Germany about to tighten investment review again
Yesterday evening, the German Federal Ministry of Economics and Energy (Bundesministerium für Wirtschaft und Energie – BMWi) presented a draft regulation amending the German Foreign Trade and Payments Ordinance (Außenwirtschaftsverordnung – AWV), which extends the scope of the cross-sectoral foreign investment review to companies in the healthcare sector. The draft provides for the possibility of reviewing and prohibiting acquisitions of certain companies in the healthcare sector by non-EU or EFTA companies. According to the draft, the scope of investment review will be extended to target companies which produce the following products or put them on the market:
- Personal protective equipment as defined by Regulation (EU) 2016/425, e.g. protective masks
- Medical products essential for ensuring public health care, including their raw materials and active substances
- Medical devices and their intermediate products for combating highly contagious and life-threatening infectious diseases, e.g. respirators
- In vitro diagnostic medical devices and their intermediates for obtaining information on highly contagious and life-threatening infectious diseases
- Raw materials as defined in the list of critical raw materials for the EU of 13 September 2017 (COM (2017) 490 final)
The draft regulation is part of a more comprehensive change to the German investment review regime, which includes implementation of Regulation (EU) 2019/452 establishing a framework for the screening of foreign direct investments into the Union. The German draft regulation was already underway before the COVID-19 pandemic. Its implementation is now being brought forward in order to prevent a sell-off of crucial medical companies in light of the current situation. The review applies to all acquisitions of critical medical companies by which investors domiciled outside the EU and EFTA acquire at least 10% of the voting rights of a German target company.
The Commission’s renewed export authorization scheme for personal protective equipment
On April 26, the Commission’s new export authorization scheme for personal protective equipment (PPE), Implementing Regulation (EU) 2020/568 of 23 April 2020 making the exportation of certain products subject to the production of an export authorization, came into force. It reduces the list of products that require export authorization to masks, spectacles and protective garments and extends the geographical exception, including to the Western Balkans. The regulation is valid for a period of 30 days and replaces the Commission Implementing Regulation (EU) 2020/402