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Romania: Towards a Wide (Yet Kept in Check) Scope of FDI Screening

Montenegro: The Unsung Enforcement of Montenegro’s Competition Authority

Issue 10.6
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On March 30, 2023, Advocate General Tamara Capeta (AG) delivered her Opinion in the Xella Magyarorszag (C‑106/22) case, concerning the interpretation of Regulation (EU) 2019/452 establishing a framework for the screening of foreign direct investments into the Union (FDI Regulation).

In essence, the AG recommends the European Court of Justice (Court) adopt an interpretation whereby investments made by EU-based investors controlled by non-EU entities are covered by the FDI Regulation. However, the AG also stresses that member states remain bound by strict conditions when screening and prohibiting foreign investments, as the mere existence of an administrative review makes investments less attractive.


The case concerns the proposed acquisition by Xella Magyarorszag Epitoanyagipari Kft. (Xella) – a Hungarian company active in the construction sector – of a Hungarian company engaged in the extraction of sand, gravel, and clay. While directly controlled by a German entity, Xella was also controlled by a Bermuda-based company and thus regarded as a foreign investor under the national rules. The Hungarian Minister for Innovation and Technology blocked the transaction, deeming the acquisition of a “strategic company” by a foreign company as damaging to Hungarian national interests, public security, or public policy. Against the backdrop of a court challenge, questions arose as to the scope of the FDI Regulation as well as the legality of national screening mechanisms.

Nature and Scope of the FDI Regulation

The AG first notes the peculiar architecture of the FDI Regulation. Unlike regulations usually enacted at the EU level, the FDI Regulation neither introduces binding rules nor obliges member states to adopt screening mechanisms for foreign investments. It merely authorizes them to do so. This strange nature is attributed by the AG to the role of the FDI Regulation, which is to bridge the gap (and resolve the tension) between different types of competence: common commercial policy (including foreign direct investments) – representing an exclusive competence of the EU – and the internal market – a competence shared by the EU with member states.  The AG then examines the scope of the FDI Regulation. While the EU Commission took the position that indirect foreign direct investments could fall within the scope of the FDI Screening Regulation only “exceptionally, for the purposes of preventing the circumvention of screening mechanisms”, the AG concluded that the concept of a foreign investor must also encompass EU-based companies controlled by non-EU entities. In the AG’s view, the contrary interpretation would run counter to the very essence of introducing a screening mechanism for foreign investments, as there should be no difference in situations where a third-country investor acquires control over a strategic EU undertaking directly from abroad or through an EU-based undertaking it controls.

Furthermore, the AG reiterates that the concept of a foreign direct investment, as interpreted by the Court, excludes minority or short-term investments.


Despite the leeway afforded under EU law to enact national legislation providing for the screening of indirect foreign direct investments, member states are not given a blank cheque. As such, according to the AG, national laws, as well as individual decisions based thereon, must pursue a legitimate aim and be proportionate in order to be permitted. In this regard, investments may only be prohibited provided that the member state explained how the investment would amount to a “genuine and sufficiently serious threat to a fundamental interest of society.” While the AG does not exclude the possibility that scarce raw materials be regarded (in times of crises) as a matter of public security, it seems that in the case at hand, the mere foreign ownership of a producer that accounts for just 0.52% of the Hungarian national production of sand, gravel, and clay does not constitute a genuine and sufficiently serious threat to the fundamental interest of supply chain security.

Impact on Investments

It remains to be seen whether the Court will confirm the interpretation proposed by the AG and how the national authorities, including the Romanian one, will react. In practical terms, the issue remains an additional barrier to investments from companies that may have always regarded themselves as European. Nevertheless, caution should be exercised by national authorities so as not to fall into a protectionist trap, as their powers to examine foreign direct investments from a national security perspective are not discretionary – when exercising such powers, national authorities must bear in mind that any proceeding and subsequent prohibition decision must be reasoned, necessary, and proportionate.

By Anca Diaconu, Partner, NNDKP

This article was originally published in Issue 10.6 of the CEE Legal Matters Magazine. If you would like to receive a hard copy of the magazine, you can subscribe here