Abstract
Concerns regarding foreign direct investments (FDI) from China have played a central role in the adoption and development of the EU framework for FDI screening. The official discourse regarding these concerns initially focussed on economic interests but shifted to security following the introduction of the FDI Screening Regulation. Because the precise security threats posed by FDI were largely unspecified, there is a lack of meaningful indications in the law and the legislative history regarding the definition of security and public policy, as well as the broader objectives of the EU FDI Screening Regulation. Since its adoption, the official discourse on FDI screening has emphasised the importance of European strategic autonomy and economic security, which are used as a wide umbrella term for various industrial political interests. While the Russian invasion of Ukraine has shifted the attention to Russia, the impact of this shift is likely to be limited given the small number of Russian investments in the EU. At the same time, the EU has pursued cooperation with the United States on FDI screening, starting already during the parliamentary debate and formalised by the conclusion of the EU-US Trade and Technology Council. Close cooperation with the United States is, however, hard to reconcile with the purported general objective of European strategic autonomy and the principle of non-discrimination, and risks dragging the EU into the increasingly hostile US-China rivalry.
This article is written on personal title. The views expressed in this article are those of the author and do not represent the position of any organization that the author is affiliated to.
Notes
- 1.
Regulation (EU) 2019/452 of the European Parliament and of the Council of 19 March 2019 establishing a framework for the screening of foreign direct investments into the Union (OJ L 79I/1).
- 2.
The EU FDI Screening Regulation uses the terms security and public order. The author will use these terms in this article. Instead of security, the term “public security” is sometimes used (e.g. in Article 65(1) TFEU) or “national security” (e.g. in Article 4(2) TEU). There does not appear to be any material difference or distinction between “security” and “public security”. Notably, this distinction is not present in the German versions of the EU FDI Screening Regulation and Article 65(1) TFEU, which both refer to “security” (Sicherheit). There is a (minor) difference between “security” and “national security” (e.g. in Article 4(2) TEU), as the concept of “security” could be argued to include both “national security” and the “security of the Union”. In practice, the potential distinction between “national security” and the “security of the Union” would be of limited relevance given that no interpretation of the term “security of the Union” can be imagined that would not wholly or partly overlap with the national security of one or more Member States, and vice versa. In other words, the security of the Union inevitably concerns the national security of one or more Member States, and the national security of a Member State inevitably concerns the security of the Union. Whilst the English version appears to make a distinction between “public order” (EU FDI Screening Regulation) and “public policy” (Article 65(1) TFEU), no such difference exists in the French and German versions, which both refer to public order (l’ordre public and öffentlichen Ordnung). The concept of “security of the Union” is included in Global Strategy for the EU’s Foreign and Security Policy, see EEAS (2016). The distinction in between “national security” and “security of the Union” is also briefly discussed in de Kok (2019). For a comparative overview see OECD (2009).
- 3.
- 4.
The Made in China 2025 strategy sets out ambitious goals for developing ten key industries for which Chinese central and local governments have announced support in the form of significant funding, subsidies and other types of support. See de Kok (2019); Meunier and Nicolaidis (2019); Hooijmaaijers (2019); Chan and Meunier (2022); van Zon (2023). See also, more generally, Reilly (2017); Christiansen and Maher (2017); Pacheco Pardo (2018); Santander and Vlassis (2021).
- 5.
A similar argument is made in Hindelang and Moberg (2020).
- 6.
- 7.
- 8.
- 9.
- 10.
In particular, Chinese investments in Greece (notably the investment in and expansion of the port of Piraeus), Hungary (notably. the construction of the Budapest-Belgrade rail link) and Croatia (notably construction of the Pelješac Bridge). For an illustrative example, see Reilly (2017).
- 11.
- 12.
- 13.
