INSTITUTIONAL MECHANISMS FOR REGULATING FOREIGN DIRECT INVESTMENT IN THE EUROPEAN UNION

Abstract

This article examines the evolution and current state of foreign direct investment (FDI) regulation in the European Union (EU), with a focus on the interplay between supranational policies of the European Commission and national regulations adopted by EU member states over the past decade. Following the global financial crisis of 2008–2009, the EU experienced a notable decline in its role in international capital flows, prompting both political and institutional responses aimed at strengthening investment oversight. This shift is evidenced by the increased regulatory activity at multiple governance levels, including the adoption of the EU Screening Regulation and the establishment of national FDI screening mechanisms across member states.

The study offers a comparative analysis of the EU’s policy responses to two major crises: the 2008–2009 financial crisis and the 2020–2022 COVID-19 and geopolitical crises. It highlights how these events reshaped the EU’s approach to foreign investment, reinforcing the role of strategic sectors such as energy, telecommunications, health, defense, and advanced technologies as areas of heightened scrutiny. These sectors are now increasingly protected from foreign control due to concerns over national and EU-wide economic security.

Furthermore, the article assesses the EU’s position in the global competition for FDI, particularly in contrast to the United States. It discusses the growing regulatory convergence between the two economies while pointing out divergences in approaches to openness and control. The ongoing Russia–Ukraine war has also significantly influenced capital flows into the EU, accelerating institutional reforms in investment screening and heightening sensitivity to political risks associated with foreign ownership.

Special emphasis is placed on the emerging regulatory trend of outbound investment screening—a novel concept for the EU—as well as new instruments aimed at addressing the impact of foreign subsidies on internal market competition. These developments signal a shift towards a more assertive regulatory stance, combining investment openness with enhanced vigilance.

The article concludes with policy recommendations aimed at maintaining a delicate balance between economic security and the EU’s continued attractiveness as a destination for foreign capital. These include promoting transparency, harmonizing national screening practices, and reinforcing cooperation among member states to ensure cohesive and effective investment governance.