EU Screening of Foreign Investment Approved by Negotiators

(Bloomberg) -- European Union negotiators approved the first bloc-wide rules to prevent foreign investments from threatening national security in a sign of growing political unease over Chinese acquisitions.

Representatives of EU governments and the European Parliament agreed on draft legislation to screen foreign direct investments. The deal on Tuesday in Brussels ends 14 months of deliberations over an initiative that for years had been deemed too controversial to take as a result of opposition in the bloc’s national capitals.

“We are determined to keep our technology sectors and key infrastructure safe,” said Economy Minister Margarete Schramboeck of Austria, which currently holds the EU’s rotating presidency and negotiated on behalf of the bloc’s national governments. “This is not about closing down our markets but about acting responsibly.”

Concerns are mounting across the western world about national-security risks tied to foreign investment, particularly by China.

Last year, U.S. President Donald Trump blocked a Chinese-backed investor from buying Lattice Semiconductor Corp. as a result of national-security worries and Germany moved to shield cutting-edge technologies after a bid by China’s Midea Group Co. for robot maker Kuka AG prompted an outcry. Earlier this year, the German government stopped a Chinese bid for the first time by vetoing the potential purchase of machine-tool manufacturer Leifeld Metal Spinning AG.

The European Commission, the 28-nation EU’s regulatory arm, proposed in September last year a bloc-wide “cooperation mechanism” for foreign direct investments through a combination of data collection, information exchange and peer pressure.

The goal, according to the commission, is to limit foreign threats to “critical infrastructure,” including in the energy, transport, communications, data, space and financial industries, and to “critical technologies” such as semiconductors, robotics and artificial intelligence.

The deal on Tuesday endorses these provisions while adding such areas as water, health, defense, media, biotechnology and food security to the scope and rejigging aspects of the proposed cooperation mechanism.

The accord was struck by Austria and an EU Parliament team led by a French member named Franck Proust. The agreement still needs the approval of EU governments and the full 751-seat Parliament -- steps that are usually formalities after negotiated deals between both sides.

“Europe now has the means to protect its core industries,” Proust said. “We badly need it as our economies are mutually interdependent and any investment tends to affect European partners too.”

Alert Mechanism

The law will create an alert mechanism for future foreign investments in Europe and a centralized database of ones that occur after the system enters in force without taking the ultimate power of approving deals away from individual member nations. While having ceded power over monetary, competition and trade policies to the EU, member countries still jealously guard their sovereignty in areas including investment and security.

EU governments will be allowed to request information and offer comments on a foreign investment in a particular member country. In addition, the commission will have the right to ask for information and issue an opinion.

The nation in which the investment was planned would have to give “due consideration” to any comments and opinion as well as take “utmost account” of any commission view regarding a foreign investment deemed to affect a European project or program.

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