Shearman And Sterling

Antitrust, European Commission

April 06, 2020

EU Steps Up Protection of Critical Assets and Technologies During COVID-19 Crisis


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Key Points

  • Although Brussels has no power to approve or block FDI, the European Commission is urging a tightening of policy across the block.

  • The Commission is signaling that it is responsive to calls for a more protective industrial strategy. This will come through in the Commission’s future legislative proposals, trade policy and willingness to direct/encourage protectionism aimed at trading partners outside the block, including the U.K. and Switzerland.

  • Whether this translates into actual tightening of policy will depend on any given deal for which Member States have jurisdiction, the extent of FDI control in those countries (which still varies a lot) and how those countries perceive their best interests.

  • Despite the rhetoric, we are still a long way from an EU version of CFIUS.


In response to the COVID-19 crisis, the European Commission is urging EU Member States to launch foreign direct investment (FDI) screening, capital controls and “all other available options” to shield European businesses, infrastructure or technologies of strategic importance from foreign takeovers during this unprecedented turmoil. In its Guidance Paper[1] of March 25, 2020, the Commission also vigorously prompts Member States to establish fully-fledged systems, as twelve of them do not yet have screening mechanisms in place.

On the heels of mounting concerns regarding the lack of essential supplies during the pandemic, and with the threat of a takeover of a German vaccines company by the U.S., the Guidance reflects a policy stance that dovetails with the new Commission’s goals of strategic autonomy in Europe.

In the short-term, the potential measures called for in the Guidance are likely to implicate companies involved in producing ventilators, vaccines, protective medical equipment and textiles, as well as companies that received funding under the Horizon 2020 research program. In the medium- to longer-term, a much wider range of goods and service providers may also be impacted. Investors seeking to acquire companies or make portfolio investments in the EU may face greater hurdles and longer timeframes as national authorities and the Commission embark on expanded review of transactions in critical sectors.

Investment Screening by Member States and the Commission’s Role

The Commission urges Member States to screen FDI in the context of the COVID-19 crisis on the grounds of protecting Europe’s “security and public order,” notably against threats linked to a “public health emergency.” In the EU, FDI is regulated at the Member State level. Currently, only twelve Member States have formal screening mechanisms (Austria, Denmark, Hungary, Germany, Finland, France, Latvia, Lithuania, Italy, Poland, Portugal and Spain). However, effective October 11, 2020, the Commission can also exercise its newly minted powers to review and issue non-binding opinions on investments in the EU.

Review at the EU-level is more fragmented in comparison to screening in the U.S. by CFIUS, as decision-making powers remain rooted at the national level rather than in Brussels. Although, unlike in merger control, the Commission cannot legally block a transaction, Member States will be required to “take utmost account” of the Commission’s opinion, as well as consider comments from other Member States and justify their actions if they do not comply with the opinion.

To determine whether a Member State can intervene on the basis that an investment affects security and public order, the Regulation allows Member States and the Commission substantial discretion to assess “all relevant factors,” including effects on critical areas and essential inputs and control by a foreign government.

While investments in health and medical research industries are obviously a focal point of the Guidance, the Commission’s overarching policy goal is to protect “strategic industries” and “strategic infrastructure.” Although “strategic” is not defined, the Guidance Paper and Commission messaging points to the Regulation for possible interpretation. Accordingly, an acquisition can conceivably be prioritized for screening if it affects “critical technologies,” “critical inputs” or “critical infrastructure”[2] (this could be physical or virtual and includes health, energy, transport, water, communications, media, data processing or storage, aerospace, defense, electoral or financial infrastructure, sensitive facilities or related land and real estate).

The Guidance is part of an ongoing trend of tightening foreign investment rules, both within the EU and globally. Most recently, in response to the COVID-19 crisis, Spain increased control on FDI in strategic sectors via a temporary ex ante approval requirement, and Australia has temporarily removed monetary screening thresholds for all foreign investments. More generally, in the last two years, many countries have ratcheted up FDI controls by methods such as broadening the scope of reviewable transactions or increasing reporting requirements, including the U.S., U.K., Germany, France, Italy, Norway, Japan and Russia. This trend is expected to continue at pace. In the meantime, the Commission’s policy stance, as reflected in its Guidance, may well result in the parallel establishment or concretization of new screening regimes in Member States such as Belgium (a mechanism already exists in Flanders), Ireland, Sweden and the Netherlands, among those remaining.

