The Fourth Annual Report on the Screening of Foreign Direct Investments into the Union (COM(2024) 464 final), released by the European Commission on October 17, 2024, provides a comprehensive analysis of the FDI screening mechanism within the European Union during the year 2023. The report reflects on the application of the EU Foreign Direct Investment (FDI) Screening Regulation, which aims to safeguard the security interests of the Union while maintaining transparency and accountability. The document is structured into four key chapters, addressing FDI trends, legislative changes in Member States, FDI screening activities, and the EU’s cooperation mechanism for screening. This report emphasizes the increasing importance of controlling foreign investments to protect critical sectors from potentially harmful transactions, particularly amid ongoing geopolitical tensions, such as Russia’s war in Ukraine.
The first chapter highlights the overall trends in FDI into the EU, noting that despite a global downturn in FDI inflows, the EU saw an improvement in its FDI numbers compared to 2022, although the net inflows remained negative. This was largely due to significant disinvestments in countries like the Netherlands. Despite these challenges, the report underscores the EU’s continued openness to foreign investments, as demonstrated by the growing number of mergers and acquisitions (M&A) and greenfield investments over recent years. However, global uncertainties, tightening monetary policies, and economic challenges in 2023 caused a notable slowdown in FDI activity.
The second chapter delves into the legislative landscape across Member States, revealing that many countries either introduced new screening mechanisms or updated existing ones. This wave of legislative change was driven by concerns over national security, with an increasing focus on critical sectors like technology, energy, and infrastructure. The European Commission has played an active role in encouraging Member States to align their national mechanisms with EU-wide goals, while also providing technical assistance to facilitate smoother implementation. Despite these efforts, divergences in screening practices between Member States persist, especially regarding the criteria used to assess foreign investments and the timelines for screening procedures.
The third chapter presents the screening activities of Member States in 2023. Of the 1,808 cases reported, more than half were formally screened, and the majority (85%) were approved without conditions. A small percentage (10%) of transactions required mitigating measures, such as specific commitments from investors, while only 1% of the cases were blocked due to concerns about security or public order. These figures suggest a balanced approach to foreign investment, where openness to FDI is maintained, but the necessary precautions are taken to mitigate potential risks.
The final chapter examines the EU’s cooperation mechanism, which facilitates the exchange of information between Member States and the Commission on potentially risky transactions. In 2023, 488 transactions were notified through this mechanism, marking an increase from the previous year. The majority of these cases were resolved in the preliminary assessment phase, with only 8% moving to a more detailed “Phase 2” investigation. The manufacturing and ICT sectors received the most scrutiny, particularly for transactions involving critical technologies such as defense, aerospace, and semiconductors. Looking ahead, the Commission has proposed revisions to the FDI Screening Regulation to enhance harmonization among Member States, cover a broader range of transactions, and address the challenges posed by multi-jurisdictional deals. These revisions are seen as necessary to ensure that the screening process remains effective in light of evolving geopolitical realities.
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