrix (Annex III).
The Commission received responses from 15 Member States (Belgium, Bulgaria,
Czechia, Estonia, Finland, France, Germany, Ireland, Italy, Luxembourg, Malta, the
Netherlands, Portugal, Slovakia and Spain) and 13 private sector stakeholders, including
lawyers experienced in representing notifying parties in screening procedures (9),
business associations with a broad membership of EU companies (3), and one business
whose investments have undergone several screening authorisation procedures in the EU.
On effectiveness, Member States with an operational screening mechanism confirmed the
cooperation mechanism’s usefulness. Their replies highlighted the EU aspect of security,
the value of exchanging information and obtaining the views of other Member States on
specific transactions, and the usefulness of informal information exchanges on risks and
how to deal with them. Some Member States without a screening mechanism believed
that the cooperation mechanism had limited usefulness, while others found it a useful
way of informing policy decisions and prompting them to look into FDI-related security
risks. Asked about transactions outside the scope of the cooperation mechanism that the
Member States had prohibited or authorised with conditions since October 2020, more
than one Member State reported on relevant transactions. This confirms that the current
system does have ‘blind spots’.
Member States’ responses to the questionnaire echoed the shortcomings undermining the
effectiveness and efficiency of the system identified in the OECD report and the
targeted consultation, namely:
- the lack of screening mechanisms in all Member States;
- the diverging scope of economic activities screened by Member States;
- the diverging scope of investments covered by national screening mechanisms (for
example, whether greenfield investments are covered or not);
- the diverging and sometimes unclear stance of Member States on what constitutes
‘formal screening’ and the filtering criteria they might have for notifying cases to
the cooperation mechanism;
82
- the scope of the Regulation excluding investments by foreign-controlled EU
investors;
- the ‘over-notification’ of non-critical cases to the cooperation mechanism, which
may have the negative result of potential risks being overlooked due to a shortage of
human resources;
- the lack of coordination of multi-country transactions in the cooperation
mechanism;
- the lack of information about the outcome of national procedures given to other
Member States and the Commission in cases in which Member States made
comments and/or the Commission issued an opinion;
- some Member States’ lack of legal power to protect the security of other Member
States and projects or programmes of Union interest, including the ability to impose
cross-border obligations in addition to measures to mitigate possible risks to the
security or public order of the screening Member State.
In addition to these points, private sector stakeholders’ responses indicated the following
issues, partially related to national screening mechanisms, that undermine the
effectiveness of the EU framework for FDI screening.
- Differences between key concepts, such as the definition of FDI (or investments
covered by the national mechanism) and the substantive test to determine whether
an FDI is likely to affect security or public order, including a foreign investor’s
risk factors.
- Differences between Member States’ thresholds of influence over a target
company that a foreign investor must reach to trigger a review.
- The lack of clarity about the activities within the scope of national mechanisms
due to the vague and non-exhaustive list of sectors covered.
- Procedural differences between national mechanisms, such as filing deadlines
imposed by certain Member States that are not far away enough from the signing
dates, the significant difference in deadlines among Member States, and the
different interplay between the national screening mechanisms and the
cooperation mechanism (some Member States start their national screening
procedures only after the EU cooperation mechanism has ended, while others
conduct them in parallel with the cooperation mechanism and, in some cases,
Member States do not notify transactions to the cooperation mechanism at all
unless an in-depth investigation is launched).
- The lack of a legal basis permitting direct formal interaction between the
investor/target company and other Member States and the Commission during the
screening procedure.
- Notifying parties’ lack of access to comments from other Member States and
Commission opinions.
83
On the effectiveness of cooperation on non-screened FDI (Article 7 of the Regulation),
most Member State respondents took the view that it was effective only if the Member
State in which a transaction takes place maintains a screening mechanism that can
address the concerns raised. In the absence of an applicable screening mechanism, the
Member State in which an investment is planned or completed is unlikely to have the
means necessary to take measures to follow up on a Commission opinion or other
Member States’ comments. One respondent believed that in a situation where the ‘host’
Member State does not have the power to at least investigate a transaction, other Member
States may be less motivated to comment. Some respondents pointed out that the
obligation on all Member States to have a screening mechanism would address this.
