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State-influenced foreign investment in strategic sectors in Europe: why the EU must be able to intervene

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In the EU, it goes without saying that freedom of investment is a core principle. It seems normal for internal and foreign investors to acquire significant parts of a company in the EU – leading to economic influence, including in sensitive sectors such as energy, transport and telecommunications.

One of the best-known examples is the acquisition of Germany’s robot manufacturer Kuka by China’s Midea Group. This particularly high-profile case triggered many concerns that Germany was selling out key technologies to China.

„The problem is simple: in Germany, the registration and review of non-EU investments or takeovers are not compulsory, unless there is a direct military link, which then requires a sector-specific review,” explains Daniel Caspary, EPP Group Spokesperson on International Trade.

DEVELOPING A COMMON EUROPEAN APPROACH FOR REVIEW MECHANISMS
National review mechanisms already exist in some Member States and generally allow the prohibition of foreign investments that threaten public security or public order. However, in other fields of investment, they leave a vital loophole. When investors from third countries acquire shell companies in EU Member States to take over enterprises in another Member State, the existing national review mechanisms do not apply.

In light of the acquisition of Kuka, many Member States have already expressed concerns regarding patent rights, jobs and unfair competition through Chinese state-driven or state-influenced companies.

“This clearly demonstrates why we need to develop a common European approach,” Caspary emphasises.

ADDRESSING IMBALANCES IN INVESTMENT RELATIONS WITH THIRD COUNTRIES
Investment relations with third countries are further complicated by a lack of openness and reciprocity. As the case of Kuka demonstrates, there are few hurdles in the way of foreign investors in Europe. By contrast, EU investors face disproportionally high hurdles when investing in third countries, such as China. “Investment relations need to be rebalanced and readjusted. This is about ensuring a level playing-field,” Caspary noted.

Together with EPP Group Chairman Manfred Weber and eight other MEPs from the EPP Group (Salvatore Cicu, Franck Proust, Godelieve Quisthoudt-Rowohl, Viviane Reding, Tokia Saïfi, Andreas Schwab, Adam Szejnfeld, Iuliu Winkler), Caspary has introduced a proposal for a Union act calling on the Commission to develop a detailed proposal to address this imbalance.

It specifically calls on the European Commission to ensure equal access to third countries for EU investors and suggests the creation of a European Committee on Foreign Investment to monitor, investigate and control foreign investments in European enterprises.

“The best solution would certainly be a comprehensive agreement between the EU and third countries on investment protection. But this is still a long way away. Our initiative is a pragmatic approach, which tackles the problem head-on instead of standing on the sidelines.”

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