Clarifying The Cooperation Mechanism? Exploring DG Trade’s FDI Screening FAQ
By John Kay and Floor Doppen
Over the past six years, the EU cooperation mechanism on foreign direct investment (FDI) screening has progressively advanced under the EU FDI Screening Regulation (Regulation 2019/452, henceforth the ‘Regulation’). Institutionalization of the cooperation process (through e.g. the expert group), setting up coordination cells in all EU Member States (MS) (contact points), annual reporting obligations, and the incorporation of new or evolving MS screening systems, have required the EU to adapt and evolve its approach to coordination. As this evolution has happened, enhancing understanding for all stakeholders remains a top priority for the European Commission (EC) and MS authorities. Recently, DG Trade published an updated FAQ document which seeks to provide detailed answers to enhance the understanding of the cooperation mechanism and how it relates to MS’ own screening mechanisms.
This update of the FAQ arrives at a critical moment while the EU is in the processes of revising the EU FDI Screening Regulation; the European Parliament voted only a few weeks earlier on its amendments to the EC’s proposal for a regulation on the screening of foreign investments in the Union and repealing Regulation (EU) 2019/452 (henceforth, the ‘Revision’). The FAQ offers a detailed explanation of the cooperation mechanism at the heart of the existing system and the updated version draws on four years of the mechanism’s practical implementation (the last FAQ dating from 2021), and incorporates important new developments in the field: Guidance on FDI from Russa and Belarus, the Xella judgment of the Court of Justice of the European Union, and references to the adoption of the critical entities resilience directive in 2022 (Directive (EU) 2022/2557), as well as a clarification on the duration of the procedure under the cooperation mechanism, to name a few.
Regulation 2019/452 was created first and foremost as a cooperation mechanism that facilitates information sharing on screened cases in the MS, who remain responsible for the screening of FDI and the decisions to block, mitigate, or allow a screened investment. The FAQ introduces important clarifications on the role of the cooperation mechanism but also continues to highlight the tension between MS screening legislation and Regulation 2019/452. We use the publication of the updated FAQ to recap some of the old questions addressed, highlight what is new and discuss how some of the tensions that we identify are addressed in the Revision.
What is addressed?
One aspect in the FAQ that remains important are those cases MS should (or should not) share with their neighbors when they are screened. It offers a practical guide on the do’s and don’ts of notifications within the cooperation mechanism. For example, it explains under what circumstances internal restructuring cases should be notified (Q10–12), clarifies the meaning of “foreign” in the Regulation (with a nod to the Xella judgment, Q3), outlines the sectors covered (all of them, Q17) and addresses whether the mechanism applies to public procurement (Q18) or greenfield investments (Q9).[1]
The updated FAQ (in contrast to the previous version) also details how to interpret the timelines under the cooperation mechanism. While these timelines are in the Regulation, there must have been confusion in practice on whether a notification to the cooperation mechanism by the MS stops the clock for domestic timelines. The updated FAQ clarifies that a notification does not stop the clock. It emphasizes that working within the cooperation mechanism should run in parallel to the domestic screening process and not delay the screening process (Q28), a concern that had also been highlighted by some business stakeholders, and is central in their lobbying efforts when it comes to the Revision.[2]
Lastly, the FAQ reminds every one of the existence of their template providing information to be submitted under the cooperation mechanism, which it encourages MS to use (Q35, Q36). Indeed, there is a continued need for standardized reporting, something many legal practitioners have also voiced their frustration about, especially in the consultations on the Revision.[3]
Another FAQ is on the confidentiality of MS comments (Art. 6 of the Regulation), which details that if a MS shares a comment through the cooperation mechanism this will not be shared with other MS beyond the targeted state (Q32). It highlights the trust-building exercise the cooperation mechanism entails: When MS with robust systems must share sensitive investment data with those lacking equivalent safeguards or institutional capacity, it raises the risk of inadvertent disclosures. Such risks can erode investor confidence and deter legitimate capital flows, particularly in sectors involving commercially sensitive or strategic technologies. Confidential information leakage in any investment transaction can be detrimental to the parties involved.
Lastly, when the FAQ speaks to other stakeholders, i.e. those legal practitioners and businesses that need to file or navigate different MS and EU regulation on investment screening (section III & V), the answers by the EC remain consistent in highlighting the primacy of the MS who screen investments and emphasize that this will ‘remain the exclusive responsibility of the MS’ (Q20). As it stands, the EC has no decision power (cannot block, mitigate or accept FDI). This is repeatedly emphasized in the FAQ. While the European Parliament has proposed to transfer some decision-making power to the EC within the course of a MS’s FDI review in the revision of Regulation 2019/452, some MS have vocally opposed this evolution. It remains to be seen whether a future update of the FAQ will need to explain under which circumstances the EC might be allowed to directly intervene in a transaction.
