Government to disallow certain foreign investments

At present, 14 out of 28 member states apply a mechanism for screening incoming foreign investments. As this mechanism varies in individual member states to some extent, the EU decided to harmonise the regulation in this respect, taking a relatively revolutionary step involving the introduction of a legally binding instrument for screening foreign investments for security reasons, i.e. to protect the EU’s strategic goals. The EU thus confirmed that despite the EU’s general openness to foreign investors the approval of foreign investments is a desired tool to protect security, internal order, and fair competition throughout the Union.

It was not a sudden or surprising step by the EU; in contrast, the adoption of the regulation can be viewed as the culmination of tendencies and concerns over several years. The foreign investment screening mechanism should complement the EU’s existing policies, e.g., member states may review transactions in the energy sector or upon the merger of businesses and asses any potential violation of legitimate interests. However, the approved regulation does not impose the duty to introduce the foreign investment screening mechanism on member states; it only defines its key characteristics if member states decide to adopt it. These essential requirements include, for example, the possibility to judicially review a decision and the prohibition of discrimination among third countries. The regulation also introduces the duty to exchange information among member states and between the member states and the commission, which is of utmost importance.

Despite the facultative nature of the mechanism, the Czech Republic has decided to adopt it. The parliament is expected to vote on the appropriate bill in the near future. According to the bill, the Ministry of Industry and Trade should screen foreign direct investments primarily from non-EU countries. A foreign investment shall generally mean the acquisition of at least a 10% share in the voting rights in a Czech corporation or gaining access to information or technologies vital for the security of the CR or its public order. Screening will also apply to investments made by an EU entity controlled by a third-country investor. Some foreign investments will require approvals: mainly those involving investments in transactions with military material or critical infrastructure. The ministry will also be able to screen other investments any time within the five years of their realisation if it suspects that the country’s security or public order may be at risk. Where such investments are concerned, the foreign investor may ask for them to be screened, thus avoiding their possible abolishment. If the Ministry of Industry and Trade arrives at the conclusion that the investment undergoing screening might be risky, the government will make a final decision: it may authorise it or conditionally authorise it, or decide not to authorise it, or even cancel any investments that have already been made.

Proceedings to authorise an investment under the bill will represent special administrative proceedings. It will not be possible to file remonstrance against the government’s decision; however, the investor will be allowed to turn to the court. The new legal regulation will apply to investments made after 1 January 2020 when the act is expected to enter into effect. Only after this date we will be able to see whether the act has fulfilled its purpose and has not exceedingly discouraged foreign investors.