FDI enforcement in 2023 has been caught between two different public policy aims: the first is a willingness of authorities to expand their FDI regimes to review more investments; and the second, is a greater interest in and attention to the consistency and proportionality of such intervention. We have set out below the three main trends for companies to be aware of in relation to the enforcement of FDI rules and how they may affect their investments, followed by key FDI developments in Europe.
- Do expect an increasing interaction between Member States and their national governments in relation to FDI.
Companies should expect even more interaction between EU Member States, which could lead to more notifications and investigations as different Member States communicate with each other. The consultation on the EU FDI Screening Regulation has been positive on the EU cooperation mechanism. This is likely to be further refined in the new proposal for the update of the EU regulation, which might also cover investments of indirect non-EU investors.
- Do expect to see new FDI regimes come into force, or further expansion of existing regimes.
Recent developments in Europe show that FDI regimes are actively evolving. For example, the recent enactment of the Swedish regime in December 2023, along with other new standalone FDI regimes from the past few months including: the Slovak Republic on 1 March 2023, the Netherlands on 1 June 2023, Belgium on 1 July 2023, and Luxembourg and Estonia on 1 September 2023. The Irish FDI regime is also currently expected to come into force in the second quarter of 2024. Future amendments and broadening of the regimes for Germany and Norway are already being reported in the online press and can be expected in 2024. On 28 December 2023, France also published amendments of its FDI regime. The French government is including: (i) French commercial branches within the scope of the regime; (ii) the extraction, processing and recycling of critical raw materials as a sensitive sector under the regime; and (iii) making permanent the review of acquisitions by non-EU or non-EEA investors acquiring 10% or more of the voting rights in a French entity listed listed on a regulated market and operating in a sensitive sector.
- Do not expect full harmonization of FDI rules or a one-stop shop mechanism in the EU.
A full harmonisation of FDI rules or a one-stop shop in the EU is unlikely to occur. As the responses to the recent consultation on the EU FDI Screening Regulation show, there is strong support for Member States’ discretion to investigate and decide on investments in their respective jurisdictions. As respondents strongly preferred a central role for Member States, there was no support in the report for a EU one-stop shop mechanism, such as in merger control.
However, as recent developments in 2023 show, there may be a reduction in transactional burdens as authorities learn through trial and error and revise their FDI regimes accordingly, and national and EU courts continue to scrutinize the substantive review, commitments, and procedural rights of parties. We expect that this will continue to develop in 2024 and can help companies to appeal arbitrary or pure political-oriented decisions that impact their investments.
In the last two months of 2023, the following FDI developments in Europe can be considered noteworthy:
Germany – Two court decisions overturning prohibition decisions:
In November, two court decisions were issued that resulted in prohibition decisions being overturned because of procedural issues.
On 7 November 2023, the Berlin Administrative Court overturned the Federal Ministry for Economic Affairs and Climate Action (BMWK)’s prohibition of the acquisition of German ‘PCK Raffinerie GmbH’ (part of ‘Shell Deutschland GmbH’) by the Austrian ‘Alcmene GmbH’, on procedural grounds. Following the expiration of the long stop date and the subsequent termination by Shell of the agreement with Alcemene, the German authorities decided to stop the FDI review. Pending the outcome of arbitration on the termination of the acquisition, the investor, Alcmene, then applied to the Berlin court for the transaction to be deemed approved as the review period had already expired. The Berlin court concluded that the FDI review could only be terminated with the consent of the initiating party, and that the review period had therefore already expired during the arbitration proceedings.
On 15 November 2023, the Berlin Administrative Court overturned the BMWK’s 2022 prohibition of the acquisition of German medical device manufacturer ‘Heyer Medical AG’ by China’s ‘Aeonmed Group’, a manufacturer of anesthesia and respiratory equipment and provider of medical system solutions. The Chinese acquirer carried out the acquisition in 2019. The BMWK became aware of the acquisition through an online publication in April 2020 and opened its FDI investigation in August 2020. The court found that the BMWK did not have jurisdiction in this case because, under German FDI rules, an in-depth investigation can only be opened within two months of the BMWK becoming aware of the transaction (three months under the law in force at the time). As it is not mandatory for the BMWK to have detailed information on the transaction in order to open an investigation, the court concluded that the knowledge obtained from the online article was sufficient to start the review period, which consequently expired in July 2020 (i.e. before the actual investigation in August 2020 was opened). The court also found there was a violation of the right to be heard, as the BMWK did not give the parties sufficient opportunity to comment on the facts and allegations in an oral hearing before the prohibition decision was taken.
