“Reciprocity Rules” – Germany, France and Italy Initiate Debate About EU-Wide Restrictions on Foreign Investment and Access to Government Contracts

by Morrison & Foerster LLP - Government Contracts Insights

The ministers of economy for three European Union (EU) and Eurozone members—Germany, France and Italy—in a joint proposal addressed to the EU Commissioner for Trade Cecilia Malmström are putting “proposals for ensuring an improved level playing field in trade and investment” on the EU Commission’s agenda.

In their joint letter, the three ministers stress that they are “worried about the lack of reciprocity” and about a potential selling-off of European know-how and expertise, which the EU and its Member States “are currently unable to combat with effective instruments”. The initiative explicitly refers to the takeover by non-EU investors in the last few years of “more and more European companies with key technological competences for strategic reasons”; the proposal apparently aims to establish a review regime that would allow for restricting acquisitions directly or indirectly steered or financed by non-EU governments.

Calling for additional means to restrict or prohibit investments by non-EU persons, the ministers propose establishing an EU-wide additional layer of control of investments by non-EU investors in European companies, which would need to be implemented through new legislation at the EU level. The three ministers suggest the following key points:

  • “Non-EU investors in principle have the right to make direct investments within the EU. However, the principle of reciprocity applies in cases where a foreign investor has only limited market access in the country of origin of the acquisition (e.g. by being forced to set up a joint venture or through the exclusion of foreign investors in certain sectors).
  • With reference to the expertise of the EU Commission, in individual cases a Member State can either completely prohibit a direct/indirect investment or make it subject to compliance with an order.
  • An intervention may only be made if the investor acquires a significant part of a company that leads to economic influence.
  • An intervention is particularly justified where
    • the decision for the envisaged direct investment by the third country does not comply with market rules (e.g. through investment instructions; through state-funded takeovers based on political programmes; through the requirement for state approval of investments) or
    • the envisaged direct investment is made possible or is facilitated by state subsidies and this results in a market disturbance (e.g. through government loans which do not reflect market conditions).
  • The right of intervention shall be without prejudice to existing bilateral and multilateral agreements.”

For now, the proposal is designed to start a discussion at the EU level. If only because of its brevity, it triggers a number of questions, and not only with respect to the exact meaning of certain undefined terms used in the above list of proposed key criteria. For example, procedural aspects and the exact allocation of responsibilities between the Member States’ authorities and the EU Commission will have to be addressed if the proposal further evolves.

Apart from the preliminary set of criteria listed above, especially to protect the high-tech industry, the ministers raise a similar concern with respect to access to government contracts for EU companies in non-EU countries. They stressed that “EU companies still face great difficulties to benefit from a fair access and equitable treatment abroad in a number of countries,” whereas the EU had opened its government-contracts markets to a greater extent than certain countries abroad. In that regard, the ministers’ proposal is limited to a general claim for the establishment of a level playing field. In the ministers’ view, the current unbalanced level of openness would need to be addressed through “ambitious Free Trade Agreements” and by “agreeing as soon as possible on an appropriate EU instrument to adopt a symmetric level of openness,” as the French, German and Italian ministers put it.

It remains to be seen if, how and when the relevant EU commissioner and (other) Member States’ governments take serious action to further pursue the suggested approach with respect to stricter rules on foreign investments and access to government contracts.

[View source.]

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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