Faculty of law blogs / UNIVERSITY OF OXFORD

Developments in German and European Foreign Investment Control – a New Security-Based Merger Control?


Roland Stein
Simón Maturana


Time to read

4 Minutes

In recent years, controls on foreign investments have become increasingly significant. The European Commission has reacted to developments at the national level by submitting a proposal for a “Regulation Establishing a Framework for Screening of Foreign Direct Investments into the European Union”.

For the first time, the EU intends to regulate at Union level the control of company acquisitions by foreign investors in certain sensitive areas (Articles 1 and 2 of the proposed Regulation). However, it does not oblige the Member States to introduce a system of investment control; it merely creates the framework for Member States to provide for such an instrument in their national legislation. In addition, in certain cases, the proposed Regulation grants the Commission powers to inspect and to give an opinion on an investment. However, it does not enable the Commission to issue a prohibition of acquisition. The proposal is based on an initiative by Germany, France and Italy. Insofar, they have welcomed the Commission's proposal in a joint press release.

Scope of application

The proposed Regulation aims at establishing a framework for foreign direct investment control on grounds of security or public order within the EU (Article 1 of the Regulation Proposal). Insofar, the Article is similar to section 55 sec. 1 sentence 2 of the German Foreign Trade and Payments Ordinance (Außenwirtschaftsverordnung – AWV). “Foreign direct investment” in this sense encompasses investments of any kind aiming to establish “lasting and direct links” to the undertaking (Article 2 of the proposed Regulation). In particular, the term covers investments enabling effective participation in management or control of the company. However, it remains unclear what kind of corporate relationships are considered to have “lasting and direct links”. For example, this term seems to be broader than the acquisition of at least 25 percent of the voting rights required for a cross-sectoral investment according to section 56 AWV.

The proposed Regulation names different industry sectors in which foreign investments may endanger security or the public order. Article 4 of the proposed Regulation provides that a threat may exist, in particular, in the following cases:

  • critical infrastructure, including energy, transport, communications, data storage, space or financial infrastructure as well as sensitive facilities;
  • critical technologies, including artificial intelligence, robotics, semiconductors, technologies with potential dual use applications, cybersecurity, space or nuclear technology;
  • the security of supply of critical inputs; and
  • access to sensitive information or the ability to control sensitive information.

This non-exhaustive catalogue of examples largely corresponds to that of section 55 sec. 1 sentence 1 AWV. Interestingly, technologies with potential “dual use applications” are also expressly mentioned. However, Article 4 of the proposed Regulation has some legal ambiguities, e.g. the term “semiconductors” is very vague. Moreover, it remains unclear what the terms “critical inputs” and “sensitive information” mean.

Also worth mentioning is Article 4 sentence 2 of the proposed Regulation. It stipulates that when determining whether an investment is likely to affect security or public order, the fact that a foreign investor is controlled by the government of a third country, including through “significant funding”, can be taken into account. The meaning of the term “significant funding” remains unclear.

Screening process by Member States

Article 6 of the proposed Regulation lays down essential procedural provisions which Member States are required to respect and implement when maintaining, amending or creating national rules on investment control. These procedural provisions concern, in particular, fixed deadlines for decisions on the admissibility or restriction of investments as well as the safeguarding of effective legal protection against decisions taken by Member States.

Article 8 of the proposed Regulation lays out a so-called “cooperation mechanism”. It creates an obligation for any Member State that is in the process of undertaking an investment review to notify the Commission and the other Member States within five days of the investment project in question. Where other Member States consider its security or public order to be possibly affected by this investment, they may provide comments that must be duly taken into account in the investment control decision. Additionally, the Commission is entitled to give its opinion on the investment under review. This opinion may be issued up to 25 working days after the other Member States have provided their comments.

Impact on German foreign investment control

In light of these above-mentioned extensive review periods, the deadlines within the German provisions may need to be extended. Since the most recent AWV reform, the deadline is two months for the issuance of a statement of non-objection after notification of the German Federal Ministry of Economic Affairs and Energy (Bundesministerium für Wirtschaft und Energie, BMWi) (section 58 sec. 2 AWV) and four months for the examination procedure (section 59 sec. 1 sentence 1 AWV). If both Member States and the Commission were to provide an opinion, it seems likely that the existing deadlines in the AWV would not suffice when there has not been a prior notification by the investor.

Germany will also need to clarify whether the notification requirement according to Article 8 of the proposed Regulation will be triggered by the examination of applications for a statement of non-objection, or whether it will only be triggered when an actual review procedure is instigated.

Screening process by the Commission

The proposed Regulation provides for investment control by the Commission when foreign direct investments are likely to affect projects or programmes of Union interest regarding security or public order (Article 3 sec. 2 proposed Regulation). A non-exhaustive list of such projects and programmes can be found in Annex 1 of the proposed Regulation (e.g. Trans-European Networks for Transport, Energy and Telecommunications). Within its power of inspection, the Commission can neither restrict nor prohibit projected investments, but it can communicate its opinion to the Member States (Article 9 of the proposed Regulation). The proposed Regulation does not grant strong rights for review of foreign investments, but the Commission could, in practice, use its political power to participate and perhaps influence national foreign investment control decisions.


Foreign investment control is becoming an issue around the world. The EU and Germany are adapting their legislation to new developments in foreign and security policy: companies will face more detailed and longer time periods for examination proceedings and regulators with more competences. Regulators will thoroughly control corporate acquisitions and the European Commission may become a new player in this field.

Roland Stein is a partner and Simón Maturana is a trainee at the law firm Blomstein.


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