On whether the legal basis for international cooperation contributes to achieving the
objectives of the Regulation, Member State respondents confirmed that the exchange of
information on the design and implementation of screening mechanisms and the
exchange of good practices with like-minded partners was beneficial. Most respondents
took the view that the impossibility of sharing case-specific information under specific
arrangements did not undermine the effectiveness of the Regulation, while others
suggested that international cooperation could be beneficial for assessing transactions
and exchanging case-specific information without compromising the confidentiality of
commercially sensitive information, and that the screening procedure could improve
effectiveness in the future. Many respondents said that the Member State screening a
transaction may always contact the non-EU partner about it bilaterally if necessary.
Asked if the EU framework for FDI screening deterred investment, all Member State
respondents believed that the Regulation and national mechanisms did not have a
dampening effect on FDI. Some pointed out that short deadlines and greater convergence
of national mechanisms made the rules less cumbersome. Two Member State
respondents took the view that the Regulation and national mechanisms (whose
establishment was incentivised by the EU framework) effectively deterred potentially
risky FDI. Most private sector respondents shared the view that the EU framework for
FDI screening, while not without its flaws, had not deterred FDI. Some respondents
believed that the EU framework had prompted investors to adopt a more cautious stance,
especially investors from countries of geopolitical concern and in sectors subject to
screening authorisation (although financial investors may decide to reduce their
investment threshold to stay below applicable notification thresholds). Other private
sector respondents believed that the EU framework had become a deterrent to some
extent, due to the lack of transparency and procedural fairness as regards case-specific
information exchanged under it (for example, the lack of rules on transaction parties’
rights to access information on their transaction), the administrative burden of multiple
filings for FDI authorisation in the EU, and the unpredictable deadlines that can result in
significant delays in processing transactions. One private sector respondent estimated that
it took approximately 3-6 months to process a transaction due to the decentralised nature
of screening in the EU, depending on the number of Member States to be cleared.
However, any evidence appears anecdotal, drawing mainly on respondents’ experience.
84
Most Member States could not give an estimate of the cost of participating in the
cooperation mechanism (notifying cases and assessing cases notified by other Member
States). One Member State considered the financial burden minimal (between EUR 5 000
and EUR 10 000/year), whereas another estimated the annual cost of assessing cases
notified to the cooperation mechanism to be EUR 48 000/year. A few other respondents
mentioned the cost of one or two employees, without specifying a value. Some
respondents considered the current administrative burden to be disproportionate due to
the obligation to notify all cases undergoing screening. Another respondent pointed out
that processing all the information received through the cooperation mechanism was very
resource-intensive, but beneficial not only for the case-specific information but also for
creating consistency among national systems. Some respondents recognised the
usefulness of templates for notifications in reducing the administrative burden on
Member States.
Like Member States, most private sector respondents were unable to provide detailed
cost estimates for the administrative burden of EU cooperation on FDI screening.
Their responses indicated that the average costs of the cooperation mechanism were
rather limited compared to the overall costs of most FDI reviews. One respondent (a
lawyer) said that filling in the form for EU cooperation (in addition to the national
application) took approximately 4-8 hours, which, depending on hourly fees, could cost
approximately EUR 2 000-5 000. Another lawyer said that the English translation of the
filing and the EU notification form did not increase their administrative burden.
Several respondents reiterated that, where a transaction is notifiable in more than one
Member State, the lack of procedural alignment of national mechanisms and the different
national requirements and practices resulted in substantial costs and a heavy
administrative burden (including legal and consulting fees, compliance and
administrative overheads). One respondent said that the additional legal fees due to the
coordination required between the screening procedures launched in different Member
States could amount to EUR 100 000-1 million, even without the potential financial
implications in case of interim financing and delayed closing. One private sector
respondent suggested developing and implementing a central submission system for
transactions that are notifiable in three or more Member States to streamline and
synergise the process, while the interlocutor of the applicant would remain the screening
authority of the Member State initially concerned.
