Investment Screening in the Netherlands: Proposed Expansion and Insights into Council Negotiations

Overview

The Dutch Government has proposed an expansion of the investment screening regime. The expansion introduces a mandatory screening requirement for certain investments in artificial intelligence, advanced materials, nanotechnology, sensor and navigation technology, biotechnology, and nuclear technology for medical use (the Dutch Proposal). The Dutch Proposal aligns with broader EU efforts to enhance economic security but takes a narrower and more focused approach compared to the European Commission's proposal for a revised Foreign Investment Screening Regulation (the Commission’s Proposal). This blog explores the key aspects of the Dutch Proposal and provides insights into the relationship between this proposal and ongoing negotiations within the Council of the European Union (the Council).

The Dutch Investment Screening Regime

The Dutch investment screening regime consists of a general investment screening act and sector-specific screening instruments for the energy and telecom sectors.[1] The Dutch Government has also proposed a new sector-specific screening regime for investments in the defence sector as part of a proposal to boost the resilience of the Dutch defence industry.[2] Broadly speaking the Dutch investment screening regime applies to investments in “vital providers”, which relates to critical infrastructures, and investments in companies that are active in the areas of “sensitive technologies”. At present, sensitive technologies are limited to export-controlled military goods and dual-use items, quantum, photonics, and semiconductor technologies and high assurance information security products. On 19 December 2024, the Dutch Government announced its intention to designate artificial intelligence, advanced materials and nanotechnology, sensor and navigation technology, biotechnology, and nuclear technology for medical use as (highly) sensitive technologies (i.e. the Dutch Proposal).[3] The Dutch Proposal represents a significant expansion of the Dutch investment screening regime.

The Dutch Proposal sets out specific applications that are designated as sensitive.[4] For instance, the definition of designated AI systems is limited to systems and underlying models that are designed for, in short, (i) identification or impersonation and analysis of persons, groups, and objects via image, speech, or biometric applications, (ii) identification of persons, groups, or objects based on the analysis of geography and sensors connected to a network, notably information from GPS, Wi-Fi, cameras, 4G networks, and (iii) supporting military deployment or security organizations in general.

The explanatory memorandum to the Dutch Proposal considers that the designated sensitive technologies play an important role in the future security environment, not only due to their applications in weapon systems and defence capabilities, but also due to their broader implications for economic value creation and for addressing societal challenges. These advanced technologies are notably of significant importance to the security of supply of energy, food, and medicine and may pose threats in the area of misinformation and repression. The explanatory memorandum estimates that approximately 1,015 to 1,730 companies fall under the scope of application of the Dutch Proposal.

Insights into Council Negotiations

The Dutch Proposal does not cover a wide range of activities and technologies for which the Commission’s Proposal aims to introduce a mandatory screening requirement. Under the Commission’s Proposal, the Member States would be required to screen investments in EU companies that are active in a broad range of range of technologies, assets, facilities, equipment, networks, systems, services, and economic activities. The Commission’s Proposal would notably require a screening for targets that are economically active in a range of technologies that are not included under the Dutch Proposal, including among others, the Internet of Things, virtual reality, hydrogen and new fuels, net-zero technologies, smart grids, robotics and autonomous systems, additive manufacturing, and recycling.[5] Additionally, the Commission’s Proposal includes critical medicines and various financial institutions that are not yet designated as critical infrastructures in the Netherlands, such as in the area of crypto assets.[6] Furthermore, the Commission’s Proposal provides that the Member States must screen investments in EU companies that are part of or participate in projects or programmes of Union interest.[7]

Therefore, while the Dutch Proposal aligns with Commission’s efforts to enhance economic security by expanding the scope of the investment screening regime, the Dutch Proposal only covers some of the technologies and activities for which the Commission has proposed a mandatory screening requirement. Moreover, even for sensitive technology areas that will be covered by the Dutch investment screening regime under the Dutch Proposal, the definition of designated technologies is much narrower than as proposed by the Commission. For instance, the scope of “artificial intelligence technologies” under Annex II of the Commission Regulation is broadly defined as (i) high performance computing (ii) cloud and edge computing (iii) data analytics technologies and (iv) computer vision, language processing, object recognition.[8] This definition is significantly broader than the one proposed under the Dutch Proposal, referenced above.

The relatively narrow and precise expansion under the Dutch Proposal reflects the criticisms of the Dutch Government on the Commission’s Proposal. While the Dutch Government is generally supportive of the Commission’s Proposal, it is critical of the proposed minimum scope of application and the mandatory call-in procedure.[9] The Dutch Government considers that a clear and precise scope of application is important to guarantee legal certainty for companies, to reduce the administrative burden, and to reduce the number of screening investigations to those investments that have a likely impact on national security.[10] The Dutch Government is of the view that the scope of application of mandatory screenings under the Commission’s Proposal is too wide, insufficiently precise and insufficiently substantiated. The Dutch Government furthermore questions the actual harmonising effects on the internal market, as Member States can still determine, within the scope of application, the thresholds for screenings and the assessment criteria for determining threats to security and public order. The Dutch Government considers that there would still be differences between investment screening mechanisms of Member States in practice. Therefore, the Dutch Government has expressed a preference for a voluntary guideline for the minimum scope of application, instead of a mandatory scope of application.[11]

