CELIS Update on Investment Screening – August 2024
EU – European Commission publishes Commission Staff Working Document giving clarifications on the application of Art. 4 (1), Article 6 and Article 27(1) of Regulation (EU) 2022/2560 on foreign subsidies distorting the internal market
On 26 July 2024, the European Commission (“EC”) published the Commission Staff Working Document on foreign subsidies distorting the internal market (“SWD”) giving initial clarification on some key concepts under the Foreign Subsidies Regulation (“FSR”).
The SWD outlines two conditions that must be met for a foreign subsidy to be distortive: first, the foreign subsidy must be liable to improve the competitive position of the undertaking in the internal market, implying that there is a relationship between the foreign subsidy and the company’s activities in the EU. In order to illustrate this point, the SWD distinguishes between (i) an interest-free loan granted by a third country directly to an EU entity operating in the EU internal market and (ii) a foreign subsidy granted to a subsidiary not operating in the EU, where this subsidy has been used to develop the local activities of the subsidiary in the third country. Secondly, by improving the competitive position of the undertaking concerned in the internal market, the foreign aid must have an actual or potential negative effect on competition in the internal market.
The SWD clarifies, that the EC cannot presume that all subsidies are distortive and that Article 4(1) FSR sets out a non-exhaustive list of “indicators” that can be used to carry out a detailed assessment of whether a subsidy is distortive or not. If a subsidy falls under the list of ‘most likely distortive’ subsidies identified under Article 5 FSR, it will be presumed to be distortive and the EC will, in general, not perform a detailed assessment based on indicators. The existence of a subsidy that is ‘most likely distortive’ will significantly increase the risk of an in-depth investigation.
Article 6 of the FSR allows the EC to balance the negative/distorting effects of a foreign subsidy against the positive effects on the development of the subsidised activity concerned. The SWD points out that the application of the balancing test can only lead to a neutral or positive result in an EU assessment case, which seems to imply that it would be in the interests of companies to provide evidence of the likely positive effects of any subsidy.
In the case of public procurement, the EC examines whether a subsidised tender is unduly advantageous and is related to the foreign subsidy. For mergers and acquisitions, the EC examines distortions in the acquisition process itself as well as distortions in the market(s) in which the combined entity operates post-concentration.
The initial clarifications are ‘of a preliminary nature’ and will be further developed through case practice. Further guidelines on the application of the FSR are promised to be published by 12 January 2026.
The Commission Staff Working Document on foreign subsidies distorting the internal market can be accessed here.
Sweden – Expanded scope of the Swedish Act on Foreign Direct Investments
On 1 August 2024, the Swedish Civil Contingencies Agency published its revised guidelines listing types of essential services that fall under the scope of the Swedish Act on Foreign Direct Investments (“FDI Act”). The revised guidelines were adopted on 24 June 2024 and enter into force on 1 September 2024, replacing the current guidelines.
The following types of services will now fall under the scope of the FDI Act: travel agency services or invoicing services for emergency response authorities or entities carrying out security-sensitive activities; surveillance or remote monitoring of electronic alarm systems or fire alarms; activities under the scope of the Swedish Healthcare and Medical Services Act providing healthcare information and medical advice over the internet or by telephone. Additionally, the scope of the FDI Act is significantly expanded within the information and communications technology sector.
The regulations on which essential activities are covered by the FDI Investment Review Act adopted on 24 June 2024 can be accessed here (Swedish).
Netherlands – Dutch Government proposes a new investment screening regime for the defense sector
On 1 July 2024, the Dutch government published the Defense Resilience and Safety Related Sector Act (“Proposed Act”), a legislative proposal aimed at ensuring national security in the defense sector. The Proposed Act anticipates the introduction of a new sector specific investment screening regime for certain undertakings in the defense sector. The public consultation period for the Proposed Act was concluded on 31 August 2024.
A qualifying acquisition activity will be subject to a prior mandatory notification obligation if it relates to a target undertaking that qualifies as military goods or transport supplier or significant defense supplier. Therewith any undertaking that is listed in the Common Military List of the European Union or any undertaking that has concluded an ongoing agreement with the Netherlands to make available on-demand, short-notice transport capacity that is suitable for immediate deployment by the armed forces, as well as any undertaking designated by the Minister of Defense as being of general economic importance or as holding strategic stocks of goods for implementation of the strategic stocking plan of the Dutch government.
The proposed regime will apply in addition to the already existing Dutch sector-specific regimes and the Vifo Act and takes precedence over the broad regime.
Spain & Hungary – Spanish government decides to veto Hungarian consortium Ganz-Mávag Europe’s attempt to buy Spanish train manufacturer Talgo
The Spanish government decided to veto a takeover of Spanish train manufacturer Talgo by the Hungarian consortium Ganz-Mávag Europe, partially owned by the Hungarian government, by reason of national security and public order concerns, including potential links to Russia. Talgo has developed a vehicle system that allows its high-speed trains to automatically adapt to railway tracks with different gauges, permitting quick cross-border travel. The Spanish government blocked the deal after Spain’s National Intelligence Center and the Department of National Security submitted their reports on the € 619 million takeover bid.
The European Union has not raised any objections yet, which suggests that the EC is likely to respect the sovereignty of member states in matters involving strategic industries and national security.
United States – Biden is preparing to block Nippon Steel’s purchase of U.S. Steel
U.S. President Joe Biden is reportedly planning to block the Japanese acquisition of Pittsburgh-based steelmaker U.S. Steel for $14.1 billion by reasons of national security.
The deal has faced resistance from the steelworkers union, President Biden, Vice President Kamala Harris, Donald Trump and other lawmakers.
The deal is in the final stages of review by the Committee on Foreign Investment in the United States (CFIUS). So far, CFIUS has been only sparely used by presidents to block transactions. There are concerns, that CFIUS could become a tempting regulatory tool through which politicians may seek leverage to influence a politically toxic deal.
