„Invest European“ Ante Portas? FDI Screening under the Commission proposal for the Industrial Accelerator Act

Authors: Leonard von Rummel (Partner, Blomstein), Jan Philipp Huth (PhD Candidate, European University Viadrina Frankfurt (Oder))

1. Introduction

After heated political debates and several publication announcements postponed or cancelled at the last minute, the Commission eventually unveiled its proposal for the Industrial Accelerator Act (IAA Proposal) on March 4, 2026. Even though the suggested introduction of “Buy European” requirements for public procurement procedures and public support schemes was (and is) at the centre of the public debate both before and after the release, the provisions governing the screening of Foreign Direct Investments (FDI) are no less important.

Since several years already, there is an increasing tendency in the EU context to put FDIs under closer scrutiny, starting with the FDI Screening Regulation in 2019 and continuing with the recently finalised revision of the very same. Both the FDI Screening Regulation(s) and the (future) IAA fit into the broader and widely discussed “geopolitical turn” of the EU. There is, however, a remarkable difference between the two regulatory frameworks. While the FDI Screening Regulation provides for an assessment of investments through the lenses of security and public order, FDI screening under the IAA Proposal is characterised by unambiguous industrial policy objectives. Put differently, the FDI Screening Regulation focuses on the defence against external threats, while the IAA Proposal aims to make sure that FDIs come along with tangible benefits. In the following, the different layers of the framework for FDI screening outlined by the IAA Proposal will be presented and discussed.

2. Background

The IAA is at the heart of the EU’s Clean Industrial Deal and part of the practical implementation of the Draghi Report on EU Competitiveness. The core aim of the Proposal is to strengthen the competitiveness of the EU’s manufacturing sector by simplifying and digitalising permit-granting procedures, standardising requirements for public procurement and strengthening demand for EU-sourced products. The Proposal sets the specific target of raising the share of the manufacturing industry in the EU’s gross domestic product to at least 20 % by 2035. This aim shall be achieved mainly by two mechanisms: “Buy European” requirements for public procurement procedures and subsidies on the one hand and a framework for FDI screening set up in parallel to the one foreseen by the (future) revised FDI Screening Regulation on the other hand.

3. A Step-by-Step Approach to FDI Screening under the IAA Proposal

The IAA Proposal entails comprehensive and elaborated provisions on how FDI Screening shall take place. Understanding the exact procedure is, however, complicated by the fact that the IAA Proposal puts forward three fundamental differentiations without, however, consistently aligning the procedural rules with these fundamental distinctions. When carving out the procedure applicable to a certain case, the following questions need to be answered:

• Is the investment carried out directly by a foreign investor or within the Union by the foreign investor’s subsidiary?
• Is the case at hand single-jurisdictional or multi-jurisdictional?
• Does the standard procedure characterised by a cooperation between National Investment Authorities (NIAs) and the Commission apply, or can the Commission take over the assessment either by request or by own initiative?

Following an overview over the scope of FDI screening under the IAA Proposal which is the same for all constellations (1.), the depiction of the screening procedures is carried out along the lines of the abovementioned questions (2.), starting with what can be derived from the IAA Proposal as “standard cases” and subsequently explaining deviations applicable to certain constellations.

3.1. Does the planned investment fall within the scope of the IAA Proposal?

Only planned investments which cumulatively meet four criteria are subject to scrutiny under the IAA Proposal, regardless of who is carrying out the investment (investor/subsidiary) or whether the case is single-jurisdictional or multi-jurisdictional:

While these criteria seem quite straightforward at first sight, they require further explanation in certain constellations.