Italy – Prohibition decision against a French investor
On 20 November 2023, the Italian government prohibited the USD 1.8 billion acquisition of ‘Microtecnica’, an Italian subsidiary of the US company ‘Collins Aerospace’ (which is owned by ‘RTX Corporation’), a company engaged in aerospace components, such as flight-control systems and engine valves, by a high-tech aerospace, defence and space company in which the French government is the largest shareholder. There is no clear indication in public sources of the exact concerns or if any commitments were proposed. This decision demonstrates that national FDI regimes are rigorously applied even against EU companies and that EU companies should be aware of these risks when assessing M&A transactions which trigger FDI filings.
European Union – Report on the EU’s consultation on the EU FDI Screening Regulation
On 28 November 2023, the European Commission published a report summarizing the 47 contributions to its consultation on the EU FDI Screening Regulation. The report indicates that respondents, including 11 public authorities, broadly support the EU regulation being extended to cover investors established in the EU, but that are ultimately controlled by non-EU nationals.
Following the recent Xella decision by the European Court of Justice in July 2023, which held that such ownership structure is only relevant where there is evidence of circumvention, these responses are likely to influence the inclusion of such a scope in the Commission’s new legislative proposal to update the current EU regulation, expected in early 2024. The immediate effect would be that the minimum requirements of the regulation and the EU cooperation mechanism would fully apply to such investments. For example, a Member State would have to provide certain information on its national screening to the European Commission and other Member States and take due account of any comments received from other Member States or the European Commission.
With respect to proportionality and consistency, the responses to the 2023 consultation on the EU FDI Screening Regulation showed that respondents criticized the lack of (i) transparency/information in screening reports and (ii) alignment of timelines for screening and requests for information across Member States. Respondents cited a lack of convergence on procedural aspects of national screening mechanisms (in particular deadlines, information requirements and user-friendliness). There was a strong preference among respondents not to notify all investments under the EU cooperation mechanism, but only those that meet certain criteria.
Sweden – New FDI Regime enters into force
On 1 December 2023, Sweden’s new FDI regime came into force. From this date, all foreign direct investments into Sweden falling under the FDI Act are subject to a mandatory notification obligation and subsequent approval (or a decision to close the case without further action) as a condition for the closing of the investment. Companies should note an initial period of 25 working days for the authority to decide whether to review the investment. If such a review is initiated, the statutory review period is three months, which can exceptionally be extended to six months.
A more in-depth summary of the Swedish FDI regime can be found in an earlier Baker McKenzie blog: Sweden: The new Foreign Direct Investment Review Act – Baker McKenzie InsightPlus
Norway – Proposals for a new FDI regime
In a report on its current FDI framework published on 4 December 2023, Norway is considering significant changes to broaden its regime as the Norwegian government is concerned that the current regime is too narrow and fragmented. Proposals for the new FDI regime include: (i) a new single authority responsible for screening,;(ii) a notification requirement for certain investments in “sensitive sectors”; and (iii) a voluntary notification regime for all sectors where a security risk remains. The regime would cover non-controlling acquisitions of shares and voting rights. Transactions would be subject to an initial review period of 25 working days, which could exceptionally be extended to 90 working days.
Romania – New amendments to existing FDI regime
On 6 December 2023, the Romanian government published new amendments to its existing FDI regime clarifying that investments by EU investors and below-control investments are in scope and can therefore be reviewed for FDI purposes.
However, in terms of timeframe, the amendments provide a shorter deadline of 10 calendar days for the Romanian Competition Authority to inform the EU investor of its final formal decision on the investment (against 30 calendar days for non-EU investors). Such a deadline would apply in case of a positive opinion by the ‘Commission for Examination of Foreign Direct Investments’ (CEISD), the investigative body for the examination of FDI.
United Kingdom – consultation launched on changes to National Security and Investment Act
The UK government’s consultation on its National Security and Investment Act (“NSIA”) regime was launched on 13 November 2023, asking for stakeholder’s views on a number of areas of potential change to the UK’s FDI regime including the possible inclusion of two new stand-alone sectors subject to mandatory notification: semiconductors and critical minerals.
The consultation indicates an interest by the UK government to make the existing NSIA regime more pragmatic for businesses and market participants, having sought views on potential targeted exemptions, clarifications to the scope of the current list of 17 specified sectors (giving rise to mandatory notification requirements) and potential improvements to the notification and review process.
The consultation closed on 15 January 2024. Further guidance and potential changes to the NSIA regime are anticipated to take place later this year.
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