Introduction

On Thursday 8 May 2025, the EU took another important step towards revamping its framework to screen foreign investment, with the European Parliament adopting an amended version of the bill (the “EP Bill”, available here). That vote has now cleared the way for the next step in the legislative process: the tri-partite negotiations between the European Commission, the Council of the EU, and the European Parliament (aka “trilogue”) to arrive to a final text that will become law.

The EP Bill endorses the Commission proposal^[1] that sought to bring more harmonisation/oversight over Member States, but also goes further and makes several ambitious additions to the Commission proposal in particular, the EP Bill would: (i) give new decision-making powers to the Commission in an area where such powers previously have squarely rested in the hands of the EU Member States, (ii) expand the list and scope of sectors in which foreign investments could undergo screening, and (iii) require reporting and screening of greenfield investments above a certain amount in many sectors.

This post explains these key proposed changes for non-EU investors and sets out how we see the prospects of these changes surviving the remainder of the legislative process.

What key changes has the Parliament made to the European Commission’s Proposal?

1. New decision-making powers for the Commission

By way of context, the existing EU foreign investment screening regulation (“Current FIR Regulation”) establishes a complex mechanism requiring a Member State authority screening a given foreign investment into its country to notify it to the Commission and the other Member States.^[2]  The screening Member State authority must then take “due consideration” of any comments from the Commission or other Member States, but it remains the ultimate decision maker.^[3]

The Commission’s proposal revising the Current FIR Regulation (issued in January 2024, the “Commission Proposal”) sought to increase the Commission’s role in this cooperation mechanism, notably by giving:

• Additional rights for the Commission to submit comments;^[4]
• More influence given to the Commission’s and the other Member States’ comments, namely requiring the screening Member State to “give utmost consideration” to their comments;^[5] and
• More room for discussion between the screening Member State, the other Member States and the Commission through a series of consultation meetings between them^[6], with an obligation for the screening Member State to provide written reactions to the feedback received^[7], as well as a second round of consultation meetings in case of disagreements.^[8] 

These changes were already seen as highly controversial for Member States, who have traditionally retained full discretion over their screening activities. However, the amendments in the EP Bill go even further by introducing:

• A new deadlock resolution mechanism: Whilst the Commission Proposal sought to create more consultation and give greater influence to the Commission and the other Member States, it nevertheless left the screening Member State with the ultimate decision about the investment.  In contrast, the EP Bill would give the final word to the Commission in case of disagreement with the screening Member State about the outcome of the proposed foreign investment: i.e. whether to allow it (and under what potential conditions).^[9]
• New investigative powers for the Commission: The EP Bill would empower the Commission to collect information directly from the investor and the target to assess whether the proposed investment would likely have a negative effect on national security or public order of more than one Member State. In the present system, the Commission can only ask the screening Member State to collect this information from the parties. In the EP Bill, these information requests would also suspend all other deadlines and failure to comply with them could expose the parties to penalties (modelled on those existing under the EU merger control and foreign subsidy control regimes).^[10]
• A new requirement for the Commission to issue detailed guidelines on filing triggers and factors relevant to assessing investments’ risk profile for national security: At present there remains significant uncertainty for investors as to whether certain investments require reporting, and even more so as regards the national security assessment of reportable investments. Most Member States provide sparse guidance, and the Commission has not provided any either (consistent with the general spirit that foreign investment screening remained a ‘Member State affair’). The EP Bill seeks to reduce this uncertainty by bringing more transparency and consistency across Member States. It would require the Commission to publish guidance – albeit without binding effect on the Member States – to assist investors with identifying whether they need to report their investment and on how they should anticipate screening authorities will assess investments’ risk profiles for national security.^[11]  

2. Expanding the list of sectors and activities triggering investment screening

The Current FIR Regulation contains a non-binding and high-level list of sectors in which Member States “may” consider screening investments.^[12]

The Commission Proposal sought to transform this indicative list into a mandatory list requiring Member States to screen investments in the listed sectors.  The Commission Proposal lists these sectors in two annexes: Annex I, which refers to “programs of Union interest” (i.e. EU-funded programs in areas deemed particularly strategic such as defense, space, telecoms, health); and Annex II, which contains a list of technologies and products covering 12 sectors: (i) semiconductor technology, (ii) artificial intelligence, (iii) quantum technologies, (iv) biotechnologies, (v) advanced connectivity and navigation, (vi) advanced sensing technologies, (vii) space and propulsion technologies, (viii) energy technologies, (ix) robotics and autonomous systems, (x) advanced materials and manufacturing/recycling technologies, (xi) listed critical medicines, and (xii) specific entities critical to the EU financial systems.

