Introduction: New FDI regimes with divergent approaches
In February 2024, Bulgaria adopted a new FDI screening regime, while Ireland published guidance on its new FDI regime, which are expected to enter into force in June and September 2024, respectively. The two differing approaches of the two new regimes illustrate the inconsistency of substantive and procedural FDI rules across the EU. While the Bulgarian FDI regime employs a “catch-all” approach with low thresholds and broad powers, the Irish FDI regime provides more reasonable thresholds and detailed guidance well in advance of it coming into force.
FDI regimes in Europe also differ in their decision of which non-EU jurisdictions pose the greatest risk to their national security. A new development in this regard is that the Bulgarian FDI regime introduces a provision which implies an exemption for investments by the US, UK, Canada, Australia, New Zealand, Japan, South Korea, UAE and KSA, which is to be welcomed. This is in contrast to recent enforcement efforts in Europe to scrutinize investments by some of these non-EU jurisdictions, especially from the US. In February and March 2024, for example, the UK government issued two final orders imposing conditions on investments by US-based companies. It seems that this wide approach in which any investment from a non-EU jurisdiction may raise concerns, appears to be at odds with the current focus of enforcement practice under the EU’s Foreign Subsidies Regulation (FSR), which for now is solely focused on more traditional ‘risk’ investors, such as China.
New FDI regimes in Ireland and Bulgaria – a targeted versus ‘catch-all’ approach
On 1 February 2024, the Irish government published a draft Guidance providing insight into how the FDI regime will apply to foreign investments. Presumably the Irish government wants to avoid shortcomings of other recently enacted FDI regimes, as well as manage concerns on predictability and transparency often raised by companies and practitioners.
Irish FDI regime
The Irish FDI regime applies a reasonable and investor-friendly approach towards investors:
(i) The regime only considers acquisitions of control or an increase of shares of more than 25% (or from less than 50% to more) assets or undertakings that are Irish based by a non-EU investor where the transaction concerns a critical sector in Ireland.
(iii) The review timeline appears relatively short and aligned with some other EU Member States (e.g. Spain) as it provides for a 90-day screening period.[1]
(iii) There is an online case management system to ensure streamlined communication between the government and notifying parties.
Bulgarian FDI regime
The FDI regime of Bulgaria, adopted on 22 February 2024, takes a different and broader approach:
(i) There are no guidelines and the regime applies to an acquisition of 10% of the shares of the target company (regardless of whether there is control) or an investment of more than EUR 2 million if the transaction relates to a critical sector in Bulgaria.[2]
(ii) While the exact details are still to be clarified in the implementing regulations, it appears that a sufficient local nexus will exist as a result of the target company operating in Bulgaria despite having no physical presence there.[3]
(iii) The Inter-institutional Council for FDI Screening can call in screening of three broad categories of investments, regardless of such meeting the notification thresholds.[4]
Nevertheless, the FDI regime seems to carve out a number of non-EU “low risk jurisdictions”[5], effectively putting them in the same category as EU Member States. Excluding such a targeted list of countries in a FDI legislation seems a novel approach aimed at keeping Bulgaria investor-friendly. However, the current wording of the law is unclear as to whether these jurisdictions are entirely exempt from FDI screening, which will likely be clarified in the implementing regulations.
Such an exclusion of a targeted list of non-EU countries can be considered atypical and does not reflect current FDI enforcement in other jurisdictions in Europe, which are increasingly targeting investments from countries such as the US, Japan, UAE and KSA.
Recent examples are two final orders issued by the UK government imposing conditions on investments made by a US-based investor:
- On 28 February 2024, the UK government conditionally approved the acquisition by US-based energy company ‘TransDigm Inc.’ of ‘Iceman Holdco Inc.’ and its UK subsidiaries (TMD, CPI TMD Technologies and TMD Technologies), which are active in the field of super-precision timing devices. TransDigm must maintain research, development and manufacturing capabilities in the UK in order to address national security concerns relating to critical infrastructure (R&D and production of atomic clocks).
- On 1 March 2024, the UK government conditionally approved the USD 177 million acquisition of ‘Newport Wafer Fab’, the UK’s largest semiconductor manufacturer, by US chipmaker ‘Vishay Intertechnology Inc’. This comes after the Netherlands-based ‘Nexperia’, a subsidiary of Shanghai-listed ‘Wingtech’, was required by the UK government to sell its 86 % stake in the factory over concerns of Chinese ownership in UK-based semiconductor capabilities. The UK government approval mandates the US acquirer to notify the UK authority before giving third parties access to the factory via sale, transfer, or lease agreements.
FSR enforcement trends – in-depth investigations and dawn raids
Looking at the publicly announced in-depth and ex officio investigations shows that the European Commission in its FSR enforcement still appears to be solely focusing on the more traditional “risk” jurisdictions, with particular focus on China, but with the growing number of in-depth investigations and the first dawn raids under the FSR it is clear that the European Commission is using its powers under the FSR.
- The first-ever in-depth investigation of the European Commission concerned the participation of ‘CRRC Qingdao Sifang Locomotive Co., Ltd’, a Chinese state-owned train manufacturer in a public tender organized by the Bulgarian Ministry of Transport and Communications.
- On 3 April 2024, the European Commission initiated two new in-depth investigations into two China-related consortia that participated in a public tender to design, build and make operational a 110 MW photovoltaic park in Romania. One consortium involves a German subsidiary of Chinese parent company ‘Longi Green Energy Technology’. The second consortium involves ‘Shanghai Electric UK Co. Ltd’ and ‘Shanghai Electric Hong Kong International Engineering Co’, two subsidiaries owned and controlled by Chinese state-owned firm, ‘Shanghai Electric Group’.
- On 9 April 2024, Margrethe Vestager announced in a speech at Princeton University in the US that the European Commission had launched its first ex officio investigation into potential illegal subsidies granted to Chinese wind turbine producers.
- On 23 April 2024, the European Commission conducted its first dawn raids on a company under the Foreign Subsidies Regulation. The European Commission stated that the raids were conducted on “a company active in the production and sale of security equipment in the European Union”.
- We understand that the raids were conducted after the European Commission had received information that the business in question benefited from distortive foreign subsidies.
- If the raid results in the European Commission finding sufficient information that the distortive subsidies exist it has the ability to launch an in-depth probe.
- This raid and the ongoing investigations by the European Commission using its FSR powers highlight the need for companies to ensure compliance with this new regime.
[1] This can be further extended by 45 days in exceptional circumstances, however the draft Guidance clarifies that unproblematic transactions will be reviewed as soon as possible and cleared ahead of the deadlines.
[2] The list of critical sectors is aligned with the EU FDI Screening Regulation and is the same as provided for Ireland in the above footnote.
[3] The implementing regulations are to be published by September 2024 and, in any case, before the Bulgarian FDI regime enters into force.
[4] The first two categories are specific to certain sectors (production of petroleum-based products) and country of investor origin (Russia and Belarus). The third category is a carte-blanche to investigate any transaction as the only criterion is for the national agencies responsible for national security and intelligence (apart from the Inter-institutional Council for FDI Screening, which is responsible for FDI review in Bulgaria) to have national security related concerns.
[5] These include the USA, the UK, Canada, Australia, New Zealand, Japan, South Korea, UAE and the KSA.
