EU mulls tougher stance on foreign investments

The European Parliament's largest political group today called for a "temporary ban" on Chinese takeovers of European companies. The centre-right European People's Party (EPP) group made the call as the European Commission unveiled plans to regulate acquisitions of EU companies by third-country firms if the latter have received subsidies.

The commission wants to ensure that foreign subsidies do not confer an "unfair" benefit on firms from third-country countries when acquiring EU companies, whether by directly linking a subsidy to a given acquisition or by indirectly increasing the financial strength of the acquirer.

It is seeking powers as a competent supervisory authority over foreign direct investment (FDI) so that it could propose legally binding commitments to a foreign acquirer to remedy competition distortion or prohibit a takeover. Transactions could not be finalised when under a commission review.

"As a last resort, if we could not agree on suitable commitments, we'd have the power to block a harmful merger altogether," EU competition commissioner Margrethe Vestager said. She indicated that the measures should not look at subsidies for previous acquisitions, but at current third-country support for EU-based firms.

The commission did not today present legislative proposals, but indicated that it could do so in 2021. The proposals would require approval from EU member states and the European Parliament, following public consultation until 23 September 2020.

The commission's paper does not specifically mention China. But the EPP, criticising the commission's white paper on foreign takeovers as "not enough", today called for the EU to impose a "temporary ban" on Chinese takeovers of European companies made vulnerable by the Covid-19 pandemic.

"China will not be impressed by a discussion paper," EPP chair Manfred Weber said. "What we urgently need is legislative proposals to prevent outsiders from buying our strategic companies and know-how at a bargain price."

Other countries have recently moved to impose restrictions on foreign investment, with [Japan tightening control of its oil sector](https://direct.argusmedia.com/newsandanalysis/article/2087145) while Australia plans to tighten its foreign investment laws amid increased tensions with China. And the US is working on greater scrutiny of more than 150 Chinese publicly traded companies on US stock exchanges, including state-controlled Sinopec and PetroChina. The UK is also considering increased scrutiny of foreign investment.

The EU adopted a regulation in March 2019 establishing the first EU-level mechanism to co-ordinate existing foreign investment screening by member states, although it does not mandate that all EU countries have screening schemes.

Supply of critical inputs, such as energy or raw materials, is one of the criteria that the commission and member states will consider when determining whether an investment might affect security or public order.

By Dafydd ab Iago