Abstract
This chapter provides a doctrinal perspective on the EU Screening Regulation. It seeks to present, clarify, and assess the very rules contained therein. Following a sketch of the way in which the rules are organised in the Regulation, the chapter discusses in more detail the rules that are directed at the establishment of “a framework for the screening by Member States of foreign direct investments into the Union on the grounds of security or public order”. It continues by critically assessing the rules that create the “mechanism for cooperation between Member States, and between Member States and the Commission, with regard to foreign direct investments likely to affect security or public order”. The chapter closes with a brief summary and outlook.
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Notes
- 1.
See in this volume Age Bakker, The Political Economy of Capital Controls and Liberalization in the European Union.
- 2.
Cf., e.g. The Wall Street Journal (24 October 2016), https://www.wsj.com/articles/german-withdraws-approval-of-chinese-takeover-of-aixtron-1477297215.
- 3.
Federal Ministry for Economic Affairs and Energy (BMWi) (2019), https://www.bmwi.de/Redaktion/EN/Publikationen/Industry/industrial-strategy-2030.pdf?__blob=publicationFile&v=7; European Commission (13 September 2017), https://ec.europa.eu/commission/presscorner/detail/en/SPEECH_17_3165.
- 4.
- 5.
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 investment into the Union, OJ L 79/1, 21/03/2019, p. 1–14.
- 6.
Communication from the Commission, Guidance to the Member States concerning foreign direct investment and free movement of capital from third countries, and the protection of Europe’s strategic assets, ahead of the application of Regulation (EU) 2019/452 (FDI Screening Regulation), Brussels, 25.3.2020, C(2020) 1981 final, Annex, p. 2.
- 7.
See in this volume Age Bakker, The Political Economy of Capital Controls and Liberalization in the European Union.
- 8.
See in this volume: Stephan Wernicke, Investment Screening: The Return of Protectionism? A Business Perspective; Sven Simon, Investment Screening – The Return of Protectionism? A Political Account.
- 9.
See in this volume Joanna Warchol, The Birth of the EU Screening Regulation.
- 10.
See in this volume: Stefan Korte, In search for an EU Competence to Establish an Investment Screening Mechanism and Restricting Effects Flowing from Fundamental Freedoms, Fundamental Rights, and other EU Primary Law; Bugge Daniel, Comment on Stefan Korte’s chapter In search for an EU Competence to Establish an Investment Screening Mechanism and Restricting Effects Flowing from Fundamental Freedoms, Fundamental Rights, and other EU Primary Law.
- 11.
See in this volume Martin Nettesheim, EU Investment Screening: The Concept of “Security und Order”.
- 12.
See in this volume: Lars S. Otto, What Is a Foreign Direct Investment? Understanding Third Country Direct Investments Conceptually and in Practise.
- 13.
See in this volume: Philipp Stompfe, Foreign Investment Screening in Germany and France; Paolo Vargiu, Foreign Investment Screening in Italy, Spain, Portugal and Greece; Szymon Pawłowski/Marek Jaśkowski, Foreign Investment Screening in Poland, Lithuania and Latvia; Szilárd Gáspár-Szilágyi, Foreign Investment Screening in Hungary and Romania; Jonas Hallberg, Foreign Investment Screening in Finland, Norway, Sweden and Denmark.
- 14.
See in this volume: Vladimir Talanov, Foreign Investment Screening in on Russia; Greta Lichtenbaum/David J. Ribner, Foreign Investment Screening in USA; Kojiro Fujii/Noriko Yodogawa/Marie Wako, Foreign Investment Screening in Japan; Qingjiang Kong/Kaiyuan Chen, Foreign Investment Screening in China.
- 15.
See in this volume: Henning Berger, The Banking and Insurance Sector; Dominik Eisenhut, The Defence, Military and Dual-Use Sector; Henning Jessen, The Transport Sector; Bent Ole Gram Mortensen, The Energy Sector; Michael Fehling, The Telecommunications and IT Infrastructure Sector.
- 16.
This topic is further elaborated in Hindelang and Moberg (2020).
- 17.
Cf. Article 1 (1).
- 18.
“Security or public order” is the locution chosen by the EU legislator to define the grounds which legitimate restrictive measures relating to foreign direct investment, cf. para. 3 of the preamble of the Regulation and Article 1.1. The exact relation, and potential overlap, of the term “security and public order”, in relation to e.g. “national security” in Article 4(2) TEU and “public policy” or “public security” in Article 65(1) TFEU will be covered more in depth below.
- 19.
The Annex is amendable in accordance with Articles 8(4), 16.
- 20.