Preparatory documents are “Documents used to prepare EU legislation, produced during the various stages of the legislative and budgetary process.” Main document types are Commission legislative proposals, Council common positions, European Parliament legislative and budgetary resolutions and initiatives, European Economic and Social Committee opinions, Committee of the Regions opinions. The author has also viewed the publicly available presentation of the proposal for the EU FDI Screening Regulation before the European Parliament’s Committee on International trade. See EUR-Lex (2022).
- 14.
EU FDI Screening Regulation, art. 2(1).
- 15.
EU FDI Screening Regulation, art. 2(2).
- 16.
See for further detail Case C-106/22 Xella Magyarország Építőanyagipari Kft. v Innovációs és Technológiai Miniszter ECLI:EU:C:2023:568. Various amendments to the EU FDI Screening Regulation have been proposed under the revised Regulation on the screening of foreign investments, which was published on 24 January 2024.
- 17.
TFEU, art. 54 and Case C-80/12 Felixstowe Dock and Railway Company Ltd and others v HM Revenue & Customs ECLI:EU:C:2014:200. See also response to question 12 in Commission (2021a).
- 18.
FDI Screening Regulation, art. 3(6), provides that: “Member States which have a screening mechanism in place shall maintain, amend or adopt measures necessary to identify and prevent circumvention of the screening mechanisms and screening decisions.” Recital 10 provides that the anti-circumvention measures by the Member States “should cover investments from within the Union by means of artificial arrangements that do not reflect economic reality and circumvent the screening mechanisms and screening decisions, where the investor is ultimately owned or controlled by a natural person or an undertaking of a third country.” In the abovementioned ‘frequently asked questions’ document, the Commission notes that “Investments by EU entities may nevertheless come within the scope of the Regulation when they fall under the anti-circumvention clause.”
- 19.
Commission (2021a). In this respect, the “objective capability of the arrangements to avoid the rules” in case of a “lack of economic activity of the investor company” is sufficient to create a presumption that the arrangement is artificial.
- 20.
This is the case, for instance, in France. See Monetary and Financial Code (Code monétaire et financier), art R. 151-1. In Hungary, the temporary regime has extended the scope of the FDI regime to all foreigners as well. Tóth (2022).
- 21.
This is the case, for instance, in Austria. Weiss and Schulz (2022).
- 22.
This is the case, for instance, in Poland. Pietrasik and Michalski (2022).
- 23.
Cotta et al. (2022).
- 24.
Fabricius (2022).
- 25.
For a detailed discussion on the framework of investment screening in the Netherlands, see de Kok (2021).
- 26.
Furthermore, the screening should consider whether there is a sufficient and transparent separation of civil and military research and development programmes in the host country, see the Dutch Act on the security screening of investments, mergers and acquisitions (Wet veiligheidstoets investeringen, fusies en overnames), art. 19–21.
- 27.
EU FDI Screening Regulation, art. 4(2)(a).
- 28.
Commission (2008).
- 29.
In this respect, see for instance Sovereign Wealth Funds: Generally Accepted Principles and Practices “Santiago Principles.” International Working Group on Sovereign Wealth Funds. For a critical note see Bismuth (2017).
- 30.
Council (2008). Similarly, the OECD welcomed the constructive contribution that SWFs make to the economic development of the home and host countries, and have been reliable long-term, commercially-driven investors and a force for global financial stability. The OECD recognised that legitimate national security concerns could arise where SWF investments were motivated by political rather than commercial objectives. However, the OECD countries called upon recipient countries not to erect protectionist barriers to foreign investments, should not discriminate among investors in like circumstances, and should safeguard national security concerns in a transparent, predictable, proportional and accountable manner. Council at Ministerial Level (2008).
- 31.
Commission (2011).
- 32.
Ibid.
- 33.
Ibid.
- 34.
European Parliament (2012).
- 35.
Peverelli and Song (2012).
- 36.
Chee (2010). Italy’s former Minister of Industry, Paolo Romani, made a similar call for Draka to remain in European hands.
- 37.
- 38.
Ibid.
- 39.
- 40.
- 41.
- 42.
- 43.