• Value threshold: The IAA Proposal explicitly addresses the danger of a circumvention of the value threshold by cumulative investments in Article 19 para. 2. To assess whether the value has reached the threshold, those investments are aggregated which have been undertaken by the same investor in the same Union target or asset since the date the IAA has entered into force. Prima facie, however, there still seem to exist (at least) two loopholes: firstly, the provision only mentions “foreign investors” and not “foreign investors’ subsidiaries”. Especially because the IAA Proposal clearly differentiates between these two, it raises the question whether or not combined investments of foreign investors and their subsidiaries which only cumulatively meet the threshold are encompassed by the provision. Secondly, the fact that only investments undertaken after the IAA has entered into force may lead to a “last-minute rush” as soon as the adoption of the act is in sight.

 

• List of emerging strategic sectors: According to Article 24 para. 1, the Commission is entitled to supplement the list of emerging strategic sectors via the adoption of delegated acts. However, the power of the Commission to adopt such acts comes along with important restrictions in terms of substance and procedure. Firstly, the wording of Article 24 para. 1 according to which the Commission is empowered to “supplement” the list of emerging strategic sectors indicates that the power of the Commission only encompasses an enlargement of the list, but not the deletion of one or more sectors. In practice, this would mean that third-country economic actors cannot rely on the text of the (future) IAA alone, but need to watch closely the legislative activity of the Commission to assess whether or not their planned investment is covered by the IAA. Moreover, what can (or cannot) be added to the list is further concretised in Article 24 para. 1 itself, allowing the addition of certain technologies listed in Article 4 para. 1 of the Net Zero Industry Act (such as, e.g., onshore wind and electricity grid technologies), but explicitly excluding digital technologies, artificial intelligence, quantum technologies and semiconductors.

Secondly, the exercise of the Commission’s power is subject to the procedural rules laid down in Article 30 of the IAA Proposal, providing for three potential “stumbling blocks”: prior consultation of experts, absence of objections by Parliament and Council and the possibility of a revocation of the power to adopt Delegated Acts. Before adopting a delegated act, the Commission has to consult experts designated by the Member States (Article 30 para. 4). Furthermore, the Parliament and the Council can each express objections once they have been notified by the Commission, thereby blocking the delegated act to enter into force (Article 30 para. 6); however, no explicit approval is necessary. Finally, the power of the Commission to adopt such delegated acts can be revoked at any time by the Council or the Parliament with immediate effect once the decision has been published in the Official Journal (Article 30 para. 3).

• “China clause”: According to Article 17 para. 1, FDI screening is only carried out if the foreign investor’s country of origin holds “more than 40 % of the global manufacturing capacity” in the relevant sector. However, any explanation how to determine whether or not this threshold has been reached is missing in the IAA Proposal. This may be due to the fact that the “China clause” has only been inserted at a later stage of the negotiations, as it was still missing in a version leaked 18 January. A recent communication by the Commission only slightly concretises this, stating that the provision targets “countries that account for a 40% share of global production” (emphasis added). This at least makes clear that the intention behind the provision is not to measure potential capacity, but actual output. However, this still leaves open the question of which parameters this should be assessed against, e.g. quantity, value, or another metric. From a practical perspective, legal certainty would be highly welcome at this point . This criterion should be further specified in the upcoming legislative procedure or via a future Implementing Act by the Commission.

 

• Control: The fourth criterion – control over the Union target or asset – is not mentioned alongside the other criteria listed in Article 17 para. 1. This may prima facie lead to the conclusion that it is not an indispensable prerequisite for an investment to fall within the scope of the IAA investment screening, even more so as it still featured among the “main” criteria in the version leaked 18 January and was relocated in the version leaked 27 February. Nevertheless, a reading of the IAA Proposal relegating “control” to a second-order criterion still seems unconvincing given that the competent NIA “shall decide on the admissibility of the notification pursuant to Articles 17 and 19” (Article 20 para. 1, emphasis added). This means that only those notifications are admissible and will be proceeded by the NIAs and the Commission which concern investments leading to control over a Union target or asset.

The IAA Proposal does not explicitly deal with the constellation that shares are increased in several steps over a certain period, but the wording of Article 19 para. 3 that there is control “where the investment in question reaches” the threshold implies that the criterion is fulfilled once the share amounts to 30 % or more, regardless of a possible gradual increase over a longer period of time.

