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Behind the screen: Understanding national support for a foreign investment screening mechanism in the European Union

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Abstract

What determines national preferences for institutionalizing foreign direct investment (FDI) screening? Over the past decade, advanced economies worldwide have tightened their national investment screening mechanisms (ISMs). In March 2019, the European Union (EU) adopted its first common FDI screening framework. This article explores variations in Member State preferences for the creation and nature of a pan-European screening framework. Based on extensive interviews with high-level EU and country officials involved in the negotiation process, and using a unique measure of national support for the EU-wide ISM created through the first-ever elite survey on this subject matter, we find that countries with higher technological levels were more supportive of FDI screening due to concerns over unreciprocated technological transfer. We also show the effects of Chinese FDI on country-level support for FDI screening sector-dependent. We found no evidence that total Chinese FDI predicts preferences for ISM. Instead, countries with high levels of Chinese FDI in strategic sectors are more likely to support the ISM, while those with high levels of Chinese investment in low-tech sectors tend to oppose screening. Our overall findings suggest that EU investment screening, and national-level screening in general, might become more restrictive in the future, especially in light of the COVID-19 pandemic.

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Notes

  1. Jean-Claude Juncker (2017). State of the Union Address 2017. Speech. Brussels: European Commission, September 13. https://ec.europa.eu/commission/presscorner/detail/en/SPEECH_17_3165.

  2. The negotiations started in 2017, before Brexit took effect.

  3. European Parliament and Council of the European Union (2019). “Regulation (EU) 2019/452 of the European Parliament and of the Council of 19 March 2019 Establishing a Framework for the Screening of Foreign Direct Investments into the Union.” Official Journal of the European Union (LI 79): 1–14. http://data.europa.eu/eli/reg/2019/452/oj.

  4. See European Parliament and Council of the European Union (2019). “Regulation (EU) 2019/452 of the European Parliament and of the Council of 19 March 2019 Establishing a Framework for the Screening of Foreign Direct Investments into the Union.” Official Journal of the European Union (LI 79): 1–14. http://data.europa.eu/eli/reg/2019/452/oj.

  5. European Union (2007). Treaty of Lisbon Amending the Treaty on European Union and the Treaty Establishing the European Community. Treaty full-text. Brussels: European Union, December 13. https://eur-lex.europa.eu/legal-content/EN/TXT/?uri=celex%3A12007L%2FTXT.

  6. Jean-Claude Juncker (2017). State of the Union Address 2017. Speech. Brussels: European Commission, September 13. https://ec.europa.eu/commission/presscorner/detail/en/SPEECH_17_3165.

  7. Interview with a senior staffer at the European Parliament. Brussels, February 2019.

  8. Interview with a senior officer in the European Commission Directorate General for Trade. Online, January 2021.

  9. Interviews with a senior trade official at the European Commission and with a senior staffer at the European Parliament. Brussels, February 2019.

  10. For each of the 28 Member States in 2017, Belgium’s initial position was the only one that received different ratings among all our 24 interviewees, with one believing that Belgium was neutral, while the rest believing that it somewhat opposed the EU ISM. We use the modal value and code Belgium as “somewhat oppose”.

  11. Interviews with senior policymakers from national delegations to the EU and the European Commission who were involved in the FDI screening mechanism negotiation process, Brussels, February 2020.

  12. Interview with a senior officer in the European Commission Directorate General for Trade. Online, January 2021.

  13. See Online Appendix A available on the Review of International Organizations’ webpage for further technical details.

  14. The sample splitting resulted from cross-validation allows for point estimators that are approximately unbiased and normally distributed even in an extremely high dimensional setting. These characteristics of the DML point estimators also allow us to construct valid confidence intervals (Chernozhukov et al., 2018). We use seven folds because the number of EU Member States in 2017, 28, is divisible by seven. Online Appendix C provides results using four folds.

  15. For example, if a random forest provides the lowest OOB MSE in the first stage, we use the debiased IV from the random forest in all three models in the second stage. If boosting provides the lowest OOB MSE in the second stage, the best model would be a combination of random forest and boosting. On the other hand, if random forest provides the lowest OOB MSE in the second stage, the best model would be the same as a model using random forest in both stages.

  16. These industries are chemicals and pharmaceutical products, computers, electronic and electrical equipment, machinery and equipment, transport equipment, and IT and other information services.

  17. Most EU Member States report their total FDI position through EuroStat, but some Member States have data missing for the year 2017. Given the small sample size in this analysis, such missing data is detrimental to inferences. As such, we used the accumulated FDI reported by MOFCOM.

  18. See Online Appendix B for summary statistics.

  19. Online Appendix C compares the results from other tree-based and ordinary least squares (OLS) models, which are mostly similar.

  20. Interview with a senior trade policy official of the Bulgarian Delegation to the EU. Brussels, February 2020.

  21. Interview with a senior trade policy official of the Bulgarian Delegation to the EU. Brussels, February 2020.

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Acknowledgements

We thank participants of the panel on “FDI: Determinants and Effects” at the conference of the International Studies Association, Toronto, March 27–30, 2019 and at the Conference on the International Research Conference on Global Economic Relations in the Trump Era and After in Ottawa on January 31, 2020. We also thank Simon Evenett, Noel Foster, Haosen Ge, Lars Nilsson, Helen Milner, and three anonymous reviewers for their helpful comments and suggestions at different stages of this project. All errors remain our own. We are very grateful to the many anonymous EU and Member States officials who accepted to be interviewed for this project in August 2018, February and November 2019, February 2020, and January 2021.

Funding

This project was funded by the Princeton-Sciences Po EUROGLOB and Princeton-University of Geneva EUROCOMPLEX partnerships.

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  1. Department of Politics, Princeton University, Fisher Hall, Princeton, NJ, 08544-1012, USA

    Zenobia T. Chan

  2. School of Public and International Affairs, Princeton University, Roberson Hall, Princeton, NJ, 08544-1013, USA

    Sophie Meunier

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Author contributions to conceptualization and research design: Z.C. (20%), S.M. (80%); statistical analysis: Z.C. (100%); writing: Z.C. (30%), S.M. (70%). The order of authors is chosen alphabetically.

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Chan, Z.T., Meunier, S. Behind the screen: Understanding national support for a foreign investment screening mechanism in the European Union. Rev Int Organ 17, 513–541 (2022). https://doi.org/10.1007/s11558-021-09436-y

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  • Issue Date:

  • DOI: https://doi.org/10.1007/s11558-021-09436-y

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JEL Classification