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European Commission publishes reports on FDI screening and export controls

  • Europe
  • Competition, EU and Trade - Foreign investment regimes
  • Mergers and acquisitions


On 23 November 2021 the European Commission (the “Commission”) released its first annual report (“FDI Report”) on the operation of the new FDI investment screening mechanism (the “FDI Regulation”), which came into force on 11 October 2020. Simultaneously, the Commission published its final report on export controls before the introduction of the new Export Controls Regulation (the “New Export Control Regulation”), which came into force on 9 September 2021.

The two reports are closely linked thematically, and indeed export control and FDI screening have been merged under one ‘DG TRADE’ function under the supervision of the Commission’s Chief Trade Enforcement Officer.

Foreign Direct Investment (FDI)

FDI screening has historically been done at Member State level and that remains the case; the FDI Regulation does not bring into effect an EU-level mandatory notification or screening regime.  Rather the aim of the FDI Regulation is to formalise EU-level cooperation on across different Member State’s FDI screening regimes.  The Commission can issue an opinion in respect of any given transaction, however it does not have the power to formally intervene or prohibit a transaction itself.

The Report is of interest as it gives an insight into the levels of FDI screening across Europe, and it also gives an insight into the Commission’s overall attitude to balancing the benefits and risks of FDI. Executive Vice-President and Commissioner for Trade Valdis Dombrovskis explained that “The EU remains open to trade and foreign investment… but our openness is not unconditional and it needs to be balanced by appropriate tools to safeguard our security and public order.”

Key takeaway points are as follows:

1. There are high levels of screening activity across Europe

In the year to November 2021, the Commission had screened information on 400 transactions.  As the Report notes, the transactions under review vary widely in terms of value, ranging between €1,200 to €34 billion, though the majority fell within the range of €10 million to €100 million.

2. Certain countries are leading the charge

By June 2021, the Commission had screened 265 transactions, and 90% of these came from just five Member States: Austria, France, Germany, Italy and Spain.  These jurisdictions all had existing FDI screening mechanisms which have recently been expanded or amended.  Indeed, the Report notes that most Member States with existing mechanisms have adjusted and broadened the scope of the regime to reflect key elements of the FDI Regulation.

3. New FDI regimes are coming online at a fast pace

At 1 July 2021, there were 18 Member States with FDI regimes in place, up from 11 in 2017, with six more Member States in the process of adopting a mechanism, and just three without any publicly reported initiatives underway (Bulgaria, Croatia and Cyprus).  This, along with an increase in awareness of existing regimes, will serve to substantially increase the number of EU screenings per year going forward.

4. There is significant variation between regimes

Despite a number of similarities between the screening regimes of individual Member States, particularly with regard to common provisions reflecting the FDI Regulation, the Report notes that the national screening mechanisms also show “significant degrees of variation in terms of what constitutes formal screening of investment, applicable timelines, coverage, notification requirements and other elements.”  This difference in approach will not be lost on businesses trying to navigate numerous screening processes at once. 

5. The number of screenings going to Phase 2 is not insignificant

Of the 265 transactions screened by June 2021, 80% did not justify further investigation and were assessed within the 15 day review period.  Of the cases remaining, 6% were still ongoing at the time of the cut-off date for the EU report while 14% proceeded to Phase 2 with additional information being requested from the notifying Member State. Out of all the cases notified, the Commission issued an opinion in 3% of cases.  14% is a rather high figure to be reviewed at Phase 2, particularly compared to the number of cases the Commission reviews at Phase 2 under the EU Merger Regulation; just 1.8% of notified cases went to Phase 2 review last year.

6. The top notifying acquirers are the US, the UK and Canada

These are countries broadly aligned strategically with Member States. However, there has been a gradually increasing proportion of FDI coming from China and Russia, and a growing role in the global economy of for state-owned enterprises.  If these trends continue, it seems highly likely that the number of transactions being subjected to in-depth review is set to increase.

7. There has been some ‘constructive feedback’ on the FDI Regulations operation

The Report includes feedback from Member States, and not all of it positive.  In particular, it has been suggested that some of the timelines are too short when it comes to complex FDI transactions, and that the number of transactions notified under the FDI Regulation coupled with burdensome information requests could lead to resource constraints. The Commission has not yet proposed any detailed solutions to these concerns, noting particularly in relation to the suggestion of filtering criteria in order to cut down the number of notifications that “what may not seem to be a sensitive transaction to one Member State could well be sensitive to another”. Instead the Commission has marked some concerns for future consideration and has otherwise proposed formal guidance and regular updates to its Frequently Asked Questions document.

Lessons for businesses

An increasing number of transactions are falling within the scope of one or more FDI regimes throughout Europe (and indeed worldwide).  Often these regimes are triggered without there being substantive risks attaching to the transaction, and so navigating the regime is simply another hoop to jump through and another condition to closing. 

However, it is worth noting that there are often severe penalties for failure to file a notifiable transaction, and as such it is important to consider where filings may be required at an early stage of any transaction so that relevant filings can be dealt with, and this is considered as part of the overall deal timetable.

For the relatively small number of transactions which raise substantive concerns, an FDI filing can add significant time and cost to a transaction and, ultimately, the relevant authority can require remedies or ultimately prohibit the deal. 

The fact that (despite the EU FDI Regulation) there is significant variation between jurisdictions in terms of trigger events, timelines, and ultimately the substantive impact on each Member State’s interests, makes it all the more important to consider FDI at an early stage. 

