The European Union’s Foreign Direct Investment Screening Paradox: Tightening Inward Investment Control to Further External Investment Liberalization

Abstract

This article analyses the justification for the recent enactment in the European Union (EU) of a regulation establishing a framework for the screening of inward foreign direct investment (FDI). It argues that the new regulation, which constitutes a first step for a more comprehensive EU investment screening system, should not be considered to be exclusively aimed at protecting the internal market and defensive Union or Member State interests. Instead, the regulation has a tangible external economic policy justification and outlook because it can be seen as a starting point to build up, at the Union level, possibilities to limit inward FDI, which in turn can be used by the EU as a bargaining chip in its trade and investment negotiations with economically powerful countries, such as the United States or China, in order to achieve, on the basis of reciprocity, better access of EU investors to foreign markets. Paradoxically, establishing a framework for the screening of inward FDI at the Union level can therefore be seen as serving the EU’s constitutionally enshrined goal to achieve further investment liberalization, rather than as shielding the internal market from undesired external influence. This article analyses the justification for the recent enactment in the European Union (EU) of a regulation establishing a framework for the screening of inward foreign direct investment (FDI). It argues that the new regulation, which constitutes a first step for a more comprehensive EU investment screening system, should not be considered to be exclusively aimed at protecting the internal market and defensive Union or Member State interests. Instead, the regulation has a tangible external economic policy justification and outlook because it can be seen as a starting point to build up, at the Union level, possibilities to limit inward FDI, which in turn can be used by the EU as a bargaining chip in its trade and investment negotiations with economically powerful countries, such as the United States or China, in order to achieve, on the basis of reciprocity, better access of EU investors to foreign markets. Paradoxically, establishing a framework for the screening of inward FDI at the Union level can therefore be seen as serving the EU’s constitutionally enshrined goal to achieve further investment liberalization, rather than as shielding the internal market from undesired external influence. This article analyses the justification for the recent enactment in the European Union (EU) of a regulation establishing a framework for the screening of inward foreign direct investment (FDI). It argues that the new regulation, which constitutes a first step for a more comprehensive EU investment screening system, should not be considered to be exclusively aimed at protecting the internal market and defensive Union or Member State interests. Instead, the regulation has a tangible external economic policy justification and outlook because it can be seen as a starting point to build up, at the Union level, possibilities to limit inward FDI, which in turn can be used by the EU as a bargaining chip in its trade and investment negotiations with economically powerful countries, such as the United States or China, in order to achieve, on the basis of reciprocity, better access of EU investors to foreign markets. Paradoxically, establishing a framework for the screening of inward FDI at the Union level can therefore be seen as serving the EU’s constitutionally enshrined goal to achieve further investment liberalization, rather than as shielding the internal market from undesired external influence.