MEPs endorse new screening rules for foreign investment in EU

The European Parliament voted on May 8 to adopt revised rules to prevent security risks from foreign investments in the European Union.

The proposal was adopted by 378 votes in favour, 173 against and with 24 abstentions.

Under the new rules, sectors such as media services, critical raw materials and transport infrastructure will be subject to mandatory screening by EU member states, in order to identify and address foreign investment-related security or public order risks.

The procedures applicable to national screening mechanisms will be harmonised and the European Commission will have the power to intervene on its own initiative or where there are disagreements between member states about potential security or public order risks emanating from a specific foreign investment.

The new law will also cover transactions within the EU where the direct investor is ultimately owned by individuals or entities from a non-EU country.

If the screening authority finds that the planned foreign investment project is likely to have a negative effect on security or public order, it will either have to authorise the project subject to mitigating measures, or prohibit it.

The current foreign direct investment screening framework entered into force on October 11 2020.

It addressed growing concerns about certain foreign investors seeking to acquire control of EU firms that supply critical technologies, infrastructure or inputs, or hold sensitive information, and whose activities are critical for security or public order at EU level.

The rules are designed to help identify and address security or public order risks relating to foreign direct investment involving at least two member states or the EU as a whole.

The Commission submitted its new proposal on the screening of foreign investment projects in the EU in January 2024.

Now that the report has been adopted by the European Parliament, negotiations with member states on the final shape of the law can begin. The European Parliament and Council of the EU must adopt the final legislative act before it can enter into force.