Mon 04/06/2020 14:33 PM
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Takeaways
 
  • The European Commission’s guidance concerning foreign direct investment, or FDI, during the coronavirus pandemic is expected to motivate more EU member states to quickly adopt regimes for screening transactions involving foreign entities.
  • The implementation of such regimes, however, “will take time,” said Veronica Roberts, a partner at Herbert Smith Freehills in London. “Governments do not have the time and resources to deal with anything other than the virus right now,” she said.
  • As effects from the coronavirus pandemic continue to disrupt international economies, the commission has warned in guidance to member states that “there could be an increased risk of attempts to acquire healthcare capacities” in the EU or related industries via FDI.
  • Roberts said the commission’s guidance may ultimately lead to more screening of transactions “but not necessarily full out rejections of foreign investments.”

The European Commission’s guidance concerning foreign direct investment during the coronavirus pandemic is expected to motivate more EU member states to quickly adopt regimes for screening transactions involving foreign entities.

The implementation of such regimes, however, “will take time,” said Veronica Roberts, a partner at Herbert Smith Freehills in London. “Governments are unlikely to have the time and resources to deal with anything other than the virus right now,” she said. Currently, about half of the 27 EU member states have some type of regime for screening foreign direct investment, or FDI.

As the coronavirus pandemic continues to disrupt international economies, the commission has warned in guidance to member states that “there could be an increased risk of attempts to acquire healthcare capacities” in the EU or related industries via FDI. The commission urged states that currently do not have a screening mechanism for FDI to set up a full-fledged regime.

Aline Doussin, a partner at Hogan Lovells in London, noted that the guidance on March 25 was the second official communication from the commission highlighting the need for member states to have regimes for FDI screening. The first communication was the EU’s recent establishment of a framework laying out common criteria and standards that countries should follow if they introduce FDI regimes. The framework, which will begin to apply to FDI beginning in October, does not establish procedures for screening FDI at the EU level.

As states set up their FDI regimes, the commission said in its March guidance that they should “use all other available options to address cases where the acquisition or control of a particular business, infrastructure or technology would create a risk to security or public order in the EU.” Jason Hungerford, a partner at Mayer Brown in London, said a mechanism member states could use to mitigate such a risk is export control regulation. But he noted that all of these measures amount to closing borders to trade.

While closing borders to travel is part of an effort to contain the spread of the coronavirus, doing this with regard to trade and investment could threaten the success of the EU common market on an international basis, Hungerford said.

Roberts said the commission’s guidance may ultimately lead to more screening of transactions “but not necessarily full out rejections of foreign investments.” More member states “will want to peruse some foreign investment more closely than they would have done before - which could cause some delays to [deal] timelines,” she said.

But while FDI may be scrutinized more closely, Roberts said she was unsure whether foreign investment would be unwelcome in the aftermath of the pandemic. Some countries “may be strapped for investment cash” as a result of the economic crisis caused by the shutdown of industries and businesses during the spread of the coronavirus.

--Alex Wilts
 
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