Last but not least, third countries with which the Union has concluded FTAs or economic partnerships are exempt from these provisions to the extent that the respective agreements include relevant commitments with regard to FDIs (Article 17 para. 3 (a)).

3.2. Screening Procedure

When it comes to the specific screening procedure applicable to a certain case, a distinction should be made in the first place between such investments carried out directly by foreign investors and others undertaken within the Union by foreign investors’ subsidiaries.

3.2.1 FDIs made directly by foreign investors

Within the realm of FDIs made directly by foreign investors, a further differentiation can be made between single-jurisdictional (aa)) and multi-jurisdictional (bb)) cases.

a) Single-jurisdictional Cases

The first step in single-jurisdictional constellations is to notify the NIA of the Member State in which the Union target or asset is located (Article 19 para. 1).

The wording of Article 5 para. 2 that the Member States shall “designate” an NIA implies that it is sufficient to confer the respective competence to an already existing authority. Also, in terms of efficient use of resources and knowledge, it may at first sight be intuitive to pool screening under the FDI Screening Regulation and the IAA. The nature of the institutional relation between the authorities to be designated under the IAA and those already responsible for screening under the FDI Screening Regulation does, however, not become entirely clear. While the IAA Proposal lacks specific provisions, Recital 37 to the IAA Proposal states somewhat ambiguously that the authority designated under the IAA should “carry out its tasks effectively and independently, with due regard to the authorities already responsible for implementing Regulation (EU) 2019/452”.

The IAA Proposal provides for two distinct pathways how the notification is handled: a “standard procedure” characterised by cooperation between the NIA and the Commission (1), and review (including, arguably, final decision-making) by the Commission (2).

Review by NIAs and the Commission (Article 20)

Following notification, the competent NIA assesses the admissibility (not: the approvability!) of the planned investment according to Articles 17 and 19, i.e. whether or not the investment falls within the scope of the IAA Proposal. If admissible, the notification and all relevant documents are transferred to the Commission. The latter then has the right (but not the obligation) to issue a written opinion on both admissibility and approvability. Whether or not the planned investment should be approved is to be decided based on the criteria laid down in Article 18 para. 2.

The latter provision lists six conditions, and approval shall be granted if the planned investment fulfils four or more of them. Specifically, the foreign investor shall

• not own or control more than 49% of the investment target,
• establish a joint venture with at least one Union entity to undertake the investment and not own or control more than 49% of any of the Union entities participating in the joint venture
• agree with the Union target or asset on the licensing of his intellectual property rights and know-how in a way beneficial for the Union target or asset,
• redirect at least 1 % of the gross annual revenue of the Union target or asset towards Union-based R & D,
• make sure that at least half of the workforce employed in the context of the investment across all levels of the workforce are Union workers, and/or
• develop and publish a strategy to prioritise Union-based value chains and attempts to source at least 30 % of inputs from within the EU.

Interestingly, this list of conditions has been weakened in two points compared to earlier version. Firstly, the earlier versions required the fulfilment of at first all, then at least five out of six conditions. Moreover, the “Buy European” requirement entailed in the sixth condition has been considerably weakened. While the earlier version provided for a strict “Buy European” clause according to which products placed on the Union market in the context of the FDI should incorporate inputs of which at least 30% are manufactured within the Union, this has turned rather into a “best efforts” clause in the IAA Proposal. Together with the inclusion of certain third countries with which the Union has paramount economic ties (such as FTAs), which has been criticised in advance particularly by the French Government, this may indicate that, for the time being, those Member States advocating for greater economic openness prevail over the advocates of a full-fledged protectionist turn.

