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COVID-19 - Extended Control over Foreign Direct Investments in the EU


  • 27 March 2020
  • Janson News
Bruno Lebrun & Ulysse Bertouille
COVID-19 - Extended Control over Foreign Direct Investments in the EU

The coronavirus pandemic prompted the European Commission to issue on 25 March 2020 a communication providing guidance to the Member States to better protect EU’s strategic assets from investments originating from third countries (“the Communication”). Member States are exhorted “to be particularly vigilant to avoid that the current health crisis does not result in a sell-off of European business and industrial actors, including SMEs”.

The Commission urges the Member States (1) to anticipate the full application of the new EU Regulation (EU) 2019/452 on the control of foreign direct investments (“FDI Screening Regulation”) scheduled for October 2020, and (2) to extend the screening of foreign investments to portfolio investments (i.e., investments that are not foreign direct investments). 

The Communication concerns all EU strategic industries and forms part of the overall adjustment of EU law to the coronavirus crisis (see previous post on the adjustment of EU competition law). 

While the responsibility for screening foreign direct investments (“FDIs”) rests with Member States with a limited role of the Commission, the Communication insists that FDI screening should take into account the impact of an FDI on the EU as whole, in order to preserve the continued “critical” capacity of EU industry.

In this context, investors and EU companies should pay particular attention to the following:

1. Anticipation of full enforcement of FDI Screening Regulation 

The Communication applies immediately and provides specific guidance on the screening of FDIs into the EU before the full application of the FDI Screening Regulation on 11 October 2020.

2. Extended control to portfolio investments and “golden shares”

The Communication invites Member States to include portfolio investments in their control of foreign investments. For instance, under specific circumstances, portfolio investments up to 5% of the capital of an EU (strategic) company may be restricted. 

Note that the FDI Screening Regulation does not address portfolio investments that are mainly covered by the case law of the EU Court of Justice on the free movement of capital (Article 63 TFEU).

Further, the Communication applies to special rights detained by Member States in certain companies (“golden shares”). These specific rights may, for instance, allow Member States to block or limit a particular investment from a third country investor.

3. Strategic remains undefined 

The Communication does not define the notion of strategic industries or companies. Yet, the Communication emphasizes that strategic industries at the time of the coronavirus crisis are not limited to the healthcare sector. It may concern any company, large conglomerates or start-ups.

Interestingly, the Communication clarifies the reasons that may justify a restriction of certain foreign investments, including portfolio investments. The following may indeed be considered an appropriate and proportionate restriction to the free movement of capital inherent to any investment:

  • Measures necessary to ensure the security of supply (for instance in the energy field) or the provision of essential public services;

  • Measures to address threats to financial stability;

  • Measures necessary to protect consumers, preserve the financial equilibrium of the social security system, to achieve social policy objectives, that could possibly be relevant in emergency situations; and 

  • Safeguards in case of serious difficulties, or threat thereof, for the operation of the Economic and Monetary Union and for the balance of payments for Member States outside the Euro area. 

Further, the FDI Screening Regulation (due to enter into force next October) may give some useful indication since it provides that the potential effects on the following sectors may be assessed to determine whether a FDI is likely to affect the security or public order (Article 4):

  • critical infrastructure, whether physical or virtual, including energy, transport, water, health, communications, media, data processing or storage, aerospace, defence, electoral or financial infrastructure, and sensitive facilities, as well as land and real estate crucial for the use of such infrastructure;

  • critical technologies and dual use items as defined in point 1 of Article 2 of Council Regulation (EC) No 428/2009 (15), including artificial intelligence, robotics, semiconductors, cybersecurity, aerospace, defence, energy storage, quantum and nuclear technologies as well as nanotechnologies and biotechnologies;

  • supply of critical inputs, including energy or raw materials, as well as food security;

  • access to sensitive information, including personal data, or the ability to control such information; or

  • the freedom and pluralism of the media.

4. Member States must consider the FDI’s impact on the EU as a whole 

The FDI Screening Regulation made it clear that Members States remain competent to screen FDI on their territory. Therefore, Member States are not required to establish a specific screening mechanism or issue any national legislation in this regard. Only 14 Members States have a national screening mechanism in force today. 

Still, the Commission urges all Member States, including those without a FDI screening mechanism, to use all means available to carefully screen FDI on their territory that may impact EU strategic industries.

In particular, the European Commission calls upon Member States to:

  • Make full use already now of their FDI screening mechanisms; and

  • For those Member States that currently do not have a screening mechanism, or whose screening mechanisms do not cover all relevant transactions, to set up a full-fledged screening mechanism and in the meantime to use all other available options.

Further, with regard to the substantive assessment of an FDI, the Communication expressly provides that Member States’ screening should take into account the impact of the FDI on the EU as a whole, “in particular with a view to ensuring the continued critical capacity of EU industry”.

5. Ex-post control of FDI taking place as of March 2020 (15 months)

The Communication insists that, when a FDI is not screened, the FDI Regulation allows other Member States and the European Commission to provide ex-post comments or opinions until 15 months after the completion of the investment. The Member State where the investment was realized could, therefore, decide to take measures against that FDI up to 15 months after the investment took place. 

In summary

The Communication demonstrates the strong determination of the European Commission and the Member States to protect EU’s critical industrial assets. 

This may substantially impact existing or future plans from non-EU investors that would be well advised to include this actual or potential control in their due diligence


For additional information, please contact Bruno Lebrun or Ulysse Bertouille.

On the same topic, please see:


This publication is provided for your convenience and does not constitute legal advice.


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