Brussels seeks tighter vetting of foreign takeovers

Brussels will call for more rigorous screening of foreign takeovers of European companies, as it seeks to address mounting concerns about a surge of Chinese investment into the bloc’s high-tech manufacturing, energy and infrastructure sectors.

Jean-Claude Juncker, European Commission president, is set to announce measures in a keynote speech in September to tackle perceived gaps in the EU’s armoury compared with the US and other major economies in vetting foreign takeovers in strategic sectors, according to people briefed on the talks.

The issue has risen up the EU’s political agenda due to growing fears that China may gain a technological edge by buying European know-how while heavily restricting the role it allows EU investors in its domestic market.

On Monday the US will launch an investigation into intellectual property rights, the first trade action against China under the Trump administration, because of similar concerns.

At present, only 13 of the EU’s 28 nations have formal systems for screening takeovers and other investments to assess whether they pose a threat to national security or public policy goals.

“There is a sense that we need to reinforce our arsenal, to negotiate [with Beijing] with equal strength,” said André Sapir, senior fellow at the Bruegel think-tank.

People involved in the talks on prospective EU measures said that plans will involve better co-ordination of existing national screening systems to encourage the use of similar criteria across the bloc on whether to permit foreign acquisitions.

The commission is also considering a more controversial proposal to introduce EU-level investment screening, which could apply to takeovers of companies that have received EU funding.

A commission spokesman said Brussels was aware of concerns related to foreign investment in strategic sectors and that Mr Juncker had set up a group of commissioners “to elaborate first possible actions” for his September speech.

More generally, many Europeans are frustrated at takeovers by Chinese state-owned enterprises and the lack of progress in talks with Beijing on an investment deal that would increase access to the Chinese market.

According to a report by the Mercator Institute for China Studies and the Rhodium Group, Chinese FDI into the EU reached around €35bn in 2016, an increase of more than two-thirds on the year before.

Any EU decision to impose greater scrutiny on foreign acquisitions would follow moves elsewhere.

The US’s Committee on Foreign Investment, known as Cfius, has long vetted proposed takeovers, in effect barring investments from companies such as Huawei, the Chinese telecoms equipment manufacturer. Late last year it even blocked a Chinese company’s purchase of a German chipmaker on national security grounds.

In response to a surge of Chinese investment, Australia last year introduced mandatory reviews of all sales of public infrastructure by its Foreign Investment Review Board.

France’s president Emmanuel Macron and the European Parliament have led calls for similar European measures to scrutinise foreign takeovers by state-owned groups or companies from countries without comparable market access. Mr Sapir said that Germany, previously wary of EU moves to police foreign takeovers, was now also more favourably disposed to the idea.

EU leaders clashed in June over how far to go, with nations including Nordic countries, Portugal, Spain and Ireland pushing back against calls from France, Germany and Italy for a formal European mechanism to restrict foreign takeovers in key industries.

Ultimately the two sides agreed the commission should look at ways for the EU “to analyse investments from third countries in strategic sectors while fully respecting member-state competences”.

One leading option under consideration would be for the commission to propose non-binding guidelines to help co-ordinate member-state screening but also to set out a more ambitious draft law for a new EU screening system, a measure that would have to be agreed by governments and the European Parliament.

The plans may indicate whether the EU is heading in a more protectionist direction now that the UK, traditionally its free-trade champion, is due to leave.

But Hosuk Lee-Makiyama, a former EU trade official now heading the European Centre for International Political Economy, said that even free-trade champions such as the UK agreed with states such as France that “there are genuine security concerns regarding Chinese investment”.