If the Commission decides to examine admissibility and approvability in a written opinion, it has to issue the opinion within 30 days following the transmission of the notification by the NIA. The NIA is only allowed to finally decide on the approvability if it has either received the opinion or the deadline has expired. At this point, the IAA Proposal foresees a “comply or explain” mechanism. If the NIA comes to a different conclusion than the Commission with regard to the question of approvability, the NIA has to assess the notification again in greater detail within a period of two months after having issued its final decision. The NIA’s decision does not enter into force before the end of this period (Article 20 para. 4). In any case, whether the NIA complies with the Commission opinion or not, it has to outline how the Commission opinion has been taken into account.

The “standard procedure” foreseen by the IAA Proposal already gives the Commission considerable leverage to determine the outcome of the respective screening decisions. Even though the final decision-making competence (formally) remains with the national NIAs, the practical effects of the procedure arguably come close to a textbook example of what has already been coined as “centralisation by stealth” in the context of the Commission proposal for the revised FDI Screening Regulation. While formally leaving the final decision with the Member States, the latter proposal opted for a mechanism of administrative cooperation between the Commission and Member State authorities imposing extremely wide-ranging duties of consideration of Commission opinions on “recalcitrant” Member States and allowing for considerable “peer pressure” among the latter.

In the IAA context, the fact that the competent NIA receives a fully elaborated decision by the Commission (if it decides to issue an opinion), has to invest valuable resources if it wants to deviate from this decision and may instead save resources if it simply complies (“comply or explain”), this “standard procedure” may turn out as a powerful tool to nudge NIAs into the direction preferred by the Commission. However, what exact effect the procedural rules would eventually have if adopted as proposed by the Commission cannot be predicted with absolute certainty. Resources are scarce not only within Member State authorities, but also in the Commission. Depending on how many investments have to be screened after the IAA has entered into force, and on whether or not an increasing workload will be met by a respective increase in terms of staff numbers and budget, the Commission may be forced to make strategic choices as to which investments shall be taken charge of by the Commission itself. Thanks to the rather vague criteria laid down in Article 21 para. 2 – e.g. “particular strategic importance”, “considerable economic impact” – and the fact that the Commission is allowed, but never obliged to take over review, it possesses considerable leeway in this regard. Closely watching the strategic choices made by the Commission in this regard once the IAA is adopted may turn out as highly insightful.

Review by the Commission (Article 21)

However, the IAA Proposal does not stop here. According to Article 21, the Commission is, under certain conditions, allowed to “decide to undertake the assessment of the foreign direct investment”. Prima facie, the wording alone of this provision may lead to confusion in three regards. Firstly, as has just been outlined, the Commission is always entitled to issue an opinion on admissibility and approvability if the competent NIA positively determines admissibility of the notification in the first place, which raises the question of the additional value of a competence to “undertake the assessment”. Moreover, the term “assessment” does not appear in the preceding provisions, leaving open what exactly this review encompasses – admissibility, approvability, or both of them? And, most importantly, does this also entail a final decision-making competence for the Commission, thus replacing the NIA in the respective cases? While only the latter option comes along with a substantial added value compared to the “standard procedure”, Article 20 governing the latter is entitled “review and approval”, whereas the headline of Article 21 simply speaks of “review”. Despite the ambiguous wording, only a reading in the sense that the provision entitles the Commission to issue a final decision, instead of a mere opinion, seems to make sense in the overall context of the Proposal. If the provision makes it through the upcoming legislative procedure, a clarification would nevertheless be highly welcome for reasons of legal certainty.

A further clarification seems to be necessary as regards the point at which the Commission may step in and take over the “assessment”. While Article 21 para. 1 simply determines that the Commission may do so “following the notification referred to in Article 19(1)”, this wording arguably neglects that (at least in single-jurisdictional cases) the notification mentioned in Article 19 para. 1 is exclusively sent to the competent NIA.

