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*Columbia FDI Perspectives*
Perspectives on topical foreign direct investment issues
No. 245  February 11, 2019
Editor-in-Chief: Karl P. Sauvant ([log in to unmask])
Managing Editor: Marion A. Creach ([log in to unmask])
*A future European FDI screening system: solution or problem?*
*** <#m_1803863882739858981__edn1>
Carlos Esplugues ** <#m_1803863882739858981__edn2>

In line with discussions in other countries,[1]
<#m_1803863882739858981__edn3> the increase in FDI flows into strategic
sectors of Europe’s economy has fostered a debate on the need to establish
a screening mechanism at the European level, on the grounds of national
security and/or public order. M&As undertaken by investors controlled by
foreign governments or directed to sectors of the EU economy involving
critical infrastructure, technologies and inputs or accessing sensitive
information receive special attention. In September 2017, the European
Commission submitted a proposal to the European Parliament for a Regulation
on FDI control.[2] <#m_1803863882739858981__edn4> In the framework of the
EU ordinary legislative procedure and after inter-institutional
negotiations, the EU institutions reached a political agreement on a
revised version of the proposal on November 20, 2018.[3]
<#m_1803863882739858981__edn5> This revised text will foreseeably be
endorsed by the Parliament and Council at a first reading before the end of
February 2019 and, then, enacted as a Regulation.

Through the 2009 Treaty of Lisbon, the EU member states transferred
competence on FDI issues to the EU, which nevertheless is divided by
contradictory interests and opinions on some issues. In particular, the
desire of some members for the EU to remain an investment-friendly area
contrasts with the desire of other members to protect themselves against
foreign control of certain industries. Also, the prospective adoption of a
common FDI screening framework aimed at resolving the lack of coordination
within the EU in this area whilst guaranteeing legal certainty and
predictability for foreign investors clashes with the wish of member states
to remain in full control of determining which investments are acceptable
and which are not.

The lack of consensus on the establishment of a FDI screening system and
its design manifested itself in the original proposal submitted and remains
conspicuous in the revised proposal. The Commission has opted for a
compromise that seeks to achieve a difficult balance within the
existing *status
quo* in Europe in this area: the text explicitly recognizes the sole
responsibility of member states to manage national security and their
ultimate decision-making authority in that regard, both for creating (or
not) a national screening mechanism and implementing its decisions.[4]

The proposal is limited in scope, as it consists of a mechanism for the
exchange of information on FDI proposals in certain strategic sectors at
the European level. However, it has structural problems that raise some
doubts about its practicality and usefulness to meet its objectives. Two of
these problems are of special relevance:

   - The proposal foresees collaboration between the Commission and member
   states, among member states and with the Parliament, and thus finally
   relies on the willingness of member states to cooperate. Member states have
   a general obligation to inform the Commission and other states about, in
   particular, the sectors and member states targeted by proposed investments,
   as well as their value and ownership structure of the foreign investors and
   their funding. Member states must “give due consideration” or pay “utmost
   account” to the Commission’s opinion or other states’ comments—but they are
   not compelled to follow them, merely to provide written explanations when
   they do not.[5] <#m_1803863882739858981__edn7> Additionally, member
   states may rely on article 346(1) of the Treaty on the functioning of the
   EU to limit the information they provide.
   - These problems are accentuated by the extent of the Regulation’s
   sectoral coverage and the breadth of the criteria used to evaluate
   investment proposals. This carries the risk of extending the screening
   beyond that required by security or public order concerns.[6]

For the proposal to fulfill its goal of creating an effective system of
information exchange on FDI, at least four major changes should be made:

   - Clear common rules on when FDI in a member state is likely to affect
   the security or public order of the EU or other member states should be
   - Any obligation imposed on the Commission and member states in the
   framework of the Regulation should be clearly defined and be mandatory. The
   system cannot exclusively depend on the will of member states to provide
   information, take opinions and comments into account and explain
   non-compliance. The ability to disregard comments and opinions should be
   restricted to the maximum and made dependent on some limited and objective
   grounds established by the Regulation itself.
   - Rules to ensure the full protection of confidential information
   acquired in the application of the Regulation should be negotiated.
   - The possibility for foreign investors to seek judicial redress against
   screening decisions should be ensured.

The proposal constitutes an interesting first step in the process of
establishing a future European screening mechanism. However, in its current
version, it may increase the duration and complexity of national evaluation
procedures and create more problems than solutions.

