One of the EU’s trademark achievements is its single market, which has always been attractive to foreign investors and thus open to foreign direct investment (FDI). However, with such openness comes the risk of foreign control over certain strategic assets and technologies which could create critical dependencies, or access to sensitive information that could jeopardise security or public order in the EU. Risks may also stem from control by governments or the armed forces, and from foreign investors being involved in illegal or criminal activities. Where necessary, EU countries have taken steps to screen and block foreign investments that may pose a serious threat to their common security and public order. The auditors assessed whether collaboration on such screening has been working well.

FDI in the EU totalled approximately €117 billion in 2021 in terms of inflows. Such investment can enhance growth and innovation in host countries, help to create quality jobs and develop human capital, raise living standards, and much more. However, foreign investment and control over strategic or sensitive assets, such as ports, nuclear plants, semi-conductors or dual-use microchips, may sometimes pose a risk to security and public order. The dynamics and interdependencies of EU countries within a single market require them to collaborate on assessing such risks, and to provide a common response where necessary.

Major trading nations have different arrangements in place for screening harmful foreign investment. The EU has also established a cooperation mechanism between its member states and with the European Commission to assess and potentially restrict those investments that may pose a threat to security or public order in the EU or its member states. Member states thus benefit from exchanging information that enables them to respond to the type of investment that may pose a risk to other member states. However, responsibility for final decisions on restricting FDI still lies with individual member states.

The auditors have now assessed whether the EU’s rules for screening FDI are efficient and effective at addressing security and public order risks, and they will report on any gaps in or ways to improve the current framework. Stay in touch to hear more about what they found – the report will be out on 6 December (available here from 5 p.m. on the same day).