On 13 September 2017, the EU Commission presented its proposal for a new regulation for investment screening of foreign direct investments (FDI) into the EU. The prosed regulation is widely understood to be targeted at Chinese acquisitions of companies in sensitive industries, including technology and infrastructure.

However, the framework set out in the draft regulation may lead to more extensive screening of acquisitions of EU companies by all non-EU buyers. Since Norway is a non-EU country, it remains an open question how Norwegian businesses will be affected.

Background

In 2016, Chinese foreign direct investment in the EU totalled more than EUR 35 billion, an increase of no less than 77 percent from 2015. The EU has traditionally welcomed foreign investments, but the steep increase has led to concerns among some large member states.

At his State of the Union Speech on 13 September 2017, EU Commission President Jean Claude Juncker initiated a “new EU framework for investment screening” proposing a new regulation that seeks to establish a common framework for screening of foreign direct investments into the EU.

If the European Parliament and the Council adopt the regulation, direct investments from third countries may have to undergo increased scrutiny not only by EU member states, but also – in certain cases – by the Commission.

National Screening Programmes

Around half of the member states have their own screening programmes, including France and Germany. The programmes vary in content in line with national preferences.

Most of the EU countries with screening programmes have created a specific legal basis for the FDI screening which targets one or more specific sectors. Some member states have put in place outright prohibitions of FDIs in specific sectors. Furthermore, a distinction may be drawn between countries with mandatory notification requirements, and countries in which notifications may be submitted voluntarily.

The EU Commission does not aim at full harmonization of national screening programmes. Compliance with the regulation essentially means that the programmes must be transparent and not discriminate between third countries, and that certain procedural rules must be put in place.

Investors from non-EU countries thus have to be prepared to continue to comply with somewhat different screening systems in different countries.

Screening by the Commission

The EU will not replace national regimes with a central EU review system equivalent to the US review system, which is handled by CFIUS, the Committee on Foreign Investment in the United States.

Coincidentally, on the same day that the Commission released its draft regulation, the US blocked the acquisition of Lattice Semiconductor Corporation by purchasers controlled by the Chinese government. The prohibition order was issued by President Donald Trump acting on a recommendation by CFIUS.

However, under the draft regulation the Commission will be granted a circumscribed power to screen certain foreign direct investments carried out by third countries. The scope of this power is limited to apply in cases in which the investments are likely to affect projects or programmes of Union interest on the ground of security or public order.

The regulation thus increases the Commission’s power on this area, and gives it the chance to block direct investments from third countries.

Wide screening powers

Although the proposal may be targeted at Chinese investments in sensitive industries, such as technology and infrastructure, it explicitly allows member states to operate screening programmes of a significantly wider scope.

When screening foreign investments, both the Commission’s and the member states’ programmes may take into consideration factors such as the effects of the investments on critical infrastructure, critical technologies, the security of supply of critical inputs and access to sensitive information. The list is not exhaustive, which leaves the door open for the screening programmes to assess a broad spectrum of strategic sectors and assets for different reasons.

Furthermore, it can be of significance, but not decisive, whether the government of the third country controls the investor. Investments carried out by private companies can thus also be subject to scrutiny by the EU.

Consequences for Norwegian businesses

The proposal does not discuss whether Norwegian companies may be subjected to the same rules as other non-EU companies. Although Norway is part of the EU internal market through the EEA Agreement, Norway is not an EU member. The draft regulation is to be enacted as part of the EU’s common commercial policy, which is not part of the EEA Agreement. Against this background, it remains to be seen whether investments by Norwegian companies may face notification requirements or other screening schemes in the future.

None of the Scandinavian countries currently have general screening programmes that empower national authorities to tackle investments on security grounds. Since Norway is not an EU member state it will not be bound by EU legislation in the area of the EU’s common commercial policy. This means that the proposed investment screening framework may not apply to Norway. However, if the regulation is adopted and leads to more widespread and consistent screening programmes in EU countries, it is by no means certain that Norway will choose to sit still and welcome non-EU takeovers of Norwegian technology and infrastructure companies.