Heading to the Big Screen: The Emergence of a Foreign Direct Investment Screening Mechanism in the European Union

Abstract

In September 2017, the European Union (EU) Commission introduced a high- priority proposal for a supranational mechanism designed to screen incoming foreign direct investment (FDI) into Europe. This proposal has emerged as a complex and controversial policy issue, both inside and outside Europe. Why is this EU-wide screening mechanism coming to the forefront of the European policy debate at this point in time? This thesis explores three non-exclusive motivations for the emergence of the current debate over the necessity of a European FDI screening mechanism: 1) the surge of Chinese investment worldwide; 2) the backlash against globalization; and 3) the 2009 institutional competence shift over FDI policy in the EU. This thesis utilizes a qualitative research design including primary interviews with EU policymakers and stakeholders, as well as media analysis. The surge of Chinese investment over the past decade is the most often and publicly cited reason for having a screening mechanism. Yet despite Chinese investment entering all 28 Member States, national preferences towards a FDI screening mechanism are diverse, with some European countries radically opposed to the idea. Two other factors occurring simultaneously to the surge of Chinese FDI may account for the emergence of the proposal now. First, the current political backlash against globalization and rising protectionist sentiment across developed economies motivate more economic nationalism in general and FDI restrictiveness in particular. Second, the emergence of this screening proposal results from the EU’s own institutional dynamics, notably a power struggle between the Commission and the Member States following the contentious transfer of competence over FDI policy in the 2009 Lisbon Treaty. The thesis finds that while all three hypotheses have independently pressured the EU to react against the new political and economic challenges posed by contemporary FDI, they have combined and reinforced each other to produce the proposal now on the table. The implications of these findings include a strategy for how the EU Commission should move forth with the proposal while addressing Member State dissent over Chinese investment, and consequences for Chinese investors to consider, to ensure that their future investments are received favorably.