EU Economic Security Strategy – proposals for a new FDI regulation, outbound investment and export controls

April 11, 2024 FDI

On 24 January 2024, the European Commission adopted a package identifying five new initiatives to strengthen the economic security of the EU. The basis for the initiatives is the EU Economic Security Strategy announced in June 2023. The primary objective of the strategy is to reduce the risks related to EU trade and investment involving third countries, as well as promoting EU competitiveness and growth.

Economic security risks are primarily to be examined in four areas: (1) the resilience of supply chains (e.g., energy security); (2) the physical and cyber security of critical infrastructure; (3) technological security and leakage; and (4) economic coercion or the weaponisation of economic dependence. 

The Economic Security Strategy and the five initiatives should be viewed in a broader context in which the EU has intensified its legislative activity in the area of trade policy. Under the von der Leyen Commission, the notion of open strategic autonomy has been translated into tangible actions through a set of legislative measures, such as the International Procurement Instrument (IPI), the Foreign Subsidies Regulation (FSR) and the Anti-Coercion Instrument, all of which aim to strengthen the EU's ability to act in the area of trade policy.

The five initiatives are:

(i) a Proposal for a new regulation on the screening of foreign direct investment ("FDI");
(ii) White paper on export controls;
(iii) a White paper on Europeanoutbound investments;
(iv) a Proposal for a recommendation of the Council on research safety and security;and
(v) a White paper to increase support for research and development involving technologies with dual-use potential.

The first three initiatives, which are those of greatest regulatory interest, are briefly presented below.

1 New regulation on screening of foreign direct investment

The Proposal for a new FDI screening framework is the most concrete of the five initiatives. The current Regulation (2019/452) establishing a framework for screening foreign direct investment in the Union, does not oblige Member States to adopt a foreign direct investment screening mechanism. Currently, five Member States do not have such a screening mechanism, namely Bulgaria, Cyprus, Greece, Ireland and Croatia – although legislation is underway in all five. The Proposal for a new FDI regulation imposes an obligation on Member States to establish national foreign investment screening mechanisms. It also proposes enhanced cooperation between Member States and the Commission under the Regulation's cooperation mechanism.


Under the Proposal, national screening mechanisms must comply with certain additional minimum requirements, including the right to be heard before a final decision is made. Moreover, affected investors and companies must have the right to pursue judicial recourse against  screening decisions pertaining to the approval, conditional approval, prohibition or termination of foreign investments  Under the Swedish FDI Act, the screening authority's decisions on prohibition and on approval with conditions are appealed to the Government. The possibility to appeal the Government's decision to the Supreme Administrative Court is limited. The Swedish review mechanism may thus potentially need to be modified and expanded to be compatible with the proposed EU regulation.

In addition, it is proposed that Member States shall be required to screen investments in a certain number of sectors and these investments shall also be reported by the screening Member State to the Commission and the other Member States within the cooperation mechanism Member States will need to ensure that their national screening mechanism covers, as a minimum, the following:

  • foreign direct investment in EU companies where the company participates in projects or programmes of Union interest listed in Annex I of the proposed regulation, such as the European Space Programme, Horizon 2020, the Connecting Europe Facility and the European Defence Fund; and
  • foreign direct investment in EU companies where the company operates in sectors listed in Annex II of the proposed regulation, which include, for example, dual-use products, military technology and armaments, AI technology, quantum technology, biotechnology, space and propulsion technology, energy technology, critical medicines and financial systems.

However, investments in companies operating in the sectors listed in Annex II are only to be notified to the Commission and the other Member States if the foreign investor:

  • is directly or indirectly controlled by a foreign State or public authority;
  • is subject to EU sanctions; or
  • has previously been involved in a foreign direct investment prohibited or conditionally approved by a Member State.

In addition, Member States must also report to the Commission and the other Member States foreign direct investments in EU companies where the Member State of investment initiates an in-depth review under national screening rules.

The specification of the investments to be reported to the Commission effectively limits the investments covered by the reporting obligation compared to the current regulation. However, under certain conditions, Member States may also report investments not covered by the reporting obligation.

An important new feature of the proposal is that the definition of foreign investors will include third country (non-EU) investors who, through a controlled company in the EU, invest in a target company in the EU. The amendment is based on the EU Court of Justice’s judgment in C-106/22 Xella, where the Court found that this situation is not covered by the current FDI Regulation and must therefore be assessed under the rules of the FEU Treaty on freedom of establishment and free movement of capital. It may be noted that the Swedish screening mechanism already covers this type of indirect investments.

