EU mechanism to veto foreign investment ‘not on the cards’

French President Emmanuel Macron has put the protection of the European market on top of the agenda. The upcoming European Council will be his first summit. [European Commission]

EU leaders will discuss on Friday options to “screen” foreign investment in strategic sectors, but a more far-reaching proposal that would allow blocking takeovers at EU level remains off the table for now.

Germany, France and Italy told the European Commission in a letter last February that the Union “should have more scope to investigate individual takeovers and, where applicable, block them”.

The idea found some traction in a Commission “reflection paper” on globalisation published in May, which said that member states’ concerns about foreign investors required “careful analysis and appropriate action”.

Commission says proposal to block Chinese takeovers is 'worth discussing'

The European Commission welcomed Germany, France and Italy’s proposal to halt China’s buyouts in Europe in some cases given the “limited access” to the Chinese market.

But EU leaders are expected to lower the ambition of what could be achieved at European level when they discuss the issue for the first time at the European Council on Friday.

“The European Council invites the Commission to examine ways to identify and screen investments from third countries in strategic sectors, while respecting member states’ competences”, reads the draft text of the summit conclusions.

A senior EU official explained on Wednesday (21 June) that the heads of state or government need to find “common understanding” on what should be done at EU level.

But a European instrument to limit foreign investment “is not on the cards”, the official insisted.

Proposal to block Chinese foreign investment faces uncertain future

Member states disagree on whether it is appropriate to create an EU mechanism to protect strategic sectors despite pressure exerted by the EU’s largest countries.

Officials say there could be a role for “screening” foreign investments in strategic industrial sectors like technology or defence, but they insist that decisions to block foreign takeovers can only be taken at a national level.

A dozen EU member states currently have tools in their national legal frameworks to block foreign investment.

But senior Commission officials have pointed out that some capitals are trying to hide behind the EU institutions in order to act against major trade partners like China as they fear retaliatory measures against their own countries.

Beijing has repeatedly been accused of limiting the access of European companies to its market, while Chinese investors have increased their purchases in Europe over the last few years.

“The EU should also ensure that our trading partners are equally open in the fields of public procurement and investment,” read the European Council draft conclusions to be adopted on Friday.

But it remains unclear what the proponents of the EU mechanism want to achieve.

No more powers

“We are not talking about a new competence” for the Commission, a diplomat from a large member state explained.

The intention is rather to launch a “reflexion” on how the EU could weigh in on the debate.

“What we’re proposing is that the Commission puts forward elements for a shared vigilance – or awareness – on the impact that foreign investments can have on certain strategic sectors,” the diplomat said.

Senior EU officials have said the summit would not conclude the discussion on what options for screening are on the table, but the leaders are expected to task the Commission and the Council with reaching a “common understanding” on this topic.

EU, Berlin oppose Chinese bid for 'strategic' German robotics maker

Top officials in Brussels and Berlin oppose a Chinese takeover bid of German industrial robotics supplier Kuka, a newspaper reported on Monday (30 May).

The EU executive is discussing internally how to materialise a stronger European role in this field. Officials expect that Commission President Jean-Claude Juncker could outline a proposal in his state of the EU speech in September.

Meanwhile, national governments are still positioning themselves in relation to the proposal put forward by the EU’s three largest economies.

A diplomat said it was too early to say whether his government would support an EU mechanism as more details were needed.

“But we are ready to be convinced,” he added.

(with additional reporting by Frédéric Simon)

Background

According to the European Commission, EU-China investment flows also show vast untapped potential, especially when taking into account the size of our respective economies. China accounts for just 2-3% of overall European investments abroad, whereas Chinese investments in Europe are rising, but from an even lower base.

The EU's concerns toward China are:

  • lack of transparency
  • industrial policies and non-tariff measures in China which may discriminate against foreign companies
  • a strong degree of government intervention in the economy, resulting in a dominant position of state-owned enterprises, and unequal access to subsidies and cheap financing
  • inadequate protection and enforcement of intellectual property rights in China.

The bilateral investment agreement under negotiations aims to provide more transparency, legal certainty, and market access to investors from both sides.

 

Timeline

  • 22-23 July: EU summit

 

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