The same respondent proposed a jurisdictional referral system, so parties to a transaction
or the competent Member States could request EU screening when assessing an
investment’s impact. In this scenario, the case could be referred for review to the
Commission, which would be responsible for taking the final decision, taking the
position of the Member States concerned into account. On the other hand, another private
sector respondent was against increasing the Commission’s responsibilities in individual
FDI transactions, saying that the security and public order implications of an FDI were
most relevant for the Member State in which the transaction was planned or completed,
85
and that national authorities were therefore the best guardians of the national security and
public order of the Member State concerned.
Overall, Member State respondents were satisfied with the current deadlines of the
cooperation mechanism and the indicative list of factors that may be taken into
consideration in the screening of an FDI133
. One Member State was in favour of
developing guidelines on interpreting factors.
On relevance, Member State respondents took the view that the Regulation covered most
transactions that could be relevant for security or public order. However, most Member
State and several private sector respondents believed that extending the Regulation to
cases where the direct investor is an EU company and its ownership chain includes
foreign persons or companies – structures that are often used for legitimate business
interests – would also be a good idea. One law firm pointed out that, under the current
system, national FDI screening mechanisms can be circumvented if the target company’s
assets are transferred, before the actual FDI is made, to an entity in another Member State
without a screening mechanism or with less stringent screening procedures. At the same
time, a number of private sector respondents believed that it was not necessary to
broaden the scope of investors and investments subject to the Regulation.
One Member State respondent took the view that, for risks originating elsewhere (for
example R&D agreements or certain joint ventures), identifying and addressing them
would require specific, bespoke tools other than FDI screening. On the relevance of the
cooperation mechanism, Member State respondents were in favour of maintaining it and
addressing the shortcomings identified in relation to efficiency and effectiveness, and
maintaining a high level of confidentiality for the protection of sensitive information.
Several private sector respondents acknowledged that the Regulation had played a major
role in promoting a degree of harmonisation and coherence that might not otherwise have
existed across the EU. At the same time, private sector respondents took the view that the
relevance of the current system could be improved with more harmonisation to
provide clarity and promote more consistency in FDI screening in the EU. Their
responses said that the degree of harmonisation or alignment of the following rules and
practices should be increased.
- The notion of FDI.
- An exhaustive catalogue of sensitive sectors or activities subject to screening,
focused on those with a plausible link to security or public order.
- An agreed set of European criteria for determining whether an FDI is likely to affect
security or public order instead of the current indicative list of factors in Article 4.
- Greater convergence of whether national authorities have the right to initiate the
screening of a transaction, and whether (or in which sectors) filing is voluntary or
mandatory.
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Article 4 of the Regulation.
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- Alignment of the ownership thresholds above which a transaction is subject to
screening by the competent Member State.
- Greater convergence of the substantive assessment by the Commission and Member
States (including the notion of ‘criticality’).
- Obliging national authorities to justify their screening decisions.
- Procedural alignment (including better harmonisation of information requested from
the parties to a transaction at the time of the request for screening authorisation,
possibly using a harmonised filing form for national authorities, better aligning
deadlines and the stages of national screening at which EU cooperation is initiated,
and possibly a deadline for parties to a transaction to respond to requests for
additional information from the Commission and other Member States under the
cooperation mechanism).
- Mitigating measures.
- Greater transparency of national screening decisions with the publication of national
decisions (with redaction of information relevant for national security or business-
sensitive information) or standardised annual reports detailing some of the reasoning
followed in national decisional practice, as well as statistics on the decisions adopted,
the sectors concerned and investors’ origin.
- Regulating the right of the notifying parties to access information on their transaction.
Private sector respondents also called for publicly available EU and national guidelines
to improve the transparency and legal certainty of screening mechanisms and screening
decisions. One private sector respondent suggested that Member States issue guidelines,
possibly based on a template provided by the Commission, on factors triggering
notification obligations, substantive FDI concerns and the circumstances in which a deal
is considered likely to jeopardise national security, possible remedies (mitigating
measures), and the practical interplay between the EU Merger Regulation and FDI
screening.
