Documents considered by the Committee on 12 September 2018 Contents

15Screening of foreign direct investment

Committee’s assessment

Politically important; drawn to the attention of International Trade Committee and the Business, Energy and Industrial Strategy Committee

Committee’s decision

Not cleared from scrutiny; further information requested

Document details

Proposal for a Regulation establishing a framework for screening of foreign direct investments into the European Union.

Legal base

Article 207(2) TFEU; Ordinary legislative procedure; QMV

Department

International Trade

Document Number

(39017), 12137/17 + ADDs 1–3, COM(17) 487, SWD (17) 297

Summary and Committee’s conclusions

15.1In September 2017, the Commission proposed a Regulation aimed at establishing an EU-wide framework for Member States’ national screening of foreign direct investment (FDI)123 into the EU, on the grounds of security or public order (even where the EU Merger Regulation does not apply).124 It follows concerns over the increase in acquisitions of strategic assets and know-how in the EU by foreign, state-funded companies. If adopted, certain FDI could face increased scrutiny and/or longer regulatory approvals, especially in sectors which may affect critical infrastructure, critical technologies, the security of supply of critical inputs, or the access to, or ability to control, sensitive information.

15.2A central plank of the proposal is to enhance EU-wide cooperation and information sharing about planned or completed FDI in the territory of one of more Member States. It introduces information-sharing requirements on Member States operating such schemes125 and timelines for Member States and the Commission to submit comments on FDI in other Member States that may affect security or public order in one or more Member States. It would also enable the Commission to screen FDI affecting programmes or projects of “Union interest” (for example, EU-wide programs such as Galileo; Copernicus; Horizon 2020, Trans-European Networks for Transport, Energy and Telecommunications, the Action plan for 5G, defence cooperation, and technology initiatives such as fuel cells and innovative medicines).

15.3The Committee first considered the proposal at its meeting of 29 November 2017 (see our Report chapter at the end of this Chapter, which covers the proposal and the Government’s position, as set out in its Explanatory Memorandum of 5 October 2017, in detail). We noted the Government’s strong reservations about this proposal in its current form, in particular in relation to:

and asked to be kept updated on the progress of negotiations.

15.4In his letter of 19 June 2018, the Minister for Trade Policy (George Hollingbery) informs the Committee that “the file has progressed” since the Government sent its Explanatory Memorandum of October 2017, noting that COREPER agreed an informal negotiating mandate [on 13 June 2017] and that trilogue negotiations with the European Parliament were expected to start in July.

15.5The Minister considers that the UK helped secure amendments to the compromise draft to mitigate several of the UK’s concerns, particularly in relation to the information sharing requirements. These included:

15.6The Minister also states that he expects the proposal to come into force during the Implementation Period (scheduled between 30 March 2019 and 31 December 2020) and notes the following Brexit implications:

15.7However, the Minister states that “despite these improvements”, the Government’s “intention is to abstain in any vote on the Regulation in its current form” because it “remains dissatisfied with the Regulation overall”.

15.8The Minister acknowledges that the “file has progressed” significantly since the Government submitted its Explanatory Memorandum in October 2017. We do not consider that correspondence from the Government received before the informal negotiating mandate was agreed in COREPER was sufficiently detailed or timely, particularly given the political importance of this file and its major implications for the UK both while a member of the EU and post-exit. For example, in the Government’s general trade update to the Committee in May 2018,126 the Minister referred to progress being made “faster than we [the Government] had originally anticipated”, but did not give a clear indication of whether or not the UK (Ambassador) intended to support any proposed compromise text and the reasons for this. We remind the Minister that whilst agreement in COREPER does not formally constitute a breach of the Scrutiny Reserve Resolution, he is also aware that the Committee actively seeks and encourages full updates ahead of such agreement, as they act as a substitute for agreement of a General Approach in Ministerial Council.

15.9The lack of information provided to this Committee on the progress of this file and its Brexit implications is also highlighted by the fact that the Minister’s letter of 19 June 2018 does not refer the Committee to the UK’s recent reforms to its FDI screening process (adopted on 11 June 2018)127 or assess how the Commission’s proposal may impact the UK regime in the future—both as a member of the EU or a de facto member (during the Implementation Period) or post-exit (either in the event of a ‘no deal’ scenario or post-Implementation Period).

15.10The Committee retains this file under scrutiny and seeks:

A) Detailed information on the Government’s position and expected next steps

B) A clear and comprehensive assessment of the Brexit implications of this proposal

15.11This should be considered in light of, and by reference to, the UK’s new investment screening regime of 11 June 2018, and the Government’s intention to introduce mandatory notification requirements for foreign investments in civil nuclear, energy, telecommunication and transport sectors.128

15.12The assessment should cover the expected impact on key UK stakeholders and FDI flows during the Implementation Period, after the Implementation Period or in the event of a ‘no-deal’ scenario (in which there is no Withdrawal Agreement and Implementation Period). This should cover (but not be restricted to) the indicative list of questions or issues identified below.

Post-exit (either in the event of a ‘no-deal’ scenario or post-Implementation Period):

15.13We draw the Minister’s update and our conclusions to the International Trade Committee and the Business, Energy and Industrial Strategy Committee.

Full details of the documents

Proposal for a Regulation establishing a framework for screening of foreign direct investments into the European Union: (39017), 12137/17 + ADDs 1–3, COM(17) 487, SWD (17) 297.

Background

15.14Details of the draft Regulation and the Government’s position are set out in the Explanatory Memorandum of 5 October 2017 and the Committee’s previous Report chapter (listed below).

Previous Committee Reports

Third Report, HC 301–iii, chapter 11 (29 November 2017).


123 FDI covers a broad range of investments which establish or maintain lasting and direct links between investors from third countries and the investment vehicle in the host state. It does not include portfolio investment.

124 Pursuant to Article 21 of the EU Merger Regulation, Member States can intervene in mergers to protect legitimate interests other than competition, such as public security, plurality of the media and prudential rules (financial stability). It stipulates that screening decisions of Member States on public interest grounds other than those listed above must be communicated to the Commission to assess its compatibility with general EU law principles.

125 12 Member States operate FDI screening mechanisms based on national security or public interest grounds, but the design, scope and implementation of these rules vary significantly across states. The UK has a well-established framework

127 Amendments to the Enterprise Act 2002, in force as of 11 June 2018, enable the Government to intervene in cases where the target’s UK turnover exceeds £1 million (the previous threshold was £70 million) or where the target alone has a 25% share of the supply of any goods or services (the previous requirement was the merger must lead to an increase in the merging parties’ share of supply to, or over, 25%) in the following sectors: the development or production of items for military or military and civilian use (‘dual use’); the design and maintenance of aspects of computer hardware; and the development and production of quantum technology.

128 Department of Business, Energy and Industrial Strategy news story ‘ Government upgrades national security investment powers’, 24 Jul 2018




Published: 18 September 2018