While there are thus some points which need further clarification in the legislative procedure, the conditions under which the Commission can “decide to undertake the assessment” are straightforward: at the request on an NIA (Article 21 para. 1 (b)) or on its own initiative if the planned investment either “has the potential to significantly impact added value creation in the Union market” (Article 21 para. 1 (a)) or exceeds EUR 1 billion (Article 21 para. 1 (c)). The constellations of “significant impact” are exhaustively listed in Article 21 para. 2, encompassing, inter alia, “considerable economic impact” and high potential of detrimental environmental effect” in more than one Member State (Article 21 para. 2 (b), (d)), thus covering in particular cross-border cases.

b) Multi-jurisdictional Cases

Review by NIAs and the Commission

Multi-jurisdictional cases of investments directly carried out by a foreign investor are governed by Article 19 para. 6. Instead of the two separate pathways possible for single-jurisdictional cases, the IAA Proposal foresees a unified procedure for multi-jurisdictional cases.

If the relevant Union targets or assets are located in more than one Member State, the investor has to notify not only all competent NIAs, but also the Commission. The Member States then have to coordinate the review of such investments and examine the fulfilment of the criteria laid down in Article 18 para. 2 and find consensus among each other as well as with the Commission. If the Member States among each other cannot reach an agreement (arguably leaving a disagreement with the Commission aside), the Commission has the final decision-making competence. No specific pathway is, however, outlined by Article 19 para. 6 at which point a disagreement between Member States results in the Commission taking over the decision-making process.

Again, the terminology employed may give rise to uncertainty. While Article 18 para. 2 indicates that a mere “fulfilment” of four out of six conditions is sufficient to gain approval, implying that it is up to the investor which conditions shall be fulfilled, Article 19 para. 6 speaks of “conditions imposed”, as well as of the Commission deciding “which conditions shall be applied”. For the sake of legal certainty, it needs to be clarified in which way the conditions for approval of foreign investments are eventually determined.

Review by the Commission?

Intuitively, one may assume that, if the Commission can take over review in single-jurisdictional cases, this should be all the more permissible in multi-jurisdictional cases, since the criterion of “potential to significantly impact the added value creation in the internal market” is particularly relevant in cross-border constellations. However, since Article 21 para. 1 only and explicitly mentions the “notification referred to in Article 19(1)” – and not the one in Article 19 para. 6 sent to the NIAs and the Commission in multi-jurisdictional cases – this option is excluded under the IAA Proposal.

3.2.2. Direct investments made within the Union by a foreign investor’s subsidiary

The IAA Proposal provides for separate rules for direct investments made within the Union by a foreign investor’s subsidiary in contrast to those made directly by foreign investors. However, while the procedural rules for the latter constitute a (more or less) coherent framework, those for investments made by subsidiaries are more fragmented. Throughout the chapter on FDI screening in the IAA Proposal, “foreign investors’ subsidiaries” are explicitly mentioned solely in Article 18 para. 4.

a) Single-jurisdictional Cases

Review by NIAs – and the Commission?

The IAA Proposal is not entirely clear with regard to the exact screening procedure of subsidiaries’ investments in single-jurisdictional cases. Two provisions are essential in this context: Article 18 para. 4 which governs the application of the conditions laid down in Article 18 para. 2, and Article 20 regulating review and approval in the cooperative procedure carried out together by NIAs and the Commission.

According to Article 20 para. 1, the competent NIA “shall decide on the admissibility of the notification pursuant to Articles 17 and 19”, which encompasses investments by subsidiaries as they, too, have to be notified (see above). This means that the cooperative screening procedure outlined in Article 20 is principally applicable.

Problems arise, however, as soon as it comes to the conditions laid down in Article 18 para. 2. According to Article 20 para. 2, it is the Commission in the first place which examines the “fulfilment” of a sufficient number of conditions, with the NIA given the opportunity to examine the fulfilment itself subsequently. In contrast, Article 18 para. 4 neither entails an involvement of the Commission nor leaves the foreign investor’s subsidiary any discretion, but determines that the NIAs may, under certain conditions, “apply some or all of the conditions” (emphasis added). Under the current framework, the only plausible procedural pathway is that the process up to the decision on the admissibility follows the procedure laid down in Articles 19 and 20 para. 1, but the subsequent steps starting with the transmission of the notification to the Commission are superseded by Article 18 para. 4 as lex specialis.

