European Union member states and the European Parliament have reached an agreement to strengthen scrutiny of foreign investment amid rising tensions over financial investments from countries such as China.
Parliament had previously pushed for broad screening of foreign direct investment, but under EU law, member states have ultimate authority over screening. The two sides have now agreed on a common text that strengthens existing rules.
Under the treaty, mandatory screening will now cover military equipment, artificial intelligence, quantum technologies, semiconductors, raw materials, transportation and digital infrastructure, and electoral systems.
“By requiring all member states to implement a verification mechanism and strengthening cooperation between them, the regulation closes potential loopholes for high-risk investments in the internal market,” Euronews quoted MEP Bernd Lange, chairman of the parliament’s trade committee, as saying.
The modernized framework stems from the European Commission’s initiative to strengthen the EU’s economic defenses. As the geopolitical context has changed significantly, trade can no longer always be seen as a neutral transaction between independent economic operators.
The European Commission notes: several recent cases “have demonstrated that economic instruments have been used against Europe for geopolitical purposes.” In September, the Netherlands placed Nexperia, a Chinese company based in that country, under state supervision over concerns that critical know-how from its European facilities could be transferred to China.
In response, Beijing has restricted chip exports to Europe, jeopardizing the EU’s auto industry, which relies heavily on these components. Although the U.S.-China deal eventually restored exports, tensions between Beijing and The Hague remain high.
Since October 2020, the EU has had a cooperative mechanism for screening foreign direct investment, which has been met with resistance in a number of cases. Some economic actors did not want to implement screening because investment issues are important to them and they do not see the risks.
According to EU rules, the Commission can request information and issue opinions, but cannot force a Member State to screen and block investments.