The empowerment of the EU Member States by the EU in the area of the Common Commercial Policy can also be found – taking various forms and different scopes – in other regulatory areas, cf. e.g. Article 10 of the Regulation (EU) 2015/479 of the European Parliament and of the Council of 11 March 2015 on common rules for exports, OJ L 83, 27.3.2015, p. 34 (“Without prejudice to other Union provisions, this Regulation shall not preclude the adoption or application by a Member State of quantitative restrictions on exports on grounds of […] public policy or public security […].” [Emphasis added]); similar also in Article 24(2)(a) of the Regulation (EU) 2015/478 of the European Parliament and of the Council of 11 March 2015 on common rules for imports (codification), OJ L 83, 27.3.2015, p. 16; Article 8(1) of Council Regulation (EC) No 428/2009 of 5 May 2009 setting up a Community regime for the control of exports, transfer, brokering and transit of dual-use items (Recast), OJ L 134 29.5.2009, p. 1, (“A Member State may prohibit or impose an authorisation requirement on the export of dual-use items not listed in Annex I for reasons of public security or human rights considerations.” [Emphasis added]).
- 21.
To further transparency, according to Article 3(7), (8) of the Regulation, Member States shall notify the Commission of their existing, newly adopted, or altered screening mechanisms, which the Commission will make publicly available.
- 22.
Evaluating the degree to which existing Member State screening mechanisms require adaption is beyond the scope of this chapter, cf. on this the country reports referenced above in footnotes 14.
- 23.
Cf. below Sect. 2.3.
- 24.
Cf. Articles 6(1), 7(5), 8(2).
- 25.
Cf. Articles 6(9), 7(7), 8(2) lit. c.
- 26.
Cf. Article 4(1): “inter alia”, and Article 4(2): “in particular”. See also Recital 12 of the Regulation.
- 27.
See also Recital 13 of the Regulation.
- 28.
The Member States “may consider” “inter alia” the factors relating to the particular FDI mentioned in Sect. 1, and “may also take into” consideration “in particular” the factors listed in Sect. 2 in respect of the investor. The European Parliament proposed that some of the said factors should in fact be made compulsory, by switching “may” to “shall”. However, this was not accepted into the final version of the regulation.
See in this volume Joanna Warchol, The Birth of the EU Screening Regulation; see also Neergaard in: Bourgeois (2019), p. 155.
- 29.
Cf., e.g., Article 6(1): “The notification may include a list of Member States whose security or public order is deemed likely to be affected.”; Article 6(2): “Where a Member State considers that a foreign direct investment undergoing screening in another Member State is likely to affect its security or public order...”; Article 6(3): “Where the Commission considers that a foreign direct investment undergoing screening is likely to affect security or public order in more than one Member State...”; Article 7(1): “Where a Member State considers that a foreign direct investment planned or completed in another Member State which is not undergoing screening in that Member State is likely to affect its security or public order...”; Article 7(2): “Where the Commission considers that a foreign direct investment... is likely to affect security or public order in more than one Member State...”; Article 8(1): “Where the Commission considers that a foreign direct investment is likely to affect projects or programmes of Union interest on grounds of security or public order...” [Emphases added.].
- 30.
Judgment of the Court of 14 March 2000, Association Eglise de scientologie de Paris and Scientology International Reserves Trust v The Prime Minister, C-54/99, ECLI:EU:C:2000:124, para. 17; cf. also Hindelang (2009), p. 226.
- 31.
The free movement of capital in Article 63(1) TFEU is the only freedom which extends, by its clear and unmistakable wording, its scope of application to the third country context and it covers, as such also direct investments. However, its applicability (and consequently the Member States’ leeway in restricting third country capital movements) in this context is determined by the freedom’s relationship to the freedom of establishment, which the CJEU perceives as competing and largely prevailing, also in a third country context. Cf., inter alia, Judgment of the Court (First Chamber) of 11 September 2014,, Kronos International Inc. v. Finanzamt Leverkusen, Case C-47/12, ECLI:EU:C:2014:2200, paras. 30–43, which sets out the complicated relationship of the freedoms as perceived by the Court in a textbook like fashion. For a critical appraisal of the CJEU’s jurisprudence see Hindelang (2009), p. 81 et seqq, see also Hindelang (2013).
To what degree the freedom of establishment can displace free movement of capital, if one is prepared to follow the CJEU’s view on its interrelation, depends also on the degree of substantive overlap. Cf. for the question of whether the notion of “(foreign) direct investment” within the context of free movement of capital is largely identical with the one of “establishment” within the freedom of establishment or whether a certain investment could qualify as (foreign) direct investment within the meaning of free movement of capital without reaching the threshold of qualifying, at the same time, as an establishment: Hindelang (2009), p. 85 et seqq. For a different view cf. Herrmann (2019), p. 464.
- 32.
Herrmann (2019), pp. 429, 465.
- 33.
Judgment of the Court of 14 March 2000, Association Eglise de scientologie de Paris and Scientology International Reserves Trust v The Prime Minister, C-54/99, ECLI:EU:C:2000:124, para. 17.
- 34.
Cf. Recital 4 of the Regulation which reads “This Regulation is without prejudice to the right of Member States to derogate from the free movement of capital as provided for in point (b) of Article 65(1) TFEU.”
- 35.
Judgment of the Court of 14 March 2000, Association Eglise de scientologie de Paris and Scientology International Reserves Trust v The Prime Minister, C-54/99, ECLI:EU:C:2000:124, para. 17; Hindelang (2009), p. 226.
- 36.
Possibly of a different view is Herrmann (2019), pp. 465–466, which seems, however, not find strong support in the judgment cited in support of his opinion.
