EU Planning to Propose Revised FDI Screening Regs by End of Year

The European Commission last week said it plans to propose new foreign direct investment screening regulations by January, adding that it wants to “make better use of existing tools” to screen investments that may pose national security risks.

The commission announced the plans as part of its rollout of two new reports analyzing its FDI screening activities for 2022 and its dual use export control regulations for 2021. The EU earlier this year said it hoped to release new proposals surrounding export controls and investment restrictions in 2023 (see 2306200052), and the commission confirmed last week that at least one of those proposals will seek to make changes to its FDI procedures.

“The European Commission is completing an evaluation of the FDI Screening Regulation and a revised Regulation will be proposed before the end of” the year, it said. The commission is also considering whether to propose an outbound investment screening regime (see 2306260056).

In its report on FDI, the commission said it analyzed 420 foreign investments during 2022 and issued an opinion -- which occurs when the bloc thinks an investment may affect EU security -- in less than 3% of those cases. It also noted that 21 EU member states now have a screening tool in place, up from 11 when the bloc’s FDI screening regulations took effect in 2020.

Those numbers show the EU’s screening mechanism has “allowed for the prevention of investments posing security or public order risks without restricting the overall flow of foreign investment into the EU,” the bloc said.

The U.S. and the U.K. “dominated” transactions involving EU acquisitions equity stakes and greenfield projects last year, the report said, with over 570 acquisition deals and 1,280 greenfield projects originating in the U.S. Most of those investments involved Germany, Spain and France.

Chinese investments into the EU in 2022 were mostly greenfield investments, the report said, and those investments were mostly concentrated in Germany, Spain, Sweden and France. But the bloc noted that Chinese FDI in those countries mostly fell compared with the previous year, especially in Germany, which saw a 46.2% drop in greenfield FDI from China.

In its report on export controls, the commission said EU member states blocked about 1.4%, or 560, of the total dual-use export applications they received in 2021, amounting to about $7.4 billion worth of rejected shipments. The “overall number of authorisations and denials to export remained reasonably stable," the commission said.

Although the number of blocked applications was a fraction of the total applications EU states received, the commission stressed the statistics covered licensing data in 2021, before Russia’s invasion of Ukraine last year. The bloc introduced a host of new license requirements for shipments to Russia in 2022, which may have led to more denials.

Dual-use exports in 2021 composed about 2.1% of all extra-EU exports, which are shipments that originated in an EU member state before being sent to a nation outside the EU, as opposed to exports from one member state to another. It added that the vast majority of export licenses were for shipments destined to China, South Korea, Taiwan, the U.S. and the U.K.

The bloc added that it couldn’t report on more licensing data because “not all member states collect all relevant data.” In its next report, scheduled for release later this year, “a new methodology will ensure a common approach to what is collected and greater granularity.”