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EU auditors slam 12 EU states for failing to report on direct investments

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Twelve EU member states did not report relevant foreign direct investment inflows in 2020 and 2022, the European Court of Auditors revealed on Wednesday, warning of possible risks, according to Euractiv.

On Wednesday, the European Court of Auditors released its report on monitoring foreign direct investment (FDI) in EU countries.

However, according to the report, a group of 12 EU countries “did not analyze or notify any cases” between 2020 and 2022, “despite representing approximately 42% of the average stock” of this capital in the Union.

“We consider that this situation has a significant impact on the effectiveness of the [foreign direct investment] regime and limits the overall view allowed to the Commission and other member states” regarding the risks, the EU auditors argue in their report.

At issue is the regime for analyzing FDIs, a regulation that came into force three years ago to ensure the coordination of the analysis of foreign direct investments in sectors strategic to the security and functioning of the EU bloc.

“The Court would have expected a correlation, which in reality did not materialize, between the size of the economies, the level of FDI inflows and the number of notifications,” the document states.

Speaking about Portugal to journalists ahead of the report’s publication, Mihails Kozlovs, the EU Court of Auditors’ member responsible for the audit, said that it “was in fact one of the first member states to introduce FDI monitoring”.

“The fact that Portugal didn’t notify any cases can mean many things at the same time, and we in the court can’t assess whether this resulted from the non-application of the [European] regulation or whether it resulted from the fact that there were simply no operations that should have been notified,” Kozlovs said in response to Lusa’s question during the session with journalists.

“That’s why we’re also asking the Commission, and this is one of our recommendations, to really assess the screening mechanisms in the member states, whether they fulfil the minimum standards laid down in the regulation,” Kozlovs added.

He also warned that while there is only an estimated 1.1% of FDIs in Portugal, “the size basically doesn’t matter” since “just one investment can bring a lot of risk to Portugal and other member states”.

“It’s very important that member states have a shared understanding of what the risks are and how to build their systems to better deal with them,” he added, acknowledging that member states have different approaches and levels of notification.

The regulation establishes a regime for member states to analyze FDIs and a mechanism for cooperation between countries and the European Commission to assess and possibly restrict investments that could threaten EU security or public order.

It has already enabled the Commission and member states (regardless of whether or not they have a screening mechanism) to assess over 1,100 FDIs.

The risks associated with FDI increase in strategic assets (such as nuclear power plants or ports), in critical sectors (notably defence, semiconductors or dual-use integrated circuits) and in the face of the possible transfer of sensitive technology to a third country.

In 2021, the EU recorded around €117 million in FDI inflows, equivalent to 8% of the world’s total level.