Amid rising geopolitical tensions, the International Trade Committee of European Parliament adopted a proposal to amend the EU FDI Regulation (the EP Proposal) on 8 April, aiming to bolster Europe’s economic security. If eventually adopted, this proposal would result in far-reaching changes to the EU FDI Regulation and to FDI screening regimes throughout Europe.
The current FDI Regulation sets minimum standards for Member States if they adopt an FDI screening mechanism and provides for a cooperation mechanism between Member States and the Commission. The Netherlands, like most Member States, has adopted a screening mechanism, the Foreign Direct Investment Act (Wet veiligheidstoets investeringen, fusies en overnames, Vifo Act).
The EP Proposal is itself an amended version of last year’s proposal by the European Commission to amend the current FDI Regulation (the Commission Proposal). Under the ordinary legislative procedure—through which EU legislation is introduced or amended—only the Commission may initiate proposals. These are then reviewed in parallel by the European Parliament and the Council, who may approve, reject, or amend them during the first reading. Once adopted in the plenary session, the EP Proposal will likely serve as the European Parliament’s negotiating position at this stage. The Council has not yet published its position, so it is far from certain that the EP Proposal in its current form will become law.
While the Commission Proposal expanded the requirements in the FDI Regulation, its implementation would require few procedural changes to the Vifo Act. The EP Proposal, however, includes additional changes to the FDI Regulation that would have a substantial impact on the Vifo Act. Additionally, it empowers the Commission to in certain cases directly screen foreign investments directly, significantly expanding the EU’s powers in the field of FDI in the process.
This blogpost will discuss the relevant changes introduced by the EP Proposal, as well as its impact on the Vifo Act.
Background – the FDI Regulation and Commission Proposal
- FDI Regulation as it currently stands
Despite its name, the FDI Regulation is more akin to a directive. It allows Member States to adopt national FDI screening mechanisms provided they meet certain minimum standards (e.g. non-discrimination, right of appeal). It also establishes a cooperation mechanism requiring Member States to notify the Commission when screening foreign investments involving non-EU investors. The Commission and other Member States may then issue non-binding comments if they believe the investment will affect security or public order.
The Regulation entered into force in October 2020, when only 14 Member States had screening mechanisms. By 2024, this number had increased to 22, with the Commission reviewing 1,200 cases in the first three years (See Commission FDI Factsheet).
In light of this, the Commission published the Commission Proposal in January 2024 as part of a broader Economic Security Package. The proposal aims to further harmonize national FDI screening regimes and make the cooperation mechanism for joint review more efficient. To that end, it introduces several key changes to the FDI Regulation, which are discussed below.
- Changes introduced by the Commission Proposal
The Commission Proposal mandates that all Member States adopt FDI screening regimes (Article 3(1)) and broadens the Regulation’s scope to include transactions involving EU companies ultimately controlled by non-EU entities (Article 2(1) and(3)). It also introduces a mandatory sectoral scope for national regimes (Annex II, Article 4(4)(b)). Member States must also now assume powers to review non-notifiable transactions up to 15 months post-closing if security or public order concerns arise (commonly known as “call-in powers”).
Along with new requirements for national law, the Commission Proposal amends the cooperation mechanism. The mechanism is streamlined and in certain respects narrowed. Member States must only notify investments involving certain types of foreign investors, projects of EU interest, and Phase 2 investigations to the cooperation mechanism. Member States will also be required to suspend screening deadlines during the comment period. For the deadlines applicable, see below:
- Changes to the Vifo Act under the Commission Proposal
The only significant amendment of the Vifo Act that would be required to comply with the Commission Proposal is the introduction of call-in powers. The Bureau of Investment Screening (Bureau Toetsing Investeringen, BTI), the Dutch FDI screening authority, can currently only ‘call in’ transactions that would have been notifiable under the Vifo Act but were implemented prior to its entry into force on 1 June 2023, but after 8 September 2020.
Few changes are needed to align with the revised cooperation mechanism, which is directly applicable. The Vifo Act already allows the BTI to suspend timelines for up to three months—longer than the comment period—though extensions may be needed if parties delay providing information. This will affect relatively few transactions: in 2023, the Commission issued comments in only 8% of cases (See 4th Annual FDI Report, pg. 21).
Key changes in the EP Proposal relevant for the Vifo Act
While the call-in power is an important change, the Commission Proposal would require no significant procedural changes to Dutch FDI screening. The same conclusions do not necessarily apply to the EP Proposal, which would require significant changes to the Vifo Act, as will be discussed below.