This is referred to as the “privatisation paradox” by Vila and Peters (2016), p. 20.
- 44.
- 45.
CDP Reti owns approximately 30% of the Italian energy companies SNAM (Natural gas infrastructure company) and TERNA (Electricity transmission systems operator).
- 46.
- 47.
In this report, published on the same day as the announcement of the proposal for the EU FDI Screening Regulation, the Commission notes that “All Chinese acquisitions could be considered linked to the Chinese government since (1) investments are usually authorised by the government and targeted to specific sectors (e.g. those covering the China 2025 strategy), (2) investments generally involve loans given by Chinese banks (most of them directly controlled by the government). The same argument could be applied for Russian federation and for Gulf countries.” Commission (2019a).
- 48.
De Gucht (2012).
- 49.
Ibid.
- 50.
Ibid. De Gucht concluded by noting that an EU-China investment agreement could address this debate, and could reinforce legal certainty and transparency about the way foreign investments may be screened.
- 51.
European Parliament (2015).
- 52.
Commission (2019a), p. 11.
- 53.
- 54.
Germany, Italy and France (2017a).
- 55.
Ibid.
- 56.
Ibid.
- 57.
- 58.
- 59.
Knop and Mihm (2016).
- 60.
Reuters Staff (2016a).
- 61.
- 62.
Sheahan (2016).
- 63.
- 64.
- 65.
The Reflection Paper on Harnessing Globalisation was welcomed by the European Council, which confirmed the need to fully respect Member States’ competences. The topic of reciprocity also featured in a speech by the former Trade Commissioner Celia Malmström. Malmström (2017); European Council (2017).
- 66.
See, similarly, Sattorova (2022), p. 5.
- 67.
Buzan et al. (1998), p. 23.
- 68.
- 69.
- 70.
See also Schilder (2022).
- 71.
Preparatory documents are “Documents used to prepare EU legislation, produced during the various stages of the legislative and budgetary process.” Main document types are Commission legislative proposals, Council common positions, European Parliament legislative and budgetary resolutions and initiatives, European Economic and Social Committee opinions, Committee of the Regions opinions. See EUR-Lex.
- 72.
Juncker (2017).
- 73.
See in similar vein, Schilder (2022).
- 74.
Commission (2017b).
- 75.
Ibid.
- 76.
- 77.
- 78.
Commission (2017c), p. 6.
- 79.
Commission (2019a).
- 80.
FDI Screening Regulation, art. 4(1)(b).
- 81.
Committee on International Trade (2018).
- 82.
Ibid.
- 83.
Ibid. “There is a Chinese proverb saying that the best time to plant a tree was twenty years ago, but the second-best time is now. So, public order and security is not about being right one day. It is about being right all the time from day one.”
- 84.
Ibid.
- 85.
Ibid.
- 86.
Ibid, at 14:37:30.
- 87.
Ibid.
- 88.
Ibid, at 14:45:10.
- 89.
Commission (2017d), pp. 11–12.
- 90.
Committee on International Trade (2018), at 14:53:36.
- 91.
Ibid, at 14:54:10.
- 92.
European Economic and Social Committee (2017), para 2.2.
- 93.
Ibid, para. 2.11.
- 94.
Ibid, para. 2.31.
- 95.
Ibid, para 2.7.
- 96.
Ibid, para 2.7.
- 97.
European Parliament (2018), p. 49.
- 98.
Ibid.
- 99.
Ibid, p. 50.
- 100.
Numbering added for clarity. Commission and High Representative (2019), p. 1.
- 101.
Ibid, p. 4.
- 102.
Ibid, p. 10.
- 103.
- 104.
See, for instance, von der Leyen (2019).
- 105.
Borrell (2020a); Damen (2022). A report by ECFR in 2019 found that the relationship with the US played the most important role in the European debate on strategic autonomy. Franke and Varma (2019). See also Helwig (2022). The EU’s focus on strategic autonomy was therefore welcomed by President Xi Jinping and Chinese Europe experts, who tended to characterise the objective as preventing the “state of total dependence on the United States”, Stec (2021). The concept of strategic autonomy is traced back to the wars in Libya and Syria in 2023 in Hoffmeister (2023), p.668.
