The EU Foreign Direct Investments (FDI) Screening Mechanism — Europe’s Latest Political-Economic Armament?
Contributor : Nabiilah Ronaa Salsabiilah
It goes without saying that the ongoing pandemic has been, and still is, leaving a disastrous wake at its trail. Consequently, governments around the globe have also begun to devise and implement their respective recovery strategies. One of the recovery strategies that this writer would like to scrutinize is the one that Von der Leyen’s European Commission devised (EC), entitled “Europe’s moment: Repair and Prepare for the Next Generation” (The European Commission, 2020). To be even more specific, this article will touch upon the EC’s ambition in implementing a new model of trades named ‘Open Strategic Autonomy (OSA).’
So, what does this OSA model entails precisely? To answer that question, let us begin by inspecting its raison d’état firstly. According to an official press release made by the EC in February of 2021, OSA was deemed crucial by virtue of how the EU is now affronted with problems that are increasingly growing complex in nature, notably reconstructing the post-pandemic economic environment, climate change, environmental degradation, growing international tensions, the comeback of unilateralism, and its implications for multilateral institutions such as itself. Secondly, OSA aims to institute “a new consensus for trade policy based on openness, sustainability, and assertiveness,” and that it would seek to strengthen the EU’s status as a global proponent of open, rule-based trade, whilst still giving priority to fair and sustainable practices (The European Commission, 2021). With that in mind, let us now turn to the next question, what kind of actions epitomizes such objectives?
In reality, there is a multitude of measures contained within the ‘Europe’s moment: Repair and Prepare for the Next Generation’ document that directly typifies the objectives mentioned above; however, this article would solely concentrate on the so-called notion of reinforced Foreign Direct Investment (FDI) screening mechanism. It may be viewed that the concept of establishing a screening mechanism for FDI is not an idea that came into fruition because of the pandemic itself. As a matter of fact, the regulation itself was first proposed in 2019 and became fully active in October of 2020 (The European Commission, 2019). Likewise, there are several aims that this regulation would like to achieve, namely that of protecting Europe’s critical assets, technology, and infrastructure against FDI that could undermine the Union’s security or public safety.
This would then beg the question of whether there were any real-life cases where FDI have directly threatened the Union’s security? According to Gadocha (2020), the screening mechanism was indeed introduced as a response to the growing number of EU companies’ acquisitions by Chinese-based enterprises. Consequently, he further elaborated that the EU member states were also alarmed that such foreign enterprises could become a medium whereby the People’s Republic of China (PRC) authorities would enact “state manipulation of international economic activities for strategic purposes.”
To show whether this screening mechanism functions, Gadocha brought up one real-life case wherein the German screening authorities eventually terminated the acquisition of a German semiconductor company, Aixtron, by Fujian Grand Chip (FGC) Investment Fund LP, back in May 2016. The reasoning behind this sudden cessation might be influenced by the U.S. concerns that Aixtron’s equipment might be used to manufacture electronic chips for the PRC’s nuclear program (Gadocha, 2020). Additionally, Gadocha also mentioned that the cessation was supported by numerous German politicians on account of how they wanted a more reciprocal, fair, and open trading relations with their Chinese counterparts. To quote Sigmar Gabriel, the Vice Chancellor and Economy Minister of Germany, “(i)f you want to invest in other parts of the world, you can’t block those countries from investing in your own,” (Gadocha, 2020).
Despite this, it cannot be helped that there were several irregularities that came up when one took a deeper look into the case study above. Let us begin by considering how the involvement (or non-involvement) of the US into the matter may influence the official ruling from the German screening authorities (Gadocha, 2020). What is more, Gadocha argued that US’ involvement effectively deterred the FGC from pursuing additional negotiations and subjecting itself to thorough screening from the German authorities. Consequently, the German screening authority never followed up with further investigations that could potentially result in a detailed impact assessment of FGC’s withdrawal from the acquisition process and its supposed role of helping the PRC’s nuclear programme (Gadocha, 2020).
Hence, from the deliberations expounded above, the screening mechanism seems to be an important tool in ensuring the EU’s political and economic security. However, there is still a great deal to be done about its efficiency and efficacy. It would be best for those who are interested in the matter to observe how this screening mechanism would evolve and function in the future.
REFERENCES
Gadocha, P., 2020. Assessing the EU Framework Regulation for the Screening of Foreign Direct Investment — What Is the Effect on Chinese Investors?. The Chinese Journal of Global Governance, [online] 6(1), pp.36–70. Available at: <https://brill.com/view/journals/cjgg/6/1/article-p36_4.xml?language=en> [Accessed 9 March 2021].
The European Commission, 2020. Europe’s moment: Repair and Prepare for the Next Generation. Brussels: The European Commission.
The European Commission, 2019. Screening of foreign direct investment. [online] Available at: <http://trade.ec.europa.eu/doclib/press/index.cfm?id=2006> [Accessed 9 March 2021].
The European Commission, 2021. Questions and Answers: An open, sustainable and assertive trade policy. [online] Available at: <https://ec.europa.eu/commission/presscorner/detail/en/qanda_21_645> [Accessed 16 March 2021].
