April 3, 2020

Cross-Border: EU Looks to Protect Suppliers of Essential Products

European regulators are becoming increasingly concerned about attempts by non-EU buyers to obtain control over suppliers of essential products – and healthcare products in particular. This Cleary Gottlieb memo says that the European Commission is urging member states to use existing foreign direct investment rules & introduce robust screening mechanisms where they don’t currently exist, in order to protect “critical health infrastructure, supply of critical inputs, and other critical sectors.”  This excerpt summarizes the EC’s message:

The EC’s communication notes that the COVID-19 pandemic could give rise to “an increased risk of attempts to acquire healthcare capacities (for example for the productions of medical or protective equipment) or related industries such as research establishments (for instance developing vaccines) via foreign direct investment.” It further states that “vigilance is required to ensure that any such FDI does not have a harmful impact on the EU’s capacity to cover the health needs of its citizens.”

Because “acquisitions of healthcare-related assets would have an impact on the European Union as a whole,” the communication urges Member States that do not have screening mechanisms, and have not yet implemented the FDI Screening Regulation, “to set up a full-fledged screening system and in the meantime to use all other available options to address cases where the acquisition or control of a particular business, infrastructure or technology would create a risk to security or public order in the EU, including a risk to critical health infrastructures and supply of critical inputs.”

The memo also provides some details on the EU’s new FDI Screening Regulation, which will go into effect in October 2020.  The EC’s communication to member states particular emphasis to the possibility of post-closing enforcement actions under a mechanism introduced by the FDI Screening Regulation.

John Jenkins