The European Commission Publishes Reports on Export Controls and Screenings of Foreign Direct Investments
By: Herdem Attorneys At Law
Tags: Herdemavukatlık, Investments, Export

On November 23, 2021, the European Commission has published a Report on the implementation of Regulation (EU) 2021/821 setting up a Union regime for the control of exports, brokering, technical assistance, transit, and transfer of dual-use items (“Report on Export Controls”), and a First Annual Report on the screening of foreign direct investments (“FDI”) into the Union (“Report on FDI Screening”) (“Reports” as together) to present key findings related to defending EU interests when it comes to export controls and foreign investments in the EU.

With this Reports, the European Commission announces that 400 foreign investments have been assessed by the European Commission since the new Foreign Direct Investment screening legislation went into effect. At the same time, the European Commission reported that over 30,000 requests for the export of goods with possible military applications were evaluated by the EU member states under the EU export control framework, with 603 of these shipments being rejected.

Along with Reports, European Commission stated that the FDI screening and export controls are part of the EU’s renewed trade strategy, that seeks to enforce EU rights and defend its values more assertively. In addition, other initiatives and actions under these strategies were also pointed out by European Commission. One of the initiatives and actions under these strategies is that the Single-Entry Point was established in November 2020, making it quick and easy for any EU-based stakeholder to lodge complaints about non-compliance by third countries with their international trade commitments vis-à-vis the EU.

Report on Export Controls

The Commission began releasing yearly export control reports in 2013, as required by EU Regulation (EC) No 428/2009, which was repealed by EU Regulation (EU) 2021/8211 (“the New Regulation”) on September 9, 2021. The Report on Export Controls offers information on the execution of EU rules governing dual-use item export control in 2020, as well as aggregated export control statistics for 2019.

In addition, because export control and FDI screening are both tools for strategic trade and investment restrictions to guarantee EU security, this report was adopted concurrently with the Report on FDI Screening.

Accordingly, it is estimated that acquiring trustworthy data on overall dual-use exports, including non-listed dual-use goods, is challenging due to the lack of a corresponding defined economic sector. However, the EU Commission and the EU member states collect data that allows for rough estimates of dual-use products exports based on, on the one hand, particular licensing data gathered by competent authorities and, on the other, statistics for customs commodities that include dual-use items. While the Report on Export Control includes estimations for 2019 export statistics, it is stated that they do not cover services or intangible technology transfers linked with the trade-in of dual-use goods.

Within this framework, while it is stated that the Report on Export Controls is the last report on export controls before the entry into force of the upgraded Export Controls Regulation, it is also stated that the Report on Export Controls shows that dual-use exports account for approximately 2.3 percent of total EU exports. In 2019, 603 exports were rejected out of a total of 30.292 applications for and notifications of exports under permits, representing approximately 0.02 percent of overall exports. According to the European Commission, this would put the value of dual-use trade at EUR 119 billion in 2019.

Further, the Report on Export Controls noted that the New Regulation that entered into force on September 9, 2021, and the resulting system update caused major changes in export control in the EU, revealing extensive preparation work and steps to be taken by the EU Commission and the EU member states to fully exploit the New Regulation’s potential. The Report on Export Controls includes substantial changes such as:

(i) Introducing a novel “human security dimension to capture emerging dual-use technologies” — especially cyber-surveillance tools,

(ii) Simplifying procedures and making the export control system more agile and able to evolve and adjust to circumstances,

(iii) Developing an EU capacity-building and training program for EU member states’ licensing and enforcement authorities, and

(iv) Coordinating and supporting robust enforcement of controls, (v)Setting up dialogues with third countries to enhance global security and promoting a level playing field at the global level.

Report on FDI Screening

Firstly, it is noted that this is the European Commission’s first annual report on the implementation of the EU Foreign Direct Investment Screening Regulation (the “FDI Screening Regulation”).

It is pointed out that although the Report on FDI Screening provides transparency around the operation of FDI screening in the EU, and developments in national screening mechanisms, it also contributes to the accountability of the Union in an area where, given the security interests at stake, transparency regarding individual transactions is neither possible nor appropriate.

The Report on FDI Screening highlights the following key findings:

i) The Commission screened 265 transactions notified by the EU member states under the report until the end of June 2021 (now the teller is above 400),

(ii) 80 percent of the transactions did not justify further investigation and were thus assessed by the Commission in just 15 days,

(iii) Most notifications for screening from the EU member states concerned the manufacturing sector, ICT, wholesale, and retail,

(iv)The top five countries of origin of investors among notified FDI cases were companies located in the United States, the United Kingdom, China, Canada, and the United Arab Emirates, and

(v) The Commission issued an opinion in less than 3 percent out of 265 screened cases.

Moreover, the Report on FDI Screening affirms that the EU remains open to international investment while preserving EU security and public order. The FDI screening collaboration mechanism is effective and does not cause needless transaction delays. According to the Report on FDI Screening, an increasing number of EU member states have implemented their screening mechanism. The European Commission anticipates that all EU member states will implement national screening mechanisms.

Finally, the European Commission believes that the implementation of national screening mechanisms by all EU member states will increase the effectiveness of the screening system and provide a comprehensive EU strategy for dealing with threats to security and public order.

Şafak Herdem, Esra Temur