The European Parliament approved on Thursday (14 February) the proposal to screen foreign investment at EU level, clearing the path for closer monitoring of third country companies willing to invest in the EU’s critical sectors.

The proposal put forward by the European Commission in 2017 will allow the EU for the first time to collectively address investments that represent potential risks to the bloc’s security or public order.

It will not harmonise existing national screening mechanisms or remove national powers to approve foreign investment operations, but instead, it will boost cooperation in this field among the EU partners.

The proposal received overwhelming support with 500 votes in favour, 49 against and 56 abstentions.

The new screening mechanism came against the backdrop of the growing concerns of Chinese or Russian investment in key sectors related to cutting edge technologies.

Its introduction is also a priority for France and Germany, currently working on a new industrial policy capable of competing with Chinese and US giants.

With eyes on China, EU agrees investment screening rules The European Union on Tuesday (20 November) provisionally agreed on rules for a far-reaching system to coordinate scrutiny of foreign investments into Europe, notably from China, to end what a negotiator called “European naivety”.

Parliament and Council negotiators reached a political agreement last November. Following today’s Parliament blessing, the member states are expected to give the final endorsement on 5 March.

The new framework will create a cooperation mechanism where the Commission and the member states could raise concerns related to certain investments.

The EU executive could also issue opinions when an investment represents a threat to the security or public order of various member states.

As investment remains below the pre-crisis level in Europe, commissioner for Trade Cecilia Malmström said that “foreign investment is essential to the health of the European economy”.

“At the same time, it is clear that we have to address the concerns about the security risk posed by certain investments in critical assets, technologies and infrastructure,” she said in a statement.

Critical sectors

The sectors that will fall under the scope of the new legislation are critical infrastructure (energy, transport, communications, data, space and financial industry), and critical technologies (robotics, semiconductors and artificial intelligence).

The acquisition of German robot maker Kuka by China’s Midea in 2016 was a wakeup call in Europe, especially in Germany.

Commission says proposal to block Chinese takeovers is 'worth discussing' The European Commission welcomed Germany, France and Italy’s proposal to halt China’s buyouts in Europe in some cases given the “limited access” to the Chinese market.

During the European Parliament’s debate on Wednesday, French center-right MEP (EPP) Franck Proust said that “this mechanism is a symbol of Europeans becoming aware that the world isn’t just full of investors who are full of good intentions.”

“Now we can say where we are going – towards a Europe that stands for its interests and defends them,” he added.

Member states will also have to take into account the Commission’s opinion if the foreign investment affects a European project or programme, such as Horizon 2020 or Galileo.

The legislation also sets the requirements for those member states who want to adopt a screening mechanism.

Currently, 14 EU countries have similar tools in place, while some others are in the process of adopting these mechanisms.

EU mechanism to veto foreign investment 'not on the cards' EU leaders will discuss on Friday options to “screen” foreign investment in strategic sectors, but a more far-reaching proposal that would allow blocking takeovers at EU level remains off the table for now.

But to date, member states failed to coordinate their approaches as their systems vary widely.

The new legislation will also encourage the EU to cooperate with third countries on this issue, including sharing best practices or issues of common concerns.

Countries including Australia, China, Japan, Russia, and the United States also have similar mechanisms in place.

The EU is the main destination for foreign direct investment in the world. It attracted a total of €6.3 billion at the end of 2017 from third country investors, compared with €2.2 billion directed to the US or €800 millions in Switzerland.