The State of Exception in EU Investment Law
Author: Jochem de Kok (Senior Associate, A&O Shearman)
This blog post is based on the author’s article ‘Investment Screening in the EU: From Liberalisation to the State of Exception’, published open access by The Journal of World Investment & Trade (advance online publication), available here.
Introduction
Security has become a dominant paradigm in EU investment law. In the past decade, the fundamental logic of investment law has shifted away from liberalisation towards security as a guiding principle. The adoption of the FDI Screening Regulation (Regulation (EU) 2019/452) marked the institutionalisation of this turn. This paradigm shift raises difficult questions for legal certainty and the rule of law. The FDI Screening Regulation notably relies on open-ended notions of “security” and “public order”, grants broad administrative discretion, and operates in a context where judicial review is structurally constrained.
In the context of international economic law, the rise of the security paradigm has often been considered from the perspective of Schmitt’s theory on the state of exception.[1] Carl Schmitt (in)famously concluded that “Sovereign is he who decides on the state of exception.”[2] Schmitt argued that in order to understand the nature of law or the constitutional order, one must study the exception, rather than the ordinary. According to Schmitt, the state of exception frees the executive from any legal restraints to its power that would normally apply. However, international and European courts have rejected the argument that the security exceptions are immune from legal restraints or judicial review.[3] Therefore, Schmitt’s theory on the state of exception cannot be directly applied to the rise of the security paradigm in EU investment law.
Giorgio Agamben offers a different perspective. Agamben argues that contemporary states of exception rarely involve the abrogation of the entire constitutional order. Rather, exceptional measures become normalised as routine instruments of governance, creating a “zone of indistinction” in which the lines between what is inside or outside the legal system, or what is legal or illegal are increasingly blurred.[4] Agamben warns that the transformation of provisional and exceptional (security) measures into a technique of government threatens to radically alter – and have already altered – the structure and meaning of constitutional democracy. From this perspective, the concern is not the formal abrogation of law, but the general transformation towards the security paradigm.
This post argues that Giorgio Agamben’s theory of the state of exception offers a valuable legal-philosophical lens through which the turn to security in EU investment law can be examined. It explores three dimensions of this shift: the shift from liberalisation to security, the implications for legal certainty, and the limitations on judicial review.
While the public interests pursued through investment screening are significant, is important to provide for specific objectives and grounds for approving, restricting or prohibiting investments. Greater specification of the objectives and grounds for intervention could help transform investment screening from an exceptional regime into a more regularised legal framework characterised by specific, objective and non-discriminatory norms.
From liberalisation to security
Increasingly, security determines the regulation of foreign investment flows, rather than the objective of liberalism as enshrined in the EU’s Treaties. Until recently, the EU’s investment regime was anchored in the Treaties’ objective of the “progressive abolition of restrictions on international trade and on foreign direct investments” under the Common Commercial Policy and the free movement of capital and freedom of establishment under the internal market rules. In this period of liberalisation, the Commission repeatedly and successfully challenged so-called “golden shares” and investment screening regimes.[5] The Court of Justice sided with the Commission in almost all these cases, determining that the relevant screening mechanisms disproportionately interfered with the EU’s market freedoms. The adoption of the FDI Screening Regulation represents a fundamental change of approach. Rather than limiting the scope of the security exception, the Commission established security as a fundamental paradigm for investment regulation in the EU. The revised Foreign Investment Screening Regulation further consolidates this trend.
This change in the Zeitgeist followed fundamental geopolitical shifts. A sharp increase in Chinese investments, the US-China trade war, Russia’s invasion of Ukraine, Brexit, and the Covid-19 pandemic-catalysed concerns around strategic autonomy, economic security, and technological dependency. The EU’s Economic Security Strategy, New Industrial Strategy, and China Strategy reflect the relevance of economic security across a wide range of domains, including supply chain resilience, critical infrastructure, technology leakage and the weaponisation of interdependence.[6]
In practice, investment screening has transformed from a niche instrument targeted at a narrow set of defence and critical infrastructure companies to a general governance tool spanning across sectors, such as semiconductors, AI, quantum, biotech, advanced connectivity, navigation, energy, telecoms, robotics, and advanced materials. Member States on aggregate screen thousands of transactions each year, with a substantial share subject to formal review.[7] Rather than being the exception, security-based measures and restrictions have generalised as an ordinary technique of economic governance.
