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CENTRE FOR TRADE AND ECONOMIC INTEGRATION
04 August 2020

The Investment Screening Regulation and its screening ground “security or public order”: How the WTO law understanding undermines the Regulation’s objectives

We are pleased to share a CTEI Working Paper written by Jens Velten, Visiting Fellow at the CTEI from January until June 2020. In his paper, Jens Velten deals with the globally topical subject of foreign investment screening mechanisms by analysing the EU’s Investment Screening Regulation. He finds that the Regulation is too narrow in scope to achieve its objectives.

The EU adopted Regulation 2019/452 (Regulation) as part of a more robust Common commercial policy to strengthen and defend its interests in a shifting global order. More concretely, the Regulation has two objectives: protecting domestic assets from harmful foreign investor interests in sensitive sectors, and equipping the EU with leverage to achieve more favourable treatment of EU investors abroad. Therefore, the Regulation provides Member States with an option to adopt foreign direct investment (FDI) screening mechanisms on the grounds of “security or public order”. 

However, the Regulation misses its objectives. The Regulation’s vague screening ground “security or public order” must be interpreted in accordance with WTO law. A detailed analysis finds that the relevant WTO notions of essential security interests and public order are rather narrow. The Regulation’s screening ground “security or public order” therefore only allows the screening of a few, high-profile cases of FDI. Such a narrow scope undermines the Regulation’s objectives.

Please find the publication in the Institutional Repository of IHEID here.