Additional Options for Protection

The urgent drive to protect European industries is clear from Vice-President Vestager’s remarks indicating that the Commission is “intensively working on ideas on how to prevent acquisitions backed by subsidies from foreign states” and President von der Leyen’s declaration that Member States should “use all options to protect European companies.”[3] Although more concrete plans are in development, the Guidance indicates Commission support of the following measures:

Screening Portfolio Investments. If an investment does not confer influence over management or control of the asset (and therefore does not constitute FDI), but takes the form of a portfolio investment instead, the Commission encourages screening if it accords certain (undefined) rights under national company law to the shareholder, as it might be relevant to security or public order.

Protecting Against “Predatory Buying” and Threats to Financial Stability. If foreign investors engage in “predatory buying” (with a view to limiting supply to the EU market) of strategic assets, Member States are encouraged to invoke restrictive measures to ensure the security of supply of goods or services (e.g. energy). In addition, the Commission considers that capital controls may also be imposed to address threats to financial stability (as exemplified by Greek measures taken during the debt crisis in 2015).

Protecting Start-ups/Undervalued Companies. In the event of foreign investment in companies with “valuations on capital markets that are considered well below their true or intrinsic value,” the Commission encourages Member States to introduce restrictions if the transaction may lead to over-reliance on foreign investors for essential supplies or essential services. These conditions would have to be evaluated subjectively by each Member State as the Guidance is silent on assessment criteria.

Golden Shares/Nationalization. The Commission highlights the possibility for Member States to retain special rights in companies through the holding of “golden shares,” to allow them to limit investments if necessary to achieve legitimate public policy objectives like “public health,” “protecting consumers” or “achieving social policy objectives.”

Compulsory Licenses on Patented Medicines. The Commission offers a reminder that Member States can impose compulsory licenses in the event of a national emergency, such as a pandemic. Although such measures have previously been used in different Member States, they are rare, and grounds for granting such licenses may differ from country to country. To avoid confusion within industry and supply chains, a harmonized approach to compulsory licensing in the face of COVID-19 will be essential.


The Commission’s Guidance marks a visible move away from its traditional multilateral goals and nudges the EU further towards an accelerated “Europe First” approach. The increasingly defensive stance of recent months within the region will likely impact the EU’s industrial policy. Europe’s concerns with respect to reliance on foreign supplies, in particular from Asia, has been exacerbated by the current crisis. In line with Commissioner Breton’s views on the need to rethink the extent of globalization in the face of capacity concerns[4], the current climate may indeed usher in the rapid development of “industrial ecosystems,” which recently formed part of the EU’s current strategy to reduce external dependence.

The Commission’s spotlight on foreign investment screening means that it will be imperative for businesses to factor this into their assessments of regulatory risks in M&A transactions, in addition to antitrust review. As a whole, multinational companies exposed to foreign investment or global supply chains should carefully evaluate the rapidly shifting global scene and consider optimal solutions for continued stability in their European business transactions.


[1]  Guidance to the Member States concerning foreign direct investment and free movement of capital from third countries, and the protection of Europe’s strategic assets, ahead of the application of Regulation (EU) 2019/452 (FDI Screening Regulation), March 25, 2020.
[2]  Article 4 of Regulation (EU) 2019 / 452, March 19, 2019.
[3]  VP Vestager’s statement at “Shaping Europe’s Digital Future,” Friends of Europe, March 27, 2020; and President von der Leyen’s video statement on Twitter, March 25, 2020.
[4]  Thierry Breton’s discussion on the challenges posed to Europe’s Industrial Policy by COVID-19, at Bruegel, March 19, 2020.

Authors and Contributors

Elvira Aliende Rodriguez



+32 2 500 9837

+32 2 500 9837


Matthew Readings



+44 20 7655 5937

+44 20 7655 5937


James Webber



+44 20 7655 5691

+44 20 7655 5691

+32 2 500 9800

+32 2 500 9800