EU and national capitals step up their scrutiny of sensitive foreign direct investment

The EU and its 27 member states are tightening their screening of foreign direct investment (FDI) into the union to guard against suspicious investments by foreign interests in emerging and disruptive technologies, dual-use products, and critical infrastructure. Unclear motives behind a “significant number” of FDI transactions were flagged by national capitals in 2020, says a new report by the European Commission (EC).

Insisting that the EU remains open to trade and foreign investment, Valdis Dombrovskis, EU trade commissioner, said, “Our openness is not unconditional and it needs to be balanced by appropriate tools to safeguard our security and public order.”

His comments accompanied the 20-page report's release on 23 November, the EU's first annual screening of FDI, covering 2020. The yearly analysis is mandated by an October 2020 EU law that calls for national FDI screening mechanisms to be created in each member country. So far, all of them except Bulgaria, Croatia, and Cyprus have the mechanism – or preparations for it – in place.

Referring to “a clear change” in investor profiles and investment patterns in recent years, the document notes there are countries beyond Western industrial circles “whose motivation for a particular investment might not always be exclusively commercial”. It does not specify which.

For 2020 national capitals reviewed 1,793 investment dossiers of which 20% were formally screened. Of the latter, 91% were approved and 7% were aborted for unknown reasons, leaving 2% as prohibited.

The top five countries in 2020 for FDI into the EU were, in descending order: the US, the UK, China, Canada, and the UAE.