- Greenfield foreign investments
Firstly, the EP Proposal requires that all national screening regimes cover certain greenfield investments. Greenfield foreign investments occur where a foreign investor sets up new facilities or a new undertaking within the union, for example by building a new factory rather than acquiring an existing one. The Commission Proposal ‘encouraged’ Member States to make such transactions notifiable, but did not require this. (See Recital 17). Under the EP Proposal however, such greenfield foreign investments must be notified under national law (Article 4(2)(aa) and Article 4(a)(4a)) where the foreign investor is controlled by a third country, is subject to sanctions, or has previously been involved in a blocked or conditionally approved transaction, and the transaction value exceeds EUR 250 million. As with all other investments, the relevant greenfield investment must either be in one of the covered sectors or concern a project of European interest.
- Expanded sectoral scope
Alongside the expansion of the scope of national screening regimes to greenfield foreign investments, the EP Proposal also expands the minimum sectoral scope for national regimes suggested by the Commission Proposal (See EP Proposal Annex II). The most prominent newly covered sectors are media services, agricultural facilities with more than 10,000 hectares of farmland, as well as companies active in the aerospace, maritime technology, rail and automotive industries (Annex II).
- A new deadline for Phase 1 investigations
National FDI screening investigations are generally structured into two phases, with most investigations being cleared in Phase 1. While the Commission Proposal mandates this two-phase structure, the EP Proposal takes this harmonization a step further, mandating that Phase 1 investigations be completed within 35 calendar days.
- Broadening of the notification requirement
The EP proposal further requires that Member States (known as the “host Member State”) notify any foreign investments which will be ‘planned or completed’ in its territory if the investment ‘could be of interest’ to other Member States or the Commission from a security or public order perspective under the FDI Regulation notification system (Article 5(3) EP Proposal). The Commission Proposal contained a similar provision but allowed Member States to notify such transactions rather than requiring it (Article 5(3) Commission Proposal).
Presumably, this provision is designed to allow Member States and the Commission to provide opinions on transactions which do not meet the notification requirements of the Commission Proposal (see above) but do affect security or public order. The provisions granting the Commission its tie-breaking and veto power as described above apply to the ‘host Member State’, not the ‘notifying Member State’ (See Article 7(9)-(9f)), so the Commission could block a transaction in such situations.
- The Commission as the ultimate screening authority
A major policy shift envisioned by the EP Proposal is that it empowers the Commission to act as the ultimate decision-maker within the EU FDI Cooperation mechanism.
Under the FDI Regulation and the Commission Proposal, the opinions provided by the Commission and other Member States are purely advisory. The EP Proposal however stipulates that where the Commission or another Member State recommends prohibiting an investment or conditionally approving it, but the notifying Member State intends to unconditionally approve it, the Commission or Member State can issue a ‘duly justified objection’ (Article 7(9) EP Proposal). At that point, the notifying Member State must transmit all documents to the Commission, who will then decide whether to i) approve the transaction, ii) conditionally approve the transaction, or iii) prohibit it (Article 7(9)-(9c)). The Commission will base its decision on whether the notifying Member State’s intended decision adequately mitigates risks to security and public order. These decisions are binding on the host Member State, who must terminate its screening proceeding and enforce the Commission decision (Article 7(9d), (9da), and Recital 28a).
Procedurally speaking, the Commission is required to make a decision within 20 days of receiving all the relevant information from the notifying Member State (See Article 8(7c)(a)). The foreign investor has a right to be heard by the Commission before the Commission takes its decision (Article 7(9e)). The Commission also has the right to request additional information from undertakings and Member States (see Article 9a).
Seemingly to compensate for the newfound powers, deadlines are imposed for the consultation procedure. The deadlines to provide comments are the same as in the Commission Proposal (See Article 8(7a)(a)). However, after that, the Member State must set up a joint meeting with the Commission or commenting Member State(s) within 20 days of the last comment. After that, it must send its draft decision to the Commission and Member States within 10 days, who may then lodge a duly notified objection within 10 days (See Article 8(7a)(b)-(c)). After that, the Member State must transmit all information to the Commission within five days, at which point the 20-day period starts (Article 8(7b)(c) and (d)).
Tallying up all these deadlines, where the Commission is asked to exercise its new decision-making powers, the procedure can take up to 143 calendar days if an investment is notified to the EU cooperation mechanism during Phase 1, or 168 calendar days where it is notified because a Phase 2 investigation was initiated by the host Member State. Where Member States provide comments, these periods are 133 and 158 respectively.
Essentially, the EP Proposal would make Commission the tiebreaker in cases where Member States disagree and grant it a veto in cases where it disagrees with the notifying Member State. New deadlines are also imposed to facilitate the exercise of this power.
This is a dramatic shift from the Commission’s current advisory and coordinating role, delegating significant screening powers to the Commission for the first time. Interestingly, these powers significantly exceed those that the Commission suggested granting to itself in its proposal.
