Little did EU economic pundits know how vital the new FDI screening regulations would prove to be after the outbreak of the coronavirus pandemic. Under the regulations, a mechanism enabling individual member states to verify FDI deals capable of jeopardizing their security is put in place. To achieve that, EU states are required to provide information on such transactions to the EU Commission & one another.
Though they haven’t yet entered into force, the regulations are already proving to be indispensable in tackling the aftermath of the economic meltdown caused by the coronavirus pandemic. It can achieve this by protecting critically important infrastructure that is likely to be purchased by foreign investors at reduced prices. In its recommendations to individual member states, the EU Commission urges them to take advantage of the full potential of FDI screening mechanisms to prevent the loss of critically important assets & technology. To this effect, the screening mechanisms individual member states have at their disposal have been significantly expanded to include the technological & telecommunication sectors.
The EU FDI Screening Regulation is scheduled to come into effect this October. In the meantime, fourteen member states have already reported having put in place FDI screening mechanisms. Let’s take a look at what those mechanisms are all about:
Spain has come up with two decrees meant to tackle the social & economic consequences of the coronavirus pandemic. Under the decrees, all deals involving the purchase of a controlling stake in companies by foreign investors are to be reported to Spanish financial regulators. This rule primarily applies to healthcare & technological sectors, as well as objects of critical infrastructure.
The country’s government has issued a special decree that doesn’t really extend restrictions on FDI deals but provides the Hungarian Defense Ministry with an exclusive right to designate objects of critical infrastructure. The document also provides for a streamlined procedure for putting in place administrative controls during emergencies.
Under a recently submitted draft bill, new FDI screening mechanisms have been put in place, making it possible to monitor, assess & limit FDI deals by imposing restrictions on them. In some cases, FDI transactions can be prohibited or cancelled altogether.
Under the amended Foreign Trade & Payments Law, lower thresholds are established for FDI transactions. Concluding FDI deals can now be put under scrutiny if it is found to pose a threat to the security of Germany & other European member states. The law, which may still be amended, is scheduled to be passed this summer.
The Polish government has further tightened FDI restrictions by making it obligatory to inform Polish financial regulators of any upcoming FDI transactions involving strategic entities.An FDI deal may be prevented from happening if it is found to pose a threat to national security.
Finland & Slovakia
The two states have also come up with their own draft laws implementing the EU FDI Regulation.
It is expected that other Member States will come up with their own proposals on regulating FDI transactions in the months to come.
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