On coherence, Member State respondents believed that the Regulation had brought about
a certain degree of similarity among national screening mechanisms. This similarity
was created by the minimum requirements for screening mechanisms set out in Article 3,
the list of factors in Article 4, and the formal and informal exchange of good screening
practices facilitated by the Commission. At the same time, respondents pointed out that
differences remained among national screening mechanisms, for example with regard to
the scope of sensitive economic sectors subject to screening and deadlines. Generally,
respondents were in favour of promoting more harmonisation of national rules without
affecting the responsibilities. On the internal coherence of the Regulation, Member
States considered that its purpose was coherent with the provisions on its implementation
(for example, the confidentiality of information exchanged, the Commission expert group
on the screening of FDI into the EU, and the list of projects and programmes of Union
interest annexed to the Regulation). Many private sector respondents called for greater
consistency of nationality criteria (used to determine an investor’s country of origin and
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ultimate ownership) with other EU instruments, in particular the EU sanctions regime,
the rules on anti-money laundering and EU merger control, and key concepts, such as
‘control’ and the consideration given to security or public order (in particular EU merger
control rules). On the interplay with the Foreign Subsidies Regulation, one private sector
respondent requested that disclosure requirements and thresholds for subsidies not
exceed the notification requirements for concentrations under the Foreign Subsidies
Regulation, to avoid creating an additional administrative burden. Some business
associations that responded to the questionnaire took the view that the FDI Screening
Regulation should be consistent with the recently adopted trade-related autonomous tools
(such as the International Procurement Instrument and the Foreign Subsidies Regulation),
and that investments in the EU should be assessed based on reciprocity and their
contribution to ensuring a level playing field for EU investors abroad.
One private sector respondent suggested integrating security and public order
considerations into industry-specific approval regimes (for example, as part of a ‘fit and
proper’ or equivalent assessment), relieving companies and national administrations of
the burden of using resources for multiple separate reviews.
On EU added value, Member State respondents said that the Regulation had increased
their awareness of cross-border risks to security or public order and drawn their attention
to the security relevance of EU projects and programmes, as well as the potential risks to
the continuity of those projects and programmes from certain FDI. Respondents added
that, thanks to the Regulation, national screening procedures now take the EU aspect into
account much more than they did before October 2020. The cooperation mechanism also
gives Member States and the Commission a clearer picture of investments in the EU as a
whole, and has made it easier to identify patterns in foreign investors’ behaviour and
FDI-related risks in certain sectors across the EU. They also confirmed the Regulation’s
added value with respect to:
- the increasing number of Member States maintaining and implementing a
screening mechanism;
- the convergence of screening rules and their implementation in the EU,
improvements in the efficiency of risk assessment by Member States (in this
regard, the usefulness of the Commission’s substantiated opinions on critical
transactions, and of the cooperation mechanism as an additional source of
information, were mentioned); and
- the greater awareness of cross-border risks to security and public order, including
those affecting projects and programmes of Union interest.
Overall, Member State respondents believed that the Regulation and the cooperation
mechanism had enabled the Commission and Member States to become more familiar
with screening mechanisms in the EU, and increased awareness of FDI-related risks, and
that the mechanism made it more difficult for parties to transactions to hide risky
investments from Member States. Besides all that, even when assessing investments that
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take place in only one Member State, more attention is paid to possible impacts at EU
level.
On the same matter, private sector respondents saw the Regulation’s added value in the
following areas.
- It has prompted Member States to establish, and where necessary to modernise
and effectively implement, their national screening mechanisms. However, two
private sector respondents believed that the Regulation had decreased legal
certainty by promoting the use of screening on grounds of security or public
order, giving Member States too much discretion to determine the scope of
sectors or economic activities covered by their screening mechanism, the
notification triggers, the procedural framework and screening deadlines, and the
substantive concerns assessed in their procedures.
- It has increased the efficiency of risk assessment by Member States and given
them security-relevant information on FDI transactions subject to screening.
- It has improved awareness of cross-border security risks and risks to projects and
programmes of Union interest.
- It has brought about a degree of consistency and convergence in the approach to
FDI screening across the EU: without the coordinated framework, it is reasonable
to assume that newly adopted screening rules would vary more widely in terms of
criteria, procedures and thresholds.
- It has drawn political attention in Member States to the importance of screening,
which may have resulted in additional resources being allocated to the
implementation of screening mechanisms, which in turn might have improved the
quality of risk analysis.
- It has increased stakeholders’ awareness and understanding of national screening
mechanisms.