Legal Certainty
The FDI Screening Regulation does not define “security” or “public order” and provides no clear thresholds for when screening is required. Instead, it offers a non-exhaustive list of factors covering critical infrastructures, technologies, inputs, sensitive information, and media pluralism, alongside investor-related considerations such as state control, track record, and risks of unlawful activities. At the time of the adoption of the FDI Screening Regulation, the European Parliament explicitly endorsed the vagueness of these core concepts to preserve case-by-case flexibility. The lack of definitions and clear thresholds has privileged Member State discretion over ex ante legal certainty.
In parallel, the Commission’s policy discourse has widened the concept of security to encompass strategic autonomy and economic security objectives that include a broad array of industrial and technological objectives. In line with this broad understanding of the security exception, investment screening affects a wide range of sectors, ranging from supermarkets and ports to tyres and semiconductors. The absence of transparency (notably, in many jurisdictions decisions are not published) furthermore makes it difficult to reconstruct decision practice, including the reasons for prohibiting or restricting certain investments.
The dominance of the security paradigm in the FDI Screening Regulation is illustrative of Agamben’s argument that exceptional techniques of governance increasingly form part of ordinary law, generating a space in which criteria are open-ended and legal certainty gives way to political discretion. As a result of the absence of a definition of security or public order, the expansive view of these concepts, and the political decision-making process that is shrouded in secrecy, investment screening operates in a grey zone between law and politics.
Judicial review
The Court of Justice has long held that measures derogating from fundamental freedoms on grounds of public security or public policy are amenable to judicial review and must respond to a genuine and sufficiently serious threat to fundamental societal interests, interpreted restrictively. Therefore, the FDI Screening regime does not result in a Schmittian exception amounting to a ‘self-judging’ exception that is unamenable to judicial review, which results in the ‘suspension of the entire existing juridical order’.
At the same time, the Court recognises a margin of discretion for Member States. Furthermore, the Court considers that the circumstances that may justify recourse to security or public order may vary from one country to another and from one era to another.[8] In light of this margin of discretion, judicial challenges often focus on procedural compliance and high-level proportionality assessments. Judicial review of investment screening decisions is particularly complicated by the highly political nature of investment screening decisions. While jurisprudence will continue to develop in the coming years, EU and national courts are likely to show considerable deference to the competent authority’s assessment that an investment poses a security risk, intervening only in manifestly disproportionate or procedurally defective cases. Investment screening involves a complex factual assessment of security risks involved, for instance in the area of emerging technologies, as well as a balancing of a wide range of interests. The important role of State secrets further limits the possibility of meaningful judicial review. Consequently, restrictions or prohibitions imposed by procedurally sound decisions invoking good faith, but extensive, security claims are often difficult to challenge in practice.
Unsurprisingly, many transactions are restructured or abandoned in the shadow of likely prohibitions or onerous conditions. Litigation is in practice seen as unattractive given the long timelines and uncertain outcomes. For this reason, historically, systemic constraints on investment screening have been driven more by Commission infringement actions than by investor-led challenges.[9] The limits on judicial review illustrate how the exceptional logic of the security paradigm operates within a legal framework that makes meaningful ex post correction difficult in practice.
Reconciling security with the rule of law
The FDI Screening Regulation clearly does not operate in a space that is devoid of law or in which sovereign power has been freed from any legal restraint. However, viewed from Agamben’s perspective, the rise of the security paradigm does represent a more gradual and subtle shift away from a rules-based system.