The EP Bill adopts the Commission Proposal’s approach of mandatory screening of investments based on specific sectors identified, and adds further:

• To expand and/or clarify the scope of six of these sectors, namely: (i) semiconductor technology (to cover technologies related to more legacy semiconductors, not just “advanced” semiconductors)^[13], (ii) artificial intelligence (to clarify the type of technology covered, and to exclude generic analytics technologies), (iii) advanced connectivity and navigation (to include 5G and light/laser technologies), (iv) space and propulsion technologies (to include signaling and traffic management systems), (v) energy (to capture various services and infrastructure, thereby going beyond the Commission’s Proposal which only targeted technologies)^[14] and (vi) specific entities critical to the EU financial systems^[15];
• To include five new sectors: (i) the transport industry (including activities in aerospace, rail, automotive, maritime), (ii) the media industry, (iii) electoral infrastructure, (iv) critical raw materials (including extraction, refining, recycling and storage), and (v) farming land.^[16]

Overall, these amendments would therefore materially expand the scope of mandatory investment screening compared to the Commission Proposal.  Compared to the Current FIR Regulation, the EP Bill also results in a far more prescriptive list (e.g., a number of Member States only require mandatory filings for a subset of the sectors in the EP Bill).

3. Subjecting more greenfield investments to mandatory screening

The Current FIR Regulation does not grapple with greenfield investments, which is where investors set up new operations (as opposed to investing into existing targets).  Additionally, there is no harmonized approach taken by Member States to deal with greenfield investments, although most do not screen greenfield investments.  The Commission Proposal sought to bring some more harmonization, as it ‘encourages’ them to screen greenfield investments when the sector or size of the investment warrants it. ^[17]

The EP Bill goes one significant step further by turning the Commission’s non-binding ‘encouragement’ into a mandatory obligation to screen greenfield investments that (i) concern a mandatory sector (discussed above), (ii) involve a “sensitive investor”, and (iii) exceed €250m in value.

Where does that leave overseas investors looking to the EU?

For non-EU investors looking to invest in the EU, the EP Bill is a double-edged sword:

• On the one hand, it introduces more legal certainty, consistency and transparency across the EU in terms of sectors requiring screening and the risk factors relevant to screen reportable investments; and
• On the other hand, it subjects more investments to mandatory screening through (i) expanding the number and scope of sectors that trigger mandatory notifications of their investment; and (ii) subjecting more greenfield investments to screening, and (iii) leaves open the question of how diverging approaches between the Commission and Member States will be resolved.

However, the EP Bill is not yet the end of the road: We expect that several of the Parliament’s changes will not survive the legislative process in their current form.  In particular, we expect the Member States (through the Council of the EU) to use the trilogue to limit the role of the Commission and to confirm the primary role of Member States in the area of national security.  We also expect Member States to push back on the mandatory list of sectors under review to retain more flexibility and control over their screening activities.

Investors should therefore keep an eye on how the trilogue progresses and consider whether they may have helpful views to contribute at that next stage in the legislative process.  Covington is well positioned to support them in offering their views. From a timing perspective, there is still some “way to go” before the new regime (once adopted) comes in play. While Commissioner Šefčovič hopes that the trilogue will complete this year, it would likely take another 1-2 years for any agreed text to take effect.

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^[1]           For more details on the initial proposal by the Commission, see our previous post here.

^[2]           Article 6 of Regulation 2019/452.

^[3]           Article 6(9) of Regulation 2019/452.

^[4]           Article 7(3) of the Commission Proposal.

^[5]           Article 7(5) of the Commission Proposal.

^[6]           Article 7(6) of the Commission Proposal.

^[7]           Article 7(8) of the Commission Proposal.

^[8]           Article 7(9) of the Commission Proposal.

^[9]           Amendments 117 to 119 in the EP Bill.

^[10]          Amendment 151 of the EP Bill. Comparable to (e.g.) Article 14 and 15 of the EU Merger Regulation (139/2004).

^[11]          Amendment 199 of the EP Bill.

^[12]          Article 4 of Regulation 2019/452.

^[13]          Amendment 224 to 228 of the EP Bill.

^[14]          Amendment 242 to 246 of the EP Bill.

^[15]          Amendments 223 et seq. of the EP Bill.

^[16]          Amendments 248 to 252 of the EP Bill.

^[17]          Recital 21 of the Commission Proposal.