* <#m_1803863882739858981__ednref1> *The Columbia FDI Perspectives are a
forum for public debate. The views expressed by the author(s) do not
reflect the opinions of CCSI or Columbia University or our partners and
supporters. Columbia FDI Perspectives (ISSN 2158-3579) is a peer-reviewed
** <#m_1803863882739858981__ednref2> Carlos Esplugues Mota (
[log in to unmask]) is Professor of Law, University of Valencia, Spain.
The author thanks José Luis Iglesias for his helpful comments, and he is
grateful to Rainer Geiger, Krista Nadakavukaren, Joachim Pohl, and
Catharine Titi for their helpful peer reviews.
[1] <#m_1803863882739858981__ednref3> For instance, on August 1, 2018, the
US Senate enacted the Foreign Investment Risk Review Modernization Act; it
modifies the legal regime of the Committee on Foreign Investment in the US.
[2] <#m_1803863882739858981__ednref4> Fabrizio Di Benedetto, “A European
Committee on foreign investment?” *Columbia FDI Perspectives*, no. 214,
December 4, 2017
[3] <#m_1803863882739858981__ednref5> European Parliament, “Provisional
agreement resulting from interinstitutional negotiations,” December 6, 2018
[4] <#m_1803863882739858981__ednref6> Article 1(2) and (3).
[5] <#m_1803863882739858981__ednref7> Articles. 6(9), 7(7) and 8(2)(c).
[6] <#m_1803863882739858981__ednref8> Article 4.
*The material in this Perspective may be reprinted if accompanied by the
following acknowledgment: “Carlos Esplugues, ‘A future European FDI
screening system: solution or problem?,’ Columbia FDI Perspectives, No.
245, February 11, 2019. Reprinted with permission from the Columbia Center
on Sustainable Investment (***
A copy should kindly be sent to the Columbia Center on Sustainable
Investment at **[log in to unmask]* <[log in to unmask]>*. *

For further information, including information regarding submission to the
*Perspectives*, please contact: Columbia Center on Sustainable Investment,
Marion A. Creach, [log in to unmask]

*Most recent Columbia FDI Perspectives*

   - No. 244, Mark Feldman, “China’s Belt and Road investment governance:
   building a hybrid model,” January 28, 2019
   - No. 243, Karl P. Sauvant, “Five key considerations for the WTO
   investment-facilitation discussions, going forward,” January 14, 2019
   - No 242, Matthew Stephenson and Jose Ramon Perea, “How to leverage
   outward FDI for development? A six-step guide for policymakers,” December
   31, 2018

*All previous FDI Perspectives are available at *
*. *

*Other relevant CCSI news and announcements*

   - CCSI is hiring a new *Special Assistant to the Director* to begin in
   late spring/early summer 2019. *To apply for the position, please see
   our website here
   for more information.*
   - *On February 19, 2019*, CCSI, the Institute for the Study of Human
   Rights, the Saltzman Institute of War and Peace Studies, and the
   Columbia International Arbitration Association will co-host "Is Liberalism
   Making the World Less Fair? Three Authors Discuss Their Recent Books on
   Investor vs. Human Rights in the Global Economy," at Columbia Law
School. *Please
   see our website here
   for more information.*
   - *We are still accepting applications for our upcoming executive
   trainings on: Sustainable Investments in Agriculture
   (June 11–21, 2019) and Investment Treaties and Arbitration for Government
   (June 17–27, 2019).* Each program is designed to equip participants with
   the necessary skills, analytical tools and frameworks to address relevant
   challenges and opportunities, and to encourage a rich dialogue about best
   practices from around the globe.* More information about each training,
   including brochures and applications, is available at the links above.*
   Applications are accepted on a rolling basis. Participants will receive a
   Statement of Attendance from Columbia University.

Karl P. Sauvant, Ph.D.
Resident Senior Fellow
Columbia Center on Sustainable Investment
Columbia Law School - Earth Institute
Ph: (212) 854-0689
Fax: (212) 854-7946
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*Karl P. Sauvant, PhD*

*Resident Senior Fellow*
*Columbia Center on Sustainable Investment*
Columbia Law School - The Earth Institute, Columbia University
435 West 116th St., Rm. JGH 825, New York, NY 10027
| p: (212) 854 0689 | cell: (646) 724 5600 e: [log in to unmask]
| w: | t: @CCSI_Columbia

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on the G20 Agenda", "International Investment Facilitation: By Whom and for
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the International Investment Law and Policy Regime", "Sustainable FDI for
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Outward FDI Policy”, "China Moves the G20 toward an International
Investment Framework and Investment Facilitation", "The Next Step in
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