Covid-19 and Foreign Investment Screening – New EU-Guidance Calls for Strict Scrutiny in the Health Care Sector


27 March 2020
The current Covid 19 pandemic has long since developed into an economic crisis, the full impact of which cannot yet be predicted. The crisis also affects those companies that are active in so-called systemically important areas and whose commitment is particularly important for the protection of public health. In the opinion of the EU Commission, it is therefore particularly important to prevent a “sell-out” of companies and technologies that are critical and key to the health sector.

To this end, on 25 March 2020 the Commission published a Guidance for the protection of European critical assets and technologies in the current crisis. It recalls existing control mechanisms by Member States and demonstrates their application in the context of the current public health emergency. At the same time, the Commission urges for their consistent application and, thus, emphasises the increasing practical relevance of foreign investment screening.

Foreign Investment Screening and Dangers to Public Health

EU law is in principle open to direct investment and expressly guarantees the free move-ment of capital, including in relation to third countries. The German Ministry for Economic Affairs and Energy has always stressed this fact. However, this freedom is not absolute. Restrictions can be justified on grounds of public security or public order. Undoubtedly, this includes measures to protect the health of an entire population as one of the overriding public interests.

In its Guidance, the Commission emphasises that in the current situation, foreign direct investment in health, medical research, biotechnology and related infrastructure must be under particular scrutiny. That there is sufficient cause for such guidelines has become apparent not least in discussions about the Tübingen biotech company, which was allegedly to be acquired by the U.S. government. Member States should carefully examine whether relevant investments could lead to the loss of critical companies and technologies of the European Union as a whole. It is also important to take into account the EU-wide effects on health infrastructure and supply chains. If respective risks occur, Member States will have to intervene on the basis of their relevant national legal frame-works.

In Germany, the Foreign Trade and Payments Ordinance (“Außenwirtschaftsverordnung” – AWV) provides for various tools of foreign investment screening. In the health care sector, the so-called cross-sectoral examination is crucial. Pursuant to this, the Federal Ministry for Economic Affairs and Energy is authorised to examine any acquisition of domestic companies or interests in them by non-EU nationals to determine whether there is a threat to public order or security. Statutory provisions provide that such a danger may occur in particular if the company in question operates a critical infrastructure. This includes the health care sector for instance. Dangers to public health can therefore justify intensive measures. However, a complete ban on transactions can only be proportionate as a last resort. It may be more appropriate to issue orders, such as the imposition of delivery obligations, in order to avoid supply disruptions.

The Future EU-wide Coordination of Foreign Investment Screening

In addition to the rules of the individual Member States, the Commission’s Guidance also refers to Regulation 2019/452 which was adopted a year ago and will fully enter into force in October 2020. This Regulation neither creates a screening regime nor requires Member States to establish one themselves, although the Commission would clearly prefer Member States to do so. The new Guidance, for instance, expressly calls upon Member States to set up a full-fledged screening mechanism. Rather, Regulation 2019/452 establishes a framework for the screening of foreign direct investment in the EU. The authority to review and restrict foreign direct investments will remain with Member States. However, for the first time, the regulation introduces an EU-wide mech-anism for the coordination of investment screenings. On the one hand, this mechanism provides for compulsory exchanges between Member States and the Commission, as well as between Member States themselves. On the other hand, it gives the Commission the opportunity to make recommendations if a planned investment affects Union interests. From then on, individual Member States may also encourage other Member States to implement restrictive measures with regard to investments, including those that have already been carried out.


The EU Guidance published in the context of the current health crisis provide a further indication of the increasing practical importance of foreign investment screening. Against the backdrop of the new EU regulation, Member States will increasingly take into account EU-wide interests while reviewing foreign directs investments. It is to be expected that the Commission will use its newly gained authorities proactively and that it will therefore increasingly influence individual transactions.

The increased political sensitivity is not limited to EU levels, but also applies to Member States themselves. Germany, for example, is increasingly abandoning its traditionally liberal approach, has extended investment screenings and announced its intention to further tighten existing rules. While this has been subject to extensive discussion in the past – especially in the context of individual takeovers by Chinese companies –, the current Guidance on the Covid-19 pandemic shows that awareness of the role of foreign investment screening and the willingness to intervene more strongly are constantly growing.

BLOMSTEIN will monitor and inform about further developments. If you have any ques-tions about the potential impact on your company or your industry, Dr Roland M. Stein and Dr Leonard von Rummel will be happy to answer them.

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