Export controls

The New Export Control Regulation entered into force on 9 September 2021, replacing the previous EU dual use regulation (Regulation 428/2009). While the New Export Control Regulation does largely include the key definitions, licencing framework and product categories set out under the previous EU dual use regulation, it does include some notable and significant changes, including: 

  • the introduction of two new general export authorisations (“GEAs”)
  • EU007 authorises the export / transfer of a broad range of dual use software and technology by an exporter established in a Member State to a subsidiary or sister company (provided that the parent company is established in a Member State or country covered by EU001) in specified countries for commercial product development purposes
  • EU008 authorises the export of specified  encryption items to most jurisdictions subject to a number restrictions;
  • a new catch all control on “cyber-surveillance items”  that may be used in their entirety or in part in connection with internal repression and/or the commission of serious violations of human rights and international humanitarian law. It is clear that there is a clear focus on cyber-surveillance items from the European Commission as recent sanctions measures imposed against Belarus expressly included a substantially similar provision. Interestingly, the cyber-surveillance items catch all control specifically refers to ‘due diligence findings’, thus clearly indicating that exporters are expected to be carrying out diligence in relation to end-user. While this is not ground breaking as competent authorities have previously made clear in respect of catch all controls that there is an expectation that exporters will be undertaking such diligence measures, such express reference to ‘due diligence’ is notably missing from the military and weapons of mass destruction end-use controls;
  • an EU-wide requirement for exporters who use general export authorisations to implement an internal compliance programme for export controls;
  • the option for a Member State to impose unilateral export controls for non-listed items where it deems such controls to be necessary on public security grounds. In circumstances where a Member State does impose such additional controls,  other Member States appear to be required to  follow suit. This is a novel feature of the New Export Control Regulation as historically if a Member State imposed unilateral controls, such controls would have no bearing on other Member States;
  • expanded rules on brokering services;
  • new controls covering “technical assistance”. Notably, the new definition of “provider of technical assistance” has been widened to include technical assistance provided to residents of a third country temporarily present in the EU (akin to the US concept of ‘deemed export’) and actions undertaken in a third country by a ‘person’ resident or established in the EU (therefore having extra-territorial effect); and
  • an increase to record-keeping obligations from three years to five years.

The New Export Control Regulation calls for guidelines from the Commission, in consultation with Member States, to support the practical application of export controls, and specifically refers to guidelines on the transparency of licensing decisions and cyber-surveillance items.

The European Commission’s report of 23 November 2021 relates to exports carried out in 2020, including aggregated export control data from 2019 and therefore does not offer any insight into the application of the New Export Control Regulation nor any findings in relation to the same. Notably, the report does not contain any updates on national enforcement measures. Instead, it notes that  there were no developments in this respect in 2020 and therefore the list of national enforcement measures published alongside the 2019 annual export control report remains valid. However, the report does expressly call out actions in respect of the ‘way forward’ in order to fully utilise the New Export Control Regulation, including by:

  • providing the guidelines expressly referred to in the New Export Control Regulation (as mentioned above);
  • providing guidelines expressly requested by industry, such as on technology transfers and cloud computing;
  • implementing information-sharing and transparency provisions to facilitate information exchanges between Member States and the Commission, as well as annual reporting in respect of licensing decisions;
  • focusing on enforcement;
  • developing an EU capacity-building and training programme for Member States licencing and enforcement authorities; and
  • opening dialogues with third countries to promote global convergence of controls.

Future developments

The Commission’s position appears to be that, going forward, there should be a move towards closer cooperation between EU and Member State- level enforcement of both FDI screening and export controls. With respect to FDI, the Commission emphasised in a February 2021 Trade Policy Communication that “The Commission will continue implementing the cooperation mechanism with Member States’ authorities… and consider enhancing the cooperation mechanism”. Furthermore the New Export Control Regulation calls for the creation of an enforcement coordination mechanism and the Commission, with the support of Member States, will develop an EU capacity-building and training programme for Member States’ licensing and enforcement authorities and deepen dialogues with third countries to promote global convergence of controls. Nevertheless, despite the introduction of the FDI Regulation and the presence of similarities between the regimes of individual Member States, significant variations remain between screening mechanisms and this is a factor which must be taken into account when approaching transactions from an FDI perspective.

The developments around FDI and export controls form part of a wider EU strategy that seeks to “enforce EU rights and defend its values more assertively.” Other initiatives that form part of this overall strategy include proposals to develop an anti-coercion instrument which would allow the EU to respond to attempts by third countries to force changes to EU or Member State policies, a proposal for an International Procurement Instrument to encourage a level playing field in the global procurement market, and a new tool to tackle foreign subsidies which threaten to cause distortions in the Single Market.


These reports serve to highlight the ever-increasing regulatory focus on foreign investment screening and the rapidly evolving landscape with respect to trade controls as governments seek to ensure advancements in dual-use technologies are covered. In particular, the trend is towards large numbers of transactions being subject to FDI screening, and it is expected that these numbers will continue to grow as the national regimes become more established.

With regard to FDI there is positivity in terms of the fact that the Commission’s screening process appears to be fairly quick for the majority of cases. However, it is also clear that large numbers of cases are being subjected to a more detailed review at both the EU and Member State level, and this is something that businesses will need to be aware of going forward. What businesses should take from the report is the fact that foreign investment screening is now high on the agenda in an increasing number of jurisdictions across the world, and the divergence between various national screening mechanisms means that proper advice should be sought in the early stages of the transaction in order to ensure successful completion as efficiently as possible. With regard to export controls, businesses should be aware of changes to the EU regime and seek advice on how to comply with the new regulations.

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