Commission proposes oversight of foreign investment in the EU
Within Jean-Claude Juncker’s state of the union speech on 13 September, the President of the European Commission announced the creation of a new EU framework for foreign investment screening.
Such a concept has been on the cards for some months now, having been previously introduced by Emmanuel Macron during his first summit in June. The initial proposal, spear-headed by Macron and supported by Germany, was not as well-received as the French President might have liked. Portugal, Greece, Ireland, Spain and the Nordic, Benelux and Baltic countries were all against the initial suggestion of introducing a formal mechanism to restrict foreign takeovers within the EU core industries. Although the summit did go some way to agree that something should be done in order to retain key industries/knowledge in the EU, what was eventually agreed was a less formal creation of guidelines with which to analyse foreign investment.
How have Juncker’s framework proposals been received?
Juncker’s speech provided some reasoning as to why the new framework has been proposed, stating that “Europe must always defend its strategic interests” and that there is a “political responsibility to know what is going on in our own backyard so that we can protect our collective security if needed”.
Inevitably such remarks mean that the framework proposals have been met with cries about increased protectionism of the EU, with claims that such a framework would go against the basis of the current policy framework of free flow of capitals. Indeed there have been mutterings that this move would have been met with far more resistance had it not been for the imminent departure of the UK, traditionally a free-trade champion. Although it has been suggested that countries such as Sweden, Netherlands and Denmark may be wary of such measures given their free-trade traditions and there are other countries within the EU who will have concerns given their reliance on foreign investment as a means of bolstering their economies.
Is this Brexit-related?
Following the triggering of Article 50, there is a somewhat knee-jerk reaction to consider any new proposals to be a response to Brexit however this does not appear to be the case in this instance.
It appears that the target of this new framework is China. There was a 77% jump in the level of Chinese investment in the EU last year, reaching €35bn, with the UK and Germany getting more than half of the money. China has ambitious plans for 2017, with funding being focused on high-tech manufacturing, automation and those projects which relate to the Chinese ‘Belt and Road’ initiative.
The main cause for concern is the lack of reciprocity. Trade talks continue to hit the buffers, meaning that whilst China is able, via EU investments, to gain an edge in industries such as technology, EU investors are still faced with heavy restrictions when looking to invest in China. Brigitte Zypries, German Federal Minister for Economic Affairs and Energy, stated “we need to prevent other states from taking advantage of our openness in order to push through their industrial policy interests”. Indeed there appear to be global concerns, with the US recently launching an investigation into IP rights for similar issues.
What shape are the proposals likely to take?
At present, 15 of the 28 EU nations have formal screening systems in place for takeovers and investments to assess the threat that these might pose to national security/public policy.
It is planned that these existing screening systems will be co-ordinated, made more consistent and used for the basis of criteria to be used by the rest of the bloc.
Decisions regarding the investments would stay within the member states however it is proposed that information regarding sensitive investments/those affecting other states would be shared with the respective states and the Commission. It has been mooted that the states affected/the Commission would then be able to oppose such investments but that such assessments would be non-binding.
There have been further suggestions that the EU executive might screen investments into projects that have previously received EU funding however this has proved controversial.
It is thought that the non-binding guidelines might then pave for the way for draft laws to be put in place regarding EU screening of foreign investments.
The EU’s intention is, Jyrki Katainen, EU Commission Vice President for Jobs, Growth, Investment and Competitiveness explained, that “we don’t want to restrict investments, but we want to be aware, much better than today, what investments are coming in, who invests, and if something raises concerns, it [the framework] allows member states to take the right decision”.