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New FDI Screening Rules in the EU

AUTHOR(S): Pat English
PRACTICE AREA GROUP: International Business, Corporate
DATE: 13.03.2019

The EU is introducing a new set of rules designed to protect its interests in strategic sectors while remaining open for investment as the world’s largest single market.   This move puts the EU on an equal footing to its major trading partners with similar FDI screening regimes.

The new law coordinates the scrutiny of investments by third (non-EU) countries to ensure that those investments do not threaten security or public order.  The focus will be on areas such as critical infrastructure and technologies, food security and free press.  Investments by foreign governments, including through their state bodies or armed forces, will also be put under the spotlight.

Ireland, like many EU member states, does not have an FDI screening framework and will not be obliged to establish one.  The final decision on whether to review or block foreign direct investment on security and public order grounds remains with individual member states. Existing and new FDI screening regimes will, however, have to be in line with a number of EU-wide requirements set out in the new law. The Department of Business, Enterprise and Innovation is considering whether Ireland should introduce an investment screening mechanism.  It is actively engaging with EU partners to understand existing EU screening models, bearing in mind the importance of maintaining the attractiveness of the EU as an FDI location.

A new cooperation mechanism will allow member states and the EU Commission to exchange information and raise concerns about certain investments. Even without an Irish FDI screening system in place, other member states and the Commission will be able to request information from, and provide comments or an opinion to, Ireland on investments where security or public order are at stake. The Commission may also issue opinions in cases concerning several member states, or when an investment could affect a project or programme of interest to the whole EU.

The regulation will be published on 21 March 2019 and will technically enter into force twenty days later.  However, the law will only begin to apply from October 2020.  This legislation is part of a continuing drive towards increased transparency on international investment at EU level and we will report on its implementation in further updates.

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