NIAs have to obey certain conditions when reviewing investments by subsidiaries. The application of some or all of the conditions laid down in Article 18 para. 2 is only admissible if this is “essential” to achieve the framework’s objectives, which shall be the case when a circumvention of the act has to be prevented (Article 18 para. 4 (a)) or no adequate alternative means are available (Article 18 para. 4 (b)). Interestingly, the threshold for NIAs to become active has been lowered compared to the leaked versions, with the latter demanding that the application of the conditions needs to be “indispensable”.

Review by the Commission

Article 21 para. 3 grants the Commission the right to undertake the assessment of investments made by subsidiaries itself. Compared to the assessment of investments made directly by foreign investors, it enjoys even greater leeway here. Not only can it do so “on its own initiative” without further justifications necessary, but Article 21 para. 3 also explicitly states that the Commission can authoritatively determine the conditions from Article 18 para. 2 which the NIA shall apply. The latter is in line with Recital 33 to the IAA Proposal, according to which “the Commission should have the opportunity to assess the notification and request the Investment Authority to prescribe certain conditions” (emphasis added).

However, it does not become entirely clear from the IAA Proposal under which conditions the Commission may do so. The wording chosen in Article 21 para. 3 that “following the notification referred to in Article 19(1), the Commission may decide to undertake the assessment of an investment referred to in Article 18(4)” can be read in two different ways. A more formal reading takes the wording of the provision at face value and leads to the conclusion that the Commission may simply assess (and finally decide) cases of investments planned by foreign investors’ subsidiaries, with no further strings attached. However, it may equally be justified to assume that the condition under which NIAs are allowed to assess such investments – the essentiality for achieving the objectives of the act – should equally apply if the Commission takes over the assessment.

b) Multi-jurisdictional Cases

As there are no provisions explicitly governing investments by subsidiaries in multi-jurisdictional constellations, the only possible pathway would be to apply Article 19 para. 6 also to these constellations. If one turns a blind eye to the fact that Article 19 para. 6 only speaks of “foreign investors” and not additionally of “foreign investors’ subsidiaries”, such an application does not pose serious problems other than those already mentioned above.

4. What next?

The political tug-of-war over the Commission proposal must not obscure that by now it is no more than that – a proposal. With the Council and Parliament yet to have their say, intense political negotiations likely lie ahead. Experience from past legislative procedures suggests that the proposal will almost certainly be significantly amended before adoption. In particular, it is to be expected that the Council will oppose the central role the Commission has suggested to assign itself in the context of FDI screening. Already with regard to the revision of the FDI Screening Regulation, the Parliament’s position sought to further increase the role assigned to the Commission, while the Council tended towards the opposite direction. The political agreement reached between the Parliament and the Council then resulted in a compromise largely aligning with the original Commission Proposal.

Furthermore, it has become clear throughout the analysis that the IAA Proposal entails a relatively large number of blank spaces where clarification and more precise outlining of the applicable procedural steps would be highly welcome from a practical perspective. While the first phase of the drafting was characterised by the political turmoil over the “Buy European” elements of the Proposal, it may well be that the attention now turns to the more technical, but equally important aspects of the legislative project.

Finally, it would enhance legal certainty to clarify the relation between screening under the (future revised) FDI Screening Regulation and the IAA. Even in the absence of Delegated Acts by the Commission under the IAA, there exists a sectoral overlap with respect to the extraction of raw materials, and future IAA Delegated Acts may further enhance the overlap to the fields of nuclear and electricity grid technologies. In the absence of coordination between parallel screening processes, investors may face disproportionate or, at worst, contradictory requirements imposed by the respective competent authorities.