While most of Europe is slowly preparing for the restart of its economy, the hurricane of COVID-19 has also touched EU policy towards third country investors.
On 25 March 2020, the European Commission issued a new guidance (the “Guideline”) to the Member States calling for more vigilance towards the protection of strategic industries, including particularly healthcare-related industries.
It calls upon Member States to make full use of their national foreign direct investments (“FDI”) screening mechanisms to protect all critical sectors envisaged in the EU Regulation establishing a framework for the screening of foreign direct investments into the Union (Regulation (EU) 2019/452, hereinafter, “FDI Screening Regulation”), and for those Member States that currently do not have a screening mechanism, to set up a full-fledged screening mechanism and in the meantime to use all other available options to address risks to strategic sectors.
It is recalled that the FDI Screening Regulation covers those investments which establish or maintain lasting and direct links between investors from third countries including State entities, and undertakings carrying out an economic activity in a Member State.
The FDI Screening Regulation was adopted on 19 March 2019 and will enter into effect in all Member States as from October 11, 2020. Although it attempts to establish a framework of cooperation at EU level on the screening of FDI transactions, the review and, when required, the adoption of measures preventing or conditioning an investment remain (at present) a responsibility of Member States. For Member States which do not have national FDI screening mechanisms (such as Belgium), the regulation does not create obligations on them to establish one.
The current pandemic crisis has further increased the necessity of preserving vulnerable strategic assets which may become targets of acquisition by third country investors. EU has therefore strongly advised in the Guideline, that all Member States consider setting up a full-fledged screening mechanism to prevent such purchase (including the so-called “predatory purchase” with a view of limiting supply to the EU market of a certain good/service).
In addition, the Guideline reminds the Member States that:
The risks to critical health infrastructures and supply of critical inputs are amongst the factors to be considered when screening an FDI transaction;
Such screening shall be independent from the value of the transaction, therefore, SMEs which are of strategic importance (such as research or technology) should also be covered under the screening;
Member States need to take into account the interdependencies that exist in an integrated market and assess the risks of an FDI transaction to the single market;
The FDI Screening Regulation provides for a 15-month post-transaction commentary period during which the other Member States and the Commission are entitled to provide their comments and opinions. Therefore, any FDI transaction completed as from March will also be subject to such review after the FDI Screening Regulation comes into effect in October;
When Member States decide to approve an FDI transaction based on commitments on mitigating measures (e.g., conditions guaranteeing the supply of medical products/devices), such commitments need to take into account the impacts on Union interest;
In respect of free capital movements which apply not only within the EU but also with third countries, the Guideline repeats that public health is one of the justifications for restrictions on free movements, and in case the valuation on capital markets are considered well below their true value, restrictions can also be introduced to safeguard public interests.
Lastly, the Guideline invites Member States to also apply other available legal tools, such as compulsory licence on patented medicines in case of a national emergency or block certain investments into companies in which Member States may retain special rights (the “Golden Shares”).
Following the communication of this Guideline, France has already adopted certain changes to its screening legislations. Today the Belgian media has reported that a draft legislative bill was submitted by Nathalie Muylle, the Minister of Economy, to introduce in Belgium a FDI screening procedure, together with the formation of an Investment Screening Committee responsible for the screening. While it was emphasized that the screening procedure will be light and shall not create dissuasive effect on foreign investments, the exact content of this bill are still to be examined. We will continue monitoring this legislative development in Belgium and keep communicating on this subject in our future newsletters.
For investors from non-EU countries, we would recommend to look into restrictions and approval requirements in the Member State where the transaction will take place, and be aware of possible legislative changes, and potential risks linked to the 15 months post-closing commentary period available to the EU Commission and other Member States.