Foreign investment regulation
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FI Monitor Issue 4, 2022
The Commission may have reached a turning point with respect to its assessment of member states’ FDI screening regimes. A recent decision against Hungary, which quashed a veto by the Hungarian FDI authority, suggests that Brussels closely monitors screening mechanisms and national authorities’ decisions.
In its decision announced on 21 February 2022, (M.10494 – VIG/AEGON CEE), the Commission found that Hungary’s veto of the Vienna Insurance Group’s acquisition of Hungarian subsidies of AEGON on security grounds constituted a breach of EU law. The transaction was later cleared unconditionally by the Commission; in its view, the Hungarian veto violated Article 21 of the EU Merger Regulation (EUMR) because it was unclear how the acquisition would pose a threat to a fundamental interest of society.
Under Article 21 EUMR, the Commission has exclusive jurisdiction to review concentrations with an EU dimension. Member states may only take measures to protect their “legitimate interests”, which include public security, media plurality and prudential rules. The term “public security” is interpreted narrowly and should only comprise a member state’s essential (national) security interests, ie the defense sector and related activities. The aim of this rule is to protect the free movement of capital within the EU, which can only be trumped by specific national interests. However, most FDI regimes are much broader and also relate to a variety of other sectors. Because of this, many national FDI regimes (like the EU FDI Screening Regulation) differentiate between investments from within and from outside the EU. That said, the line is often blurry – and it may not always follow the principles of EU law.
It seems that the Commission itself may have played a role in this when, during the pandemic in 2020, it recommended that member states establish or strengthen their FDI screening regimes. This was at a time when stock prices were at all-time lows and fears of foreign buyouts were at all-time highs. Among many other changes, some member states (for example Italy and Spain) expanded their ability to review intra-EU transactions outside purely public security grounds. These changes were originally intended to be transitory, but some have now been made permanent or are expected to be extended. Other countries had already given up strictly differentiating between investments from EU member states and those from third countries before the pandemic. For example, France added a number of sectors to its regime that also apply to EU investors.
It seems that, except for Hungary, no authority has yet blocked an intra-EU investment in a sector that is not clearly related to public security. The Hungarian case was unique because the authority did not even attempt to explain why the transaction could potentially have affected national interests, which may have justified an intra-EU prohibition. However, the Commission’s decision makes clear that member states must consider the fundamental freedoms and, in particular, the freedom of capital movement when their FDI regimes affect investors from within the EU because both DG Comp and DG Trade monitor FDI regimes and decisions and are ready to take action quickly.