- Deadline for transactions notified under the FDI regulation
Finally, the EP Proposal appears to create an overarching deadline for transactions which are notified to other Member States and the European Commission. Where neither the Commission, nor any Member State, reserves the right to provide comments within 15 or 20 calendar days respectively, the Member State must take a screening decision within sixty days of that deadline elapsing (See Article 8(1) jo 8(7b)(b)). This means that transactions notified under the EU cooperation mechanism for which the Commission does not reserve a right to comment have a total investigation limit of 100 calendar days. Read alongside the requirement for Member States to notify all Phase 2 investigations, this then acts as a deadline applicable to all Phase 2 investigations in the EU.
The EP Proposal’s impact on the Vifo Act and Dutch FDI Screening
The EP Proposal would require substantial additional changes to the Vifo Act. A significant change is that the Vifo Act must cover greenfield investments, as these are currently excluded. Since the Vifo Act covers not only transactions involving non-EU investors, but also those involving EU and even Dutch investors, it would be interesting to see whether the legislator chooses to limit this extension to non-EU investors.
The sectoral scope of the Vifo Act would also need to be extended: undertakings active in the rail, automotive, aerospace and maritime industries, as well as large farms and media services providers do not categorically fall inside the scope of the Vifo Act. The cumulative effect of this expansion, as well as the inclusion of greenfield foreign investments means that the BTI would need to screen significantly more transactions.
This coincides with planned expansions of the Dutch FDI screening regime at the national level. The Ministry of Economic Affairs plans to expand sectoral scope of the Vifo Act, with an internet consultation concluding in January 2025. The Government is also currently drafting Defense Industry Resilience Act (Wet weerbaarheid defensie en veiligheid gerelateerde industrie), which would introduce a separate screening regime for investments in defense companies. While there is some overlap between these national developments and the EP Proposal, this will even further increase the number investments subject to screening in the Netherlands.
Moreover, the EP Proposal would significantly shorten Phase 1 investigations. At the moment, a Phase 1 BTI investigation takes up to eight weeks (56 days) in the Netherlands, so Phase 1 investigations will be almost cut in half to comply with the 35-calendar day deadline. In addition, the EP Proposal does not provide for the possibility to suspend the timeline for requests for information, which the BTI is currently able to do (See Article 12(7) Vifo Act). Cumulatively then, the BTI will have to work much more efficiently on transactions.
The same applies for Phase 2: the eight-week deadline will also need to be adjusted. Since all Phase 2 investigations must be notified under the cooperation mechanism, assuming the Commission and Member States do not provide comments, a national notification may take up to 100 days (see above). The current total deadline in the Vifo Act – 16 weeks (112 days) exceeds this.
The deadlines applicable to transactions notified under the cooperation mechanism (up to 168 days as set out above) will require amendments to the Vifo Act. Currently, both Phase 1 and Phase 2 of BTI investigations are in principle 8 weeks long, though they can be extended by six months (See Article 12 Vifo Act). The BTI can therefore ‘stop the clock’ to adhere to the new timelines. However, delays in responses to information requests during the comment period may cause screenings procedures to exceed the Vifo Act time limits, as some deadlines depend on how quickly parties respond. At that point, the yearlong period may be insufficient.
An amendment which might be required in connection with the new comment period concerns the substantive test for assessing a transaction. Currently, the Vifo Act requires assessing whether a transaction will endanger national (i.e. Dutch) security, but other Member States will presumably only send opinions if they have their own national security concerns. Tweaking the language here slightly to allow the BTI to take other Member States or the Commission’s opinions into account may avoid unnecessarily long Phase 2 investigations which require the Commission to exercise its new tiebreaker or veto powers.
Overall, the EP Proposal, if accepted, would shorten the length of Dutch Phase 1 investigations, while increasing the number of notifications. Some Phase 2 investigations will also become shorter. Investigations which must be notified under the cooperation mechanism could potentially be extended significantly to consider comments from other Member States and the Commission, with the decision possibly being taken out of the BTI’s hands in particularly contentious cases. Notifications to the cooperation will become narrower, as even the EP Proposal adopts a ‘risk-based’ approach.
While the Commission’s envisaged status as ultimate decision-maker will not require significant changes to the Vifo Act, it would result in a significant transfer of power from the Member States to the Commission. FDI screening has traditionally been done by Member States. There is no doubt a policy justification for a more prominent Commission role: it may be better placed to address issues which affect European public order and security. However, the Commission’s own proposal addresses this, allowing the Commission to issue an opinion where it believes the security of more than one Member State or a Union project will be impacted by an investment (See Article 7(2) Commission Proposal). The EP Proposal thus grants the Commission far more power than the Commission proposes granting itself. It is also not entirely clear that the Commission has capacity to take on these new responsibilities, an issue which the EP does not address.
The EP Proposal remains just that – a proposal. The Council has yet to publish its desired changes to the Commission Proposal. However, considering its traditional role as a defender of Member States’ national power, it is very possible that the final revisions of the FDI Regulation will include a far less powerful role for the Commission than European Parliament envisions. Therefore, it remains to be seen to what extent the EP Proposal will survive ordinary legislative procedure.
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