The Dutch Government has expressed these concerns at the Council’s Working Group on Trade Issues, where the Commission's Proposal is under discussion. According to a letter from the Dutch Minister of Economic Affairs (the Minister) to the Dutch Parliament of 14 January 2025,[12] the Commission’s Proposal has been under discussion as of March 2024. After a general discussion on all parts of the Commission’s Proposal, the Council has discussed the proposal on an article-by-article basis as of May 2024. According to the Minister, the key discussion points included, among others, the proposed minimum scope of application for national investment screening, the call-in procedure, the administrative burden and potential negative effects on the investment climate.[13]

According to the update to the Dutch Parliament, the (former) Hungarian presidency presented a revised version of the Commission’s Proposal to the Council on 19 November 2024. This revised version remains confidential. According to the Minister, the revised text incorporates various textual proposals and positions from the Member States, including the Netherlands. The Minister informed the Dutch Parliament that the revised text will serve as the basis for further negotiations under the Polish Council Presidency until a final text is reached that can garner sufficient support from the Council. Trilogue negotiations with the European Parliament will follow once an agreement is reached in the Council.

It may not be a coincidence that the publication of the Dutch Proposal followed the presentation of a revised version of the Commission’s Proposal by the (former) Hungarian Presidency of the Council. The nature and timing of the Dutch Proposal could be seen as an indication that the Dutch critique on the proposed minimum scope of application enjoys broader support in the Council. This approach contrasts not only with the Commission’s Proposal, but also with the position of the International Trade Committee of the European Parliament, which has proposed to further expand Annex II with aeronautics infrastructure and technologies, rather than to limit the scope of application of the proposed mandatory screening requirement.[14] While it cannot be excluded that the Dutch position is ultimately rejected, triggering a required further expansion of the Dutch investment screening regime, the Dutch Proposal and related update by the Minister to the Dutch Parliament hints at a likely outcome of the Council proposing either a narrower, more specifically defined mandatory scope of application or possibly even a mere voluntary guideline for a minimum scope of application.

[1]          For more information see Jochem de Kok and Wessel Geursen, ‘CELIS Country Note on the Netherlands 2023’ (CELIS Institute, 1 December 2023), available via https://www.celis.institute/celis-country-reports/country-note-the-netherlands-2023/; Jochem de Kok, ‘Investment Screening in the Netherlands’ (2021) 48(1) Legal Issues of Economic Integration 43.

[2]          For more information see Jochem de Kok, ‘The New Act on the Resilience of the Defence and Security related Industry’ (A&O Shearman, 27 August 2024), available via https://blog.allenovery.com/aoblog/homenl/the-new-act-on-the-resilience-of-the-defence-and-security-related-industry

[3]          The Proposal and explanatory memorandum are available (in Dutch) via https://www.internetconsultatie.nl/uitbreiding_wet_vifo/b1

[4]          These are summarised in English in the abovementioned blog by the author, available via https://blog.allenovery.com/aoblog/corporate_nl/the-netherlands-proposes-expansion-of-investment-screening-regime

[5]          Commission’s Proposal, Article 4(4)(b) and Annex II.

[6]          Commission’s Proposal, Article 4(4)(b) and Annex II.

[7]          Commission’s Proposal, Article 4(4)(a) and Annex I.

[8]          Commission’s Proposal, Annex II, paragraph 3(b).

[9]          Under the call-in procedure (or initiative procedure), Member States should be empowered to start screening foreign investments on their own initiative for at least 15 months after the completion of a transaction that was not subject to an authorisation requirement, if the screening authority has grounds to consider that the investments may affect security or public order. Commission’s Proposal, Article 4(2)(c).

[10]         Ibid. Dutch Parliament, ‘New Commission Proposals and Initiatives of the Member States of the European Union’ (Letter of the Minister of Foreign Affairs, 1 March 2024) (Parliamentary Papers II 2023-2024, 22 122, No. 3905), available via https://zoek.officielebekendmakingen.nl/dossier/kst-22112-3905.pdf

[11]         Ibid.

[12]         Ministry of Economic Affairs, ‘State of affairs relating to the revision of the Foreign Direct Investment Screening Regulation’ (Letter to the Parliament, 14 January 2024), available in Dutch via https://www.rijksoverheid.nl/documenten/kamerstukken/2025/01/14/stand-van-zaken-herziening-verordening-screening-buitenlandse-directe-investeringen

[13]         Ibid.

[14]         European Parliament Committee on International Trade, ‘Draft Report on the proposal for a regulation of the European Parliament and of the Council on the screening of foreign investments in the Union and repealing Regulation (EU) 2019/452 of the European Parliament and of the Council (COM(2024)0023 – C9-0011/2024 – 2024/0017(COD))’ (2024/0017(COD, 17 January 2025), available via https://www.europarl.europa.eu/doceo/document/INTA-PR-767951_EN.pdf