- 106.
EEAS (2016), p. 47.
- 107.
Commission (2020b), p. 13.
- 108.
Ibid, pp. 13–14.
- 109.
Commission (2020c).
- 110.
- 111.
Strategic dependencies are defined as “dependencies that are considered of critical importance to the EU and its Member States’ strategic interests such as security, safety, health and the green and digital transformation.” (Commission 2021c).
- 112.
Commission (2021c), p. 10.
- 113.
Commission (2020b), p. 13.
- 114.
European Parliament (2020).
- 115.
See, for instance, European Parliament (2021a).
- 116.
See also Riela and Zámborský (2021).
- 117.
Commission (2020d).
- 118.
- 119.
- 120.
Commission (2021c).
- 121.
The EU, however, is leading in the area of advanced manufacturing technologies, the internet of things and IT for mobility. Commission (2021c), p. 32.
- 122.
European Parliament (2021b), art. 1(b)(5) and 41.
- 123.
von der Leyen (2023).
- 124.
von der Leyen (2023).
- 125.
Other tools in the toolbox are measures on 5G, the Foreign Subsidies Regulation and a new instrument to deter economic coercion. In addition, other ‘pillars’ of the economic de-risking strategy are making the economy and industry more competitive and resilient.
- 126.
von der Leyen (2023).
- 127.
Commission and High Representative (2023a), p. 2.
- 128.
Commission and High Representative (2023a), p. 4−5.
- 129.
Commission and High Representative (2023a), p. 4−5.
- 130.
Commission and High Representative (2023b).
- 131.
Commission and High Representative (2023a), p. 1 and p. 12.
- 132.
Commission and High Representative (2023b).
- 133.
As noted above, the Commission explicitly referred to the importance of “the ability of the EU to remain at the edge of innovation and transformation towards an increasingly green and digital economy and society” Commission (2021c), p. 10.
- 134.
- 135.
- 136.
The Italian and French governments opposed the proposed acquisition of Iveco by FAW Group. The German government opposed the proposed acquisition of Schmiedetechnik Plettenberg, Werkzeugtechnik Plettenberg, VVP Vermögensverwaltung Plettenberg by Zhejiang Shanghuan Transmission Machinery.
- 137.
The Italian government issued an ex post blocking decision of the acquisition of the Italian drone company Alpi Aviation by CRRC.
- 138.
The German government opposed the acquisition of Leifeld by Yantai.
- 139.
The Italian government blocked a technology transfer agreement between Italian based ROBOX and Effort Intelligent Equipment.
- 140.
The German government opposed to the proposed acquisition of satellite communication radar and radio technology ISMT by China Aerospace Science and Industry Corporation. The Ministry of Economic Affairs and Energy said that the transaction would endanger Germany’s technological sovereignty.
- 141.
The Italian government blocked the proposed acquisition of the global seed producer Verisem by Syngenta (owned by the SOE ChemChina).
- 142.
The Italian government blocked the proposed acquisition of the Italian semiconductor company LPE by Shenzhen Investment Holdings, and blocked the proposed creation of a joint venture between Applied Materials and Zhejiang Jinsheng Mechenical relating to an Italian screen printing business. The German government reportedly blocked the proposed acquisition of PPM Pure Metals by Chinese Vital Material, blocked the proposed acquisition of Elmos Semiconductor by Silex Microsystems (owned by Chinese SAI MicroElectronics), and blocked the acquisition of ERS Electronic by an unknown Chinese company.
- 143.
Commission (2022a), p. 18.
- 144.
The French (pre-emptive) opposition to rumors of an attempted acquisition of Danone by Pepsi in 2005 is another, somewhat dated, example. See also Zhang (2014), p. 410.