- 37.
The approach in WTO law seems to be different. Here, the prevalent view has been that the “national security” exception has been a so called self-judging clause, meaning that the state invoking it practically enjoys complete discretion as regards the determination of whether or not the exception is applicable. Cf. Alford (2011). This approach turns focus to the obligation of good faith when invoking the clause, meaning that it is a breach of good faith to invoke it to lightly. Recent panel decisions may however indicate that self-judging clauses will be more severely scrutinized in the future, Sanklecha (2019).
- 38.
[Emphasis added] Judgment of the Court (First Chamber) of 11 November 2010, Commission v. Portugal, Case C-543/08, ECLI:EU:C:2010:669, paras. 84–85. In para. 89, the Court also stated that “[e]ven were it accepted that, pursuant to provisions of European Union secondary legislation, a Member State has an obligation to guarantee the supply of energy within its territory, as is claimed by the Portuguese Republic, compliance with such an obligation cannot be relied on to justify any measure which is contrary in principle to a fundamental freedom.”.
- 39.
Currently proposed amendments to the German Foreign Trade and Payments Act (Außenwirtschaftsgesetz – AWG, BGBl. I (Federal Law Gazette), 1,482; last amended 12. December 2019, BGBl. (Federal Law Gazette) I, 2602.) seek a reduction of the said threshold, cf. (proposed) Section 5(2) of the AWG (Deutscher Bundestag, Entwurf eines Ersten Gesetzes zur Änderung des Außenwirtschaftsgesetzes und anderer Gesetze, 21.04.2020, Drucksache 19/18700.). In light of the above, one may wonder whether the proposed legislative changes are not overshooting the mark.
- 40.
Cf. Articles 6, 7.
- 41.
Cf. Article 2 No. 3.
- 42.
Emphasis added. Cf. Article 2 No. 4.
- 43.
Cf. Articles 6(10), 11.
- 44.
Cf. Article 6(9).
- 45.
Interestingly, this is not the case with regard to FDI likely to affect projects or programmes of Union interest, where the Member State “shall … provide an explanation to the Commission if its opinion is not followed.” Cf. Article 8(2) lit. c.
- 46.
Cf. Ohler in: Terhechte (2011), margin number 36.
- 47.
An example may be provided by the 2020 COVID-19 public health crisis. Supply commitments with critical health infrastructure and critical inputs may extend beyond the individual Member State. Cf. Communication from the Commission, Guidance to the Member States concerning foreign direct investment and free movement of capital from third countries, and the protection of Europe’s strategic assets, ahead of the application of Regulation (EU) 2019/452 (FDI Screening Regulation), 25.3.2020, C(2020) 1981 final, Annex, at 2.
- 48.
Cf. Judgment of the Court of 10 May 1995, Alpine Investments BV v Minister van Financiën, Case C-384/93 ECLI:EU:C:1995:126, para. 43; Judgment of the Court (First Chamber) of 10 July 2008, Ministerul Administraţiei şi Internelor - Direcţia Generală de Paşapoarte Bucureşti v Gheorghe Jipa, Case C-33/07, ECLI:EU:C:2008:39, para. 25; cf. also Janssens (2013), p. 292.
- 49.
Article 8(2) lit. c. Considering the breath and reach of the Union’s projects and programmes mentioned in the Annex to the Regulation, the Commission potentially gained a quite far-reaching voice in FDI screening. As an undertaking accepting funding out of the Union’s projects and programmes essentially opens up the possibility of the Commission to render an opinion according to Article 8.
- 50.
Article 7(7).
- 51.
Cf. Article 1(3).
- 52.
Cf. Article 8(2) lit. c.
- 53.
Cf. Bismuth in: Bourgeois (2019), p. 108, where he speaks about an “implied obligation for Member States to establish FDI screening mechanisms”.
- 54.
On institutionalised information exchange in general cf. Nowak in: Leible/Terhechte (2014), margin numbers 26–27.
- 55.
Ibid., margin numbers 50-55 with further references.
- 56.
Judgment of the Court of 14 March 2000, Association Eglise de scientologie de Paris and Scientology International Reserves Trust v The Prime Minister, C-54/99, ECLI:EU:C:2000:124, para. 17; cf. also Hindelang (2009), p. 226.
- 57.
Cf. Deutscher Bundestag, Entwurf eines Ersten Gesetzes zur Änderung des Außenwirtschaftsgesetzes und anderer Gesetze, 21.04.2020, Drucksache 19/18700.
- 58.
Cf. Sveriges Riksdag, Direktinvesteringsutredningen (Ju 2019:06), 22.08.2019.
- 59.
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Hindelang, S., Moberg, A. (2020). A Complex Setting of Cooperation and (Potential) Conflict: Regulation (EU) 2019/452 in a Doctrinal Perspective. In: Hindelang, S., Moberg, A. (eds) YSEC Yearbook of Socio-Economic Constitutions 2020. YSEC Yearbook of Socio-Economic Constitutions, vol 2020. Springer, Cham. https://doi.org/10.1007/16495_2020_27
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