Firstly, addressing the challenge of how. The EU FDI Screening Regulation provides a common framework for Member States to screen FDI on the grounds of security or public order. It also requires Member States to provide annual reports on FDI in their territories. However, it doesn’t actually harmonise FDI screening or, indeed, even force Member States to conduct such screening. In this context, it is worth remembering that only 14 of the 27 MS have established FDI screening mechanisms in place and each of these works differently. For example, the Netherlands has an investment screening process, but is limited to the telecoms and energy sectors. In France, where investment screening rules were tightened at the end of 2019, the list of sectors and transaction types triggering a formal process is much longer and includes parts of the food supply chain, research in critical technologies (nuclear, quantum, data processing, etc.) and the news media.
The nature of the EU Single Market compounds the challenge regarding FDI, because investment screening decision taken (or not) by a given Member State can have broader repercussions. Each Member State represents a potential vulnerability because once a foreign entity has foothold in the Single Market, it can move about more freely. Because of this, one action taken by France in updating its screening was to remove the distinction between EU and non-EU investors, but France has one of the EU’s most sophisticated screening processes – this approach isn’t replicated elsewhere. The new EU regulation entitles the Commission and other Member States to comment on FDI transactions, but this commentary is only guidance. Member States can choose to ignore them should they wish to.
And Member States might very well choose to ignore Commission guidance on FDI, leading us to the second challenge posed by EU level FDI screening, the "when". FDI screening can be viewed through the dual lens of trade and of national security. The problem is, whilst the Commission has expansive powers in trade, Member States take the lead on national security. Here, they have vastly different assessments of their strategic environment. In terms of security, France may include the Sahel as a priority, while Cyprus sees an existential threat in Turkey and Poland worries about Russia. This divergence is usually most visible during discussions on economic sanctions, where each Member State has different economic stakes at play, but it is also true for FDI. Here, different Member State assessments of the threat posed by Chinese FDI exemplifies the problem. Countries such as Italy and Greece argued against a stricter EU regulation out of concern that it might impede their access to external investment – but they were also signatories of China’s Belt and Road Initiative. The Chinese case is complicated post-Covid-19 because the public health crisis has demonstrated the EU’s reliance on China for certain critical products, such as masks and intensive care drugs. This fact hasn’t escaped China, which has been engaging in a worldwide Covid-19 diplomacy effort.
Leaving aside the"how" and "when" challenges, pushing the FDI issue down to Member State level creates a third problem: even if all Member States had a perfectly aligned vision of what needed to be protected and from whom, they would all have very different capacities to act. The Commission proposed several regulatory measures on offer to Member States in managing FDI, including taking "golden shares" in companies to block acquisitions.