- 145.
Ministère Des Armées (2020).
- 146.
Sénat (2023); Bezat (2023).
- 147.
Bernard (2020).
- 148.
Commission (2021d), p. 5.
- 149.
- 150.
Commission (2022a), p. 4.
- 151.
Kratz et al. (2022), p. 16.
- 152.
- 153.
Hogan (2020c).
- 154.
Hogan (2020c).
- 155.
von der Leyen (2020).
- 156.
Commission (2020e).
- 157.
Commission (2021e).
- 158.
Commission (2021e).
- 159.
- 160.
Commission (2021f).
- 161.
Ibid.
- 162.
Ibid.
- 163.
- 164.
Commission (2022b).
- 165.
Ibid, p. 2.
- 166.
Ibid, p. 2.
- 167.
Commission (2022d), p. 7.
- 168.
Ibid, p. 8.
- 169.
Commission (2022a).
- 170.
Commission (2022c).
- 171.
TCC (2022), paras. 5–17.
- 172.
Similarly, in the press release Executive Vice-President Margarethe Vestager noted: “Russia’s war of aggression against Ukraine has further underlined the key importance of our cooperation with the US on economic and technology issues. This cooperation goes beyond our reaction to the war. Together with our transatlantic partners, we can create a positive vision for our economies and for a democratic governance of the internet based on the dignity and integrity of the individual. When we act together, we can set the standards of tomorrow's economy. We are joining forces and when two such determined partners take the lead, we can enable the tides to turn.” TCC (2022), par.15; Commission (2022c).
- 173.
Commission (2021c), p. 10.
- 174.
Commission (2021c), p. 10.
- 175.
See also Helwig and Sinkkonen (2022), p. 19.
- 176.
- 177.
van Veen and Langenberg (2022).
- 178.
Commission (2022a), p. 18.
- 179.
See in similar terms Kratz et al. (2022), p. 17.
- 180.
von der Leyen (2023).
- 181.
Committee on International Trade (2018), at 14:54:10.
- 182.
This provision provides that “Rules and procedures related to screening mechanisms, including relevant timeframes, shall be transparent and not discriminate between third countries.” The principle of non-discrimination is also referred to in recital 15.
- 183.
See also Nettesheim (2020), p. 16. Martin Nettesheim argues: “For the sake of a coherent argument, concerns about the abandonment of high technology and fears of “falling behind” would also have to be expressed to investors from other Western countries in these sectors.”
- 184.
- 185.
For instance, under the EU FDI Screening Regulation, art. 4(2)(a), significant funding may point to direct or indirect government control, and recital 23 provides that information about subsidies granted is relevant information for the assessment.
- 186.
- 187.
The White House (2023).
- 188.
Commission (2021c), p. 10.
- 189.
- 190.
- 191.
Blinken (2022).
- 192.
Macia and Tausche (2021).
- 193.
The current Member States are Australia, Brunei, Fiji, India, Indonesia, Japan, South Korea, Malaysia, New Zealand, the Philippines, Singapore, Thailand, the United States and Vietnam. According to Blinken, the Economic Framework “renews American economic leadership”.
- 194.
Blinken (2022).
- 195.
See more generally, Casarini (2022).
- 196.
Commission and High Representative (2019).
- 197.
von der Leyen (2023)
- 198.
- 199.
As also identified as a common interest in Commission and High Representative (2019).
- 200.
See also Rogelja and Tsimonis (2020).
- 201.
This led some commentators calling the approach the “Sinatra doctrine”, which Josep Borrell did not mind “as long as it makes it easier to get my message across. I could have said that Europe must increase its strategic autonomy or its sovereignty, but this would probably not have aroused as much interest.” Borrell (2020b) This article was also published on the website of the EEAS. Borrell (2020c).
- 202.
- 203.
Borrell (2020b), p. 7.
- 204.
Ibid.
- 205.
- 206.
Borrell (2020b), p. 7.
- 207.
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