Even though the FDI Screening Regulation is embedded in a constitutional system that provides for legal criteria (security and public order), proportionality requirements and judicial review, Agamben’s perspective helps illuminate the structural issues arising from the security paradigm. As a result of indeterminate legal criteria, wide executive discretion, secrecy constraints, and limited scope for judicial review, investment screening law is characterized by an entanglement of law and politics and substantial limitations on legal certainty.
This conclusion does not imply that the public interests pursued in investment screening are not important. It rather highlights the risks that the expanding scope of the security exception in investment law poses to the rule of law and the importance of developing an alternative paradigm. Instead of an open-ended security exception, the law should provide for specific objectives and grounds for approving, restricting or prohibiting investments. For instance, investment screening law and guidance could specify when and to what extent interests such as supply chain resilience, technological competitiveness and the protection of personal data are grounds for restricting or prohibiting investments. A revised framework that specifies the grounds for intervention would help transform investment screening from an exceptional regime to a regular legal framework that is characterised by specific, objective and non-discriminatory legal norms.
This blog is part of the CELIS-L&G special blog series.
All articles in Law & Geoeconomics are currently available free of charge via Brill using the access token LGEO4U until 31 December 2026. More details are available at the L&G page here.
[1] See footnote 41 of the full article. See, for instance, Geraldo Vidigal and Stephan W Schill, ‘International Economic Law and the Securitization of Policy Objectives: Risks of a Schmittean Exception’ (2021) 48 Legal Issues of Economic Integration 109, 110–111.
[2] ‘Souverän ist, wer über den Ausnahmezustand entscheidet.’ Translation by the author. Carl Schmitt, Politische Theologie: Vier Kapitel zur Lehre von der Souveränität (9th edn, Duncker & Humblot 2019) 13.
[3] See, for instance, Case C-106/22 Xella Magyarország v Innovációs és Technológiai Miniszter ECLI:EU:C:2023:568 [66].
[4] Giorgio Agamben, State of Exception (Kevin Attell tr, University of Chicago Press 2005) 1.
[5] See footnote 61 of the full article. See also Thomas Papadopoulos, ‘Privatizations of State-Owned Companies and Justifications for Restrictions on EU Fundamental Freedoms: Past, Present and Future Perspectives’ in Julien Chaisse, Jędrzej Górski and Dini Sejko (eds), Regulation of State-Controlled Enterprises (Springer 2022).
[6] Commission and High Representative, European Economic Security Strategy (Joint Communication) JOIN(2023) 20 final (Economic Security Strategy); Commission, Strategic Dependencies and Capacities accompanying the Communication updating the 2020 New Industrial Strategy: Building a stronger Single Market for Europe’s recovery (Staff Working Document) SWD(2021) 352 final; Commission and High Representative, EU-China – A strategic outlook (Joint Communication) JOIN(2019) 5 final.
[7] In 2024, 67% of cases (excluding Sweden) were formally screened. See Floor Doppen and Andrew Hill, ‘The Devil Is in the Details – The Real Screening Report’ (CELIS, 7 November 2025) <https://www.celis.institute/celis-news/the-devil-is-in-the-details/> accessed 17 February 2026.
[8] See, for instance, Case C-36/02 Omega Spielhallen ECLI:EU:C:2004:614 [31]; Case C-106/22 Xella Magyarország v Innovációs és Technológiai Miniszter ECLI:EU:C:2023:267, Opinion of AG Ćapeta [72].
[9] In this respect, see the recent opening of infringement procedure by the Commission against Italy relating to its so-called golden power legislation, especially with respect to its application in the financial sector. ‘Economic Security and the Financial Sector: Italian FDI Legislation Reformed to Cope with the EU Commission Infringement Procedure’ (CELIS, 30 January 2026) <https://www.celis.institute/celis-institute/italian_fdi_legislation_reformed_eu_infringement_procedure/> accessed 17 February 2026.
