Parliament gives the green light to the EU shield on foreign investment in defence, AI, and critical raw materials

Brussels – “To close the gaps that have left infrastructure and technology exposed to external influences“: with this aim in mind, the European Parliament is seeking to create uniform legislation to “identify and address potential risks to security or public order posed by foreign investments, whilst remaining open to inflows of foreign capital.” The European Parliament met today (19 May) in plenary session in Strasbourg, and approved by a large majority (508 votes in favour, 64 against, and 90 abstentions) a proposal to amend the 2019 regulation on the screening of foreign investments in sensitive sectors such as defence, semiconductors, artificial intelligence, critical raw materials, and financial services. 

The text requires all Member States to establish harmonised national control mechanisms to avoid creating “unequal conditions that increase compliance costs for investors who have to notify transactions in several Member States.” Furthermore, the control no longer applies solely to direct investments, but is extended to greenfield investments: new facilities or businesses often controlled by foreign entities operating in Europe through subsidiaries already established in the EU. 

“With this text, we are closing a chapter of European naivety,” said rapporteur Raphaël Glucksmann (S&D, France). According to Glucksmann, the EU is finally turning the page on a “willful blindness” that has allowed foreign actors to take control of sensitive economic sectors with the aim of weakening Europe. The need for this crackdown has been accelerated by recent global crises, including the COVID-19 pandemic and Russia’s war of aggression against Ukraine, which have highlighted the vulnerability of Europe’s critical assets. The measure, therefore, aims to strengthen “economic security”, intended as the resilience of supply chains, the physical and cyber security of infrastructure critical to the functioning of the Union, and the countering of economic coercion by foreign governments. The stated objective of the parliamentary proposal is, therefore, “to identify and address potential risks to security or public order while remaining open to inflows of foreign capital.” 

The strengthening of security measures is, however, aimed at simplifying procedures to “make the EU a more attractive investment destination” and at improving cooperation between national authorities and the Commission to manage cross-border security risks. To this end, in certain cases of disagreement between the host Member State and the Commission (or other Member States) regarding risks affecting the entire Union, the Commission is granted the power to adopt a final decision on conditional authorisation or prohibition. 

The regulation now awaits formal approval by the Council. Once it enters into force, the new rules will apply 18 months after their official publication, giving Member States time to harmonise their national control mechanisms. “Our work on foreign investment is not finished,” concluded the rapporteur, referring to future dossiers for the European Parliament, “because the fight for Europe’s independence and sovereignty continues with the Draft bill on the Industrial Accelerator.”