Tensions between Member State legislation and EU Regulation
By shedding light on how the EU’s FDI screening framework operates in practice, the FAQ also highlights important tensions between MS legislation and the Regulation, of which some are also directly connected to the Revision. Indeed, there are important misalignments between the cooperation mechanism and MS screening legislation.
One such issue is that of the use of ‘foreignness’. The Regulation only relates to FDI, which was recently defined more clearly in the ECJ’s Xella judgement. However, many MS screen intra-EU and domestic investments (Sweden, Germany, the Netherlands, and Italy come to mind), which is allowed within the limits of the provisions of the TFEU on the right of establishment and free movement (Q13), but which does not fall under the Regulation with the exception of the anti-circumvention clause. This is a significant issue when it comes to the cooperation mechanism: it means that if, say, Ireland decides to block a Portuguese investment, this could/should not be notified to the cooperation mechanism and doesn’t fall under the scope of the Regulation. It is in part for this reason that the Revision has added Art. 114 TFEU as a legal basis in the Revision.[4] Although moving forward notification to the cooperation mechanism still implies the need for a foreign element in the investment, this ‘foreignness’ can be direct or indirect (through e.g. a subsidiary controlled by a foreign actor). For the Revision there is therefore a push to bring the Regulation in line with MS practice who already consider indirect control by a foreign actor in their screening procedures (Q43).
Another element that might be addressed in the Revision is that the cooperation mechanism is said to apply to investments already completed that are screened ex post (Q29). It means that MS can notify an investment to the cooperation mechanism that they screen an investment already completed, but it also means that MS can issue comments on an investment that was already completed in another MS. This is not surprising per se, as there are multiple MS who screen ex post (the Czech Republic for example). However, the EC comments that ‘the cooperation mechanism may be initiated within 15 months […] even when the MS does not have a screening mechanism in force’ (Q29). This is a provision that comes directly from the Regulation (Art. 7(8)). However, for the common observer it continues to beg the question: what does this mean in practice if the MS does not have any ex post screening provisions and therefore cannot do anything about the investment after it has been completed? The Revision will be interesting to follow as it includes new ex post screening provisions that might close this gap (see e.g. Art. 4 2(c) of the Revision).
Conversely, there are also some misalignments that remain murky, for example. that of public procurement and privatizations (Q18), which mentions that a public tender would fall under the scope of the Regulation. Again, prima facie this is not surprising: it means that a MS who screens public tenders is in its rights to do so under the Regulation and should notify through the cooperation mechanism. However, the EC continues by recommending that all tender notices should mention that ‘the procedure, or the award of the contract, is subject to the FDI Screening Regulation […]’ and that this ‘applies equally to all MS, whether they have a screening mechanism or not’(Q18). It is unclear what this entails in practice, considering that if there is no domestic screening mechanism or it is not covered by their domestic legislation, the MS does not have the competence to screen the investment, and whether the investment falls under the Regulation or not does not impact the fact that the MS does not have the legal tool to intervene.
These are not simply procedural or legal questions. They go to the heart of how the EU and MS can cooperate on investment screening and the push and pull dynamics between EU Regulation and MS legislation. As mentioned, the Revision is set to play a large role in addressing some of the misalignments, but not all of them are addressed. The biggest question that remains unanswered by the FAQ is what happens when MS lack the legal tools to address certain domestic investments that are flagged through the cooperation mechanism.
This article was revised on 8/6/2025 to include references to the previous FAQ of 2021 after it was pointed out to the authors that this had been neglected.
[1] The updated FAQ makes it more clear that in the 2021 version that MS have to notify greenfield investments if they screen them domestically.
[2] See for example the contribution by Amcham or Business Europe to the feedback call for the Commission’s proposal to revise Regulation 2019/452 (Screening of foreign direct investments (FDI) – evaluation and revision of the EU framework
[3] See e.g. the contribution by ICLA (Association of Inhouse Competition Lawyers) who propose mandatory single filing forms to standardise and streamline data collection (Screening of foreign direct investments (FDI) – evaluation and revision of the EU framework
[4] See p. 10-11 of the Revision.
