19 April 2022

Dutch lower house adopts foreign direct investment control regime

On 19 April 2022, the lower house of parliament adopted a bill introducing a national security control regime for investment screening in the Netherlands. Once in force, the screening regime will apply to all qualifying investments made after 8 September 2020. This means that the legislation may affect recently concluded and currently ongoing transactions. The screening mechanism will apply to investments in undertakings active in vital processes or sensitive technology. In a previous article we outlined the investment control regime envisaged under the bill. The exact material scope has been debated in parliament and will be laid down in ministerial orders later this year. The government has made clear that it expects the bill to come into force by the end of 2022.

Investments covered

Vital processes

The bill identifies vital processes in three sectors: energy, banking, and key transport hubs. Not every investment in these sectors will be covered – the bill applies only to specific functions considered vital to a sector, such as financial market infrastructure and certain activities at Schiphol airport (the country's main airport) and the port of Rotterdam. The Minister of Economic Affairs and Climate has indicated that "a process is only designated as vital if the failure of an individual provider leads directly to disruptions in the continuity of the process with large-scale negative consequences." For this reason, a drinking water supplier can be regarded as an individual provider, while food supply is less likely to be considered vital as the failure of one individual food supplier will not lead to a disruption of overall supply.

The Minister also announced that a process of identifying vital suppliers in the agri-food sector is still underway. She further clarified that a vital designation does not extend to the entire supply chain, so companies that supply primary providers of a vital process cannot be considered the same as those primary providers. They will generally fall outside the scope of the bill. Lastly, the bill allows the Minister of Economic Affairs to expand the scope of vital infrastructure providers in emergency situations.

Sector-specific national security screening regimes are already in place for telecoms (see our previous article), electricity and gas. These regimes take precedence over the general investment screening regime under the bill. The bill also does not identify postal service as a vital process. The Minister considers that universal postal services are already sufficiently protected under the Dutch Postal Act.

Sensitive technology

Military goods and dual-use items which fall under the EU Dual-Use Regulation 2021/821 are considered sensitive technology (see our previous article). By ministerial order, some of these technologies may be excluded. Or the Minister may designate some other technologies as sensitive. Drafts of these ministerial orders have not yet been published but are expected before the summer.

High-tech campus

Following an amendment passed by the lower house of parliament, the bill will now also cover investments in high-tech campuses. Such investments are considered real estate investments. But they could potentially be investments in high-tech start-ups and scale-ups that develop and exploit technology. This amendment is intended to mitigate national security risks that may arise if a high tech-campus - where public-private cooperation takes place on technologies and applications economically and strategically important to the Netherlands - changes hands. The immediate cause for this amendment was the recent sale of High Tech Campus Eindhoven to a Singaporean state-owned company, which was not subject to investment screening.

National security vs. public interest

According to the government, the national security test under the bill is broad, since it concerns the continuity and security of vital processes and also tries to prevent undesired knowledge transfer. The government does not want to expand the scope of the national security test by including a public interest test that would also consider, for example, macro-economic consequences, public health and wellbeing, and food safety). By the same token, employee interests are not subject to FDI screening either, since they are not considered matters of national security.

What next

The bill as adopted by the lower house will be sent to the upper house of parliament, which cannot amend the bill but only approve or reject it. The ministerial orders which will contain more detailed rules still have to be publicly consulted online (expected before the summer). The lower and upper house of parliament will be informed about the draft orders and each house can request a vote. The government expects the screening mechanism to be fully operative by the end of 2022.