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Foreign direct investment needs thorough screening in order to protect national security and public order in the EU

Foreign Direct Investment

Particular attention should be given to investment in sensitive areas such as infrastructure and key facilities, says the EESC

Foreign direct investment is a major source of growth, jobs and innovation and has always been a key factor in supporting economic and social development in the EU. However, it also poses possible risks for national security, and a proper framework for the screening of such investments is needed. This was one of the main conclusions in the opinion on foreign direct investment screening, adopted by the European Economic and Social Committee during its plenary session on 19 April. 

"Foreign investment in key technologies and in sensitive infrastructure such as energy and water supply, and financial services must be controlled," said Christian Bäumler, rapporteur for the EESC's opinion. The screening of investments in businesses that are of strategic importance for national security and public order in the EU is patchy and uncoordinated. Not all Member States have screening procedures in place, with the result that in countries without such mechanisms, investments go unscreened. The European Commission identified 12 Member States which had their own investment screening mechanisms, but no exchange of information existed between them. The EESC emphasised that a system at EU level must tackle this shortcoming and deal with the differences between Member States, while safeguarding national and European interests.

Over the last 10 years there has been an increase in investment from third countries in the EU, with most of it coming from the USA, Canada and Switzerland, followed by Brazil, China and Russia. In 2016 alone, Chinese direct investment in the EU amounted to EUR 35 billion, which was 77% more than the corresponding figure for 2015. There have been concerns that some foreign investors, notably state-owned investors, were interested in acquiring European businesses that possessed key technologies, and in investing in strategic industrial sectors, infrastructure and other assets that are important for the security of the Member States and the EU as a whole.

The EESC welcomed the Commission's proposal for a Regulation establishing a framework for screening of foreign direct investments into the European Union, but noted that the extent of the problem is not yet fully known, as the Commission did not carry out an exhaustive impact assessment of investment flows when starting the legislative procedure.

"The proposed EU screening mechanism is a step forward, but it cannot yet fully safeguard EU and Member States' interests. In such a case, at this stage, the system must not become burdensome, time-consuming and costly," said the EESC co-rapporteur, Gintaras Morkis.

The EESC expressed concerns that the European Commission only reserved the right to screen an investment when the latter might affect programmes of Union interest. Such an approach carries with it the risk that foreign investors wishing to take over important businesses will select, as an entry point, the country which is most vulnerable and, via the internal market, will gain access to countries with stronger investment protection. The EESC insists that where foreign direct investment has a cross-border impact on the entire EU, or parts of it, the EU needs to exercise its competence in the area of investment screening.

The EESC supports broadening investment screening to include key technologies, where an investor is controlled by, or has close ties to, the government of a third country. The EESC proposes that the regulation should include a separate screening procedure for foreign direct investment undertaken by governments of third countries, or investors with close ties to such governments.

The opinion points out that while the EU is one of the economies most open to foreign direct investment, frequently EU investors do not enjoy the same rights in third countries as outside investors into the EU enjoy. Although the issue of reciprocity is not addressed in the proposal for the Regulation, the EESC calls on the Commission to apply the principle of reciprocity in the case of all EU negotiations with third countries concerning foreign direct investment.