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EU Calls on Member States to Protect Health Care Sector from Foreign Takeovers

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On March 25, the European Commission (“Commission”) issued Guidance to the Member States on the application of Regulation 2019/452 providing a framework for the screening of foreign direct investment (FDI) in the EU, and on restrictions on free movement of capital from third countries. The Guidance points out that the economic crisis brought about by the COVID-19 outbreak is posing increased risks to the healthcare sector and, more generally, to the EU’s strategic capacities. In particular, the Commission warns that European strategic healthcare assets, such as medical or protective equipment and medical research establishments, might be subject to hostile takeovers through FDI. Moreover, the Commission advises Member States to be wary of potential “predatory buying” by foreign investors of strategic assets that might be affected by stock market volatility because of the pandemic. This piece covers the following:

Foreign Direct Investment Screening 

The FDI Screening Regulation, which will fully enter into force in October 2020, provides a framework to enhance coordination and cooperation between Member States and the Commission in national cases involving the review of FDI on grounds of security and public order. Member States have the discretion to maintain their existing screening mechanisms, adopt new ones or remain without such mechanisms. Since Member States have exclusive competence to decide on matters related to national security and public order, they also retain the power to block or impose conditions on FDI in their respective territories. (For more information, see our EU Chapter in the ICLG Guide to Foreign Direct Investment Regimes) 

Restrictions on free movement of capital from third countries

The EU Treaties provide for the free movement of capital not only between EU countries but also with third (non-EU) countries. However, Member States are allowed to derogate from this rule and impose restrictions on free movement of capital with third countries in order to attain public policy objectives. Such restrictions need to be suitable, necessary and proportionate. In its Guidance, the Commission recalls that public security and public health are considered by the case law as such objectives given that they promote society’s fundamental interests. 

To read the full article and summarized takeaways, please click the title below. 

EU calls on Member States to protect health care sector from foreign takeovers

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