Mateusz Milek , 2 mai 2023

In her recent opinion in Case C-106/22 Xella Magyarország, Advocate General T. Ćapeta has considered that EU law does not, in principle, preclude national legislation allowing for the screening of foreign direct investment of third country provenance even if implemented via an EU-based company.

In 2021, the Hungarian Minister for Innovation and Technology blocked the acquisition of a Hungarian company (‘Janes’) by another Hungarian company (‘Xella Magyarország’) which is indirectly owned by a company registered in Bermuda (‘LSF10 XL Investments Limited’). Janes owns a quarry in Hungary from which sand, clay and gravel are extracted. In its decision, the Minister explained that it would be contrary to Hungarian national security interests, including the security of supply of those raw materials, to allow a company with indirect third country ownership to take control of such a strategic company. Xella Magyarország, an applicant in the main proceeding, challenged the Minister’s decision before the Fővárosi Törvényszék (Budapest High Court), which decided to refer a question to the Court of Justice of the European Union for a preliminary ruling to ascertain whether EU law, in particular, the Treaty provisions on the free movement of capital and Regulation 2019/452 establishing a framework for the screening of foreign direct investments (‘FDI Screening Regulation’), precludes the national contested decision.

This case raises two important issues: (i) the applicability of the FDI Screening Regulation to foreign direct investments of third country provenance implemented via an EU-based company and (ii) the division of regulatory powers between the EU and its Members States over the screening of foreign direct investments.

Firstly, Advocate General has considered that the FDI Screening Regulation should apply to foreign direct investments of third country provenance even if an investment is implemented via an EU-based company as the scope of the regulation covers any foreign direct investment into the European Union (Article 1(1) of the FDI Screening Regulation).  Therefore, although according to Article 2(2) of the FDI Screening Regulation, a ‘foreign investor’ is an undertaking of a third country intending to make or having made a foreign direct investment, that regulation covers investments of any type by which the third-country investor gains effective participation or control over an EU company (Article 2(2) of the FDI Screening Regulation). That also includes investment whereby a third-country investor indirectly gains control over an EU company, through acquisition of an EU company by another EU company, which is owned by that third country company.

Secondly, Advocate General has argued that the regulation of foreign direct investments falls both within the scope of the EU’s exclusive competence in the field of common commercial policy and the EU’s shared competence in the field of internal market (since direct investments fall within the ambit of the free movement of capital applicable to third countries). For this reason, the FDI Screening Regulation should be understood as ‘delegating’ competences back to the Member States in an area in which they lost them with the entry into force of the Treaty of Lisbon. However, the Member States’ screening mechanism, enabled by the FDI Screening Regulation, must comply with the internal market freedoms. The Minister’s veto over the acquisition at issue in the present case constitutes an obstacle to the free movement of capital. Advocate General has nonetheless recognized that securing the supply of certain raw materials may, in times of crisis, be capable of justifying a restriction on the free movement of capital provided that indirect foreign ownership in the quarry at issue represents a genuine and serious threat to the security of supply of gravel, sand and clay in Hungary and that the security of such supply could not have been achieved by a less restrictive measure.

It will be the first time for the Court of Justice to decide on a case concerning the application of the FDI Screening Regulation. Whether it will follow the Advocate General’s opinion remains to be seen.

Reproduction autorisée avec la référence suivante : Mateusz Miłek, FDI Screening Regulation: the interplay between internal market and common commercial policy competences, actualité n˚ 13/2023, publiée le 2 mai 2023, par le Centre d’études juridiques européennes, disponible sur www.ceje.ch