European Commission Releases Guidance for FDI Screening in Response to Global Pandemic

On March 25, 2020, the European Commission published a guidance for member states on FDI screening in the face of the COVID-19 pandemic, focusing on, but not limited to, health-related industries.

The new guidance comes a year after the release of the EU’s new framework for screening FDI, which is set to come into force in October 2020. The 2019 framework allows member states to block or place restrictions on investment transactions that are deemed to pose a threat to “critical infrastructure, critical technologies, the supply of critical inputs, such as energy or raw materials, access to sensitive information or the ability to control information, or the freedom or pluralism of the media,” according to a factsheet released last year.

According to the Commission, the pandemic has “increased potential risk to strategic industries, in particular but by no means limited to healthcare-related industries” and urges member states to ensure that the crisis “does not result in a sell-off of Europe’s business and industrial actors, including SMEs [small and medium enterprises].” The guidance also identifies the potential danger of “predatory buying” of strategic assets with “a view to limit supply to the EU market.”

The guidance notes that responsibility rests with member states to make full use of their current FDI-screening mechanisms to “take fully into account the risks to critical health infrastructure, supply of critical inputs, and other critical sectors as envisaged in the EU legal framework.” At present, 14 member states have currently established FDI-screening mechanisms. The guidance further urges the 13 member states that have not already established FDI-screening mechanisms to do so, and in the meantime use other available policy options in cases in which foreign acquisition of a business or asset would create a risk for critical health infrastructure.

The guidance states that while portfolio investment is less likely to present a security risk, it may also be subject to screening if this is in compliance with TFEU provisions on the free movement of capital, which allow restrictions that are put in place to address public security or policy concerns, including public health.

The guidance concludes by noting that the restrictions on the movement of capital from third countries may be subject to additional justifications.