Foreign Direct Investments Into the European Union: The Effect of Regulation (EU) 2019/452 on Foreign Investors
Abstract: Foreign direct investments into the EU creates jobs and brings in capital and expertise from all over the world. However, foreign direct investments are not without risks as they can also cause threats to public policy or security in the Union. To mitigate these risks, the EU regulation 2019/452 of 19 March 2019 establishing a framework for the screening of foreign direct investments into the Union was implemented (‘Regulation’). The Regulation enables Member States to adopt, amend and maintain mechanisms for screening of foreign direct investments within their territory based on the grounds of public order or security. Thus, the Regulation implements a completely new area of EU law which naturally raises questions regarding how the Regulation will affect actors in the area. To clarify the existing legal framework, this thesis has examined which investments are within the scope of the Regulation and what challenges the Regulation may present for foreign investors active in M&A. It is contended that the scope of the Regulation includes direct investments by third-country nationals or companies registered in a third country. Likewise, the Regulation also enables Member States to screen investments by companies incorporated in the EU or nationals of the EU if certain requirements are met. Furthermore, regarding potential challenges for foreign investors this thesis concludes that it is uncertain what investments may cause threats against public order or security as the grounds have not been clearly defined in the legal framework. Additionally, more guidance is needed regarding the factors which the Member States are encouraged to consider or to take into account when determining if a foreign investment is likely to affect public order or security. To summarize, further guidance is needed from the Commission, the Member States and the CJEU. This thesis concludes that the cooperating mechanism, which follows from the Regulation, can affect foreign investors as national authorities of Member States may feel obligated to act in accordance with comments from other Member States or opinions by the Commission. Moreover, due to the cooperation mechanism, sensitive information may become available to up to 28 contact points which can give rise to concern for the protection of such information. In conclusion, this thesis finds that the questions that remain regarding the legal framework increases uncertainty for foreign investors which decreases transaction certainty. In addition, this thesis has also examined if Chinese investors are particularly exposed to the challenges presented by the Regulation. The conclusion of this thesis is that such is the case, for instance due to the close ties between the Chinese government and Chinese companies and the political challenges facing Chinese investors in the EU. Therefore, M&A-deals with Chinese investors may contain more closing conditions which decreases transaction certainty further. As transaction certainty can influence what offers are accepted, this circumstance may put Chinese investors at a disadvantage during bidding.
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