The Council of the European Union adopts new rules for the control of foreign investments in sensitive sectors

The Council of the European Union has adopted the regulation that updates the European framework for screening foreign direct investments. The new rules require all member states to have screening mechanisms for investments that may affect security or public order, including in areas such as defense, artificial intelligence, semiconductors, energy, transport, digital infrastructure, critical raw materials, electoral systems, and certain financial infrastructures.

The Council of the European Union has adopted the regulation that modifies the European system for screening foreign direct investments, at a time when economic security, critical infrastructure, and control over sensitive technologies have become central issues of European trade policy. The new framework will replace the regulation applied since 2020 and will require all member states to establish screening mechanisms for investments that may affect security or public order.

In brief

All member states will have to operate national screening mechanisms for foreign investment in sensitive areas.

The rules cover investments in dual-use technologies, military equipment, semiconductors, quantum technologies, artificial intelligence, critical raw materials, energy, transport, and digital infrastructure.

The regulation also covers investments made through companies established in the European Union, where they are controlled by non-EU investors.

Member states retain final responsibility for screening decisions, but cooperation with the European Commission and other member states will become more structured.

The new rules will enter into force 20 days after publication in the Official Journal of the European Union and will apply 18 months later.

The regulation adopted by the Council extends the existing foreign investment screening framework and introduces a common minimum set of sectors, technologies, and infrastructure that national mechanisms must cover. The text applies to investments that create or maintain direct and lasting links between a foreign investor and an EU-based company, where those links allow effective participation in the management or control of the target.

Under the new system, member states will have to screen investments in companies that develop, produce, or commercialize dual-use items, military goods or technologies, semiconductors, quantum technologies, and certain artificial intelligence technologies. Screening will also cover investments in entities active in transport, energy, or digital infrastructure, where those entities are considered critical by the relevant member state.

The regulation includes strategic raw materials, systemically important financial market infrastructure, and systems linked to electoral processes, such as voter registration databases, voting systems, and information systems used to count, audit, display, or certify election results.

One important change concerns investments made through companies established inside the European Union but directly or indirectly controlled by investors from third countries. The legislative text says such investments may create the same security or public order risks as investments made directly from outside the Union, because the foreign investor retains influence over the EU target.

Member states will keep sole responsibility for screening decisions, including authorizing an investment, approving it subject to mitigating measures, prohibiting it, or ordering it to be unwound. The regulation, however, requires national authorities to give due consideration to comments from other member states and opinions from the European Commission where an investment may affect security or public order in more than one member state or projects of Union interest.

"With today's adoption, the EU is reinforcing its capacity to protect security and public order while remaining open to foreign investment," said Michael Damianos, Minister for Energy, Commerce and Industry of the Republic of Cyprus. He said the updated framework would provide "greater consistency across the Union" and apply to all member states, covering an extended common minimum scope for national screening authorities.

The regulation also sets procedural deadlines. National authorities will have to carry out an initial review within 45 calendar days of a complete filing, in order to decide whether an in-depth investigation is needed. In certain cases, member states will notify the investment through the EU cooperation mechanism, allowing other member states and the Commission to submit comments or opinions within defined deadlines.

The text also provides for a secure and encrypted system for information exchange between member states and the Commission, a secure database on notified investments and, at the request of at least nine member states, an EU online portal for the electronic filing of investment cases.

The current framework, applied since October 2020, created the first EU-wide cooperation mechanism for screening foreign direct investments likely to affect security or public order. After its introduction, all member states established national screening mechanisms, but the Council says differences in scope, thresholds, timelines, and procedures continued to create uncertainty for investors and risks for the internal market.

The adopted regulation will now be published in the Official Journal of the European Union. It will enter into force 20 days after publication, and the new rules will start applying 18 months after entry into force.

https://2eu.brussels/ro/stiri/consiliul-uniunii-europene-adopta-noile-reguli-pentru-controlul-investitiilor-straine-in-sectoare-sensibile