Another novelty is that start-up investments will fall within the scope of the regulation, if the Member State concerned under its national screening mechanism considers them relevant in conjunction with screening of foreign direct investments. This is already the case under the Swedish FDI Act.

Where an investment is subject to notification requirements in several Member States, the proposed regulation requires that the investor notifies the transaction in all the concerned Member States on the same day. This will evidently have a significant impact on the co-ordination and planning of transactions.

In addition, the proposed new regulation will allow Member States, as well as the Commission, to initiate a procedure on their own initiative within 15 months of the completion of a foreign investment in another Member State, in case the investment concerned has not been notified to the cooperation mechanism.

The extent of the obligation for Member States to take into account the views of other Member States and the Commission is also proposed to be strengthened by replacing the concept of "due consideration", presently set out in Article 7(7) of the current Regulation, with "utmost consideration". Further, if the examining Member State receives comments on an investment, it must set up a meeting to discuss the comments of other Member States and the Commission – an obligation that risks prolonging the examination process. 

2 White paper on export controls

The White Paper on export controls aims to address perceived gaps in the current EU export control regime. The Commission proposes to broaden the scope of the EU export control regime, particularly regarding dual-use items. The proposal is to extend the control list of items subject to export authorisation beyond those included in the multilateral (international) export control regimes, as the extension of these regimes has been blocked by some countries, such as the Russian Federation.

The Commission also proposes the establishment of a policy co-ordination forum and announces a recommendation for a mechanism to better co-ordinate Member States' national export control measures. In addition, the Commission wants to improve the co-ordination of Member States' national export control lists by recommending that Member States voluntarily notify additions to the lists before their adoption and allow other Member States and the Commission to comment on the additions.

3 White paper on European outbound investments

In this White Paper, the Commission sets out its intention to examine the development of a framework for European investments in third countries, known as outbound investment. The absence of an outbound investment framework is considered to risk undermining the effectiveness of existing regulations on foreign direct investment and dual-use products. It is argued that there are growing concerns with regard to outbound investment in a limited number of advanced technologies which could strengthen the military and intelligence capabilities of actors who could use these capabilities against the EU or undermine international peace and security.

4 Next steps

The Commission's Proposal for a new FDI regulation is currently undergoing a public feedback period, which ends on 29 April. This will be followed by the ordinary legislative procedure, i.e., the adoption of the new regulation after negotiations with the European Parliament and the Council. However, the legislative procedure is expected to be prolonged due to the European Parliament elections taking place in June. Once adopted, the regulation is expected to enter into force 15 months after publication. At this juncture, the regulation is expected to enter into force in 2026 at the earliest.

As regards export controls, the Commission this summer intends to adopt a recommendation on an improved co-ordination of national control designations prior to the adoption of national export controls. The initiative will also bring forward the previously planned evaluation of the current Dual-Use Regulation to the first quarter of 2025 due to the significant geopolitical changes since the entry into force of the Dual-Use Regulation in 2021.

The process for the development of the outbound investment framework will include a step-by-step analysis of potential risks related to outbound investment. It has been preceded by a public consultation until 17 April 2024, which will be followed by a period of review of outbound investments at national level until the summer of 2025. Finally, an assessment of the need for legislative proposals will be made in the autumn of 2025.

5 Concluding remarks

The deteriorating geopolitical situation requires the EU to reassess previously adopted policies and identify new measures. The Economic Security Strategy is a step in this direction – while also aiming to bring greater coherence to the existing regulatory framework.

The five initiatives have generally been received positively, although they have also been the subject of some criticism. Some experts argue that the potential short-term adverse impact on business, including in terms of costs, such as increased complexity of export controls, has not been taken into account. Others believe that harmonisation has not gone far enough and that a tougher European approach is needed.

The proposed new FDI regulation includes proposals to harmonise Member States' screening mechanisms, which would make it easier to co-ordinate investments notified in several Member States. This will of course be particularly important if such notifications are to be made on the same day. However, the harmonisation is limited -  even after the adoption of the new regulation there will be significant differences between national screening mechanism, something which is partly explained by EU’s limited competence in this area. At the same time, it may be noted that some of the changes compared to the current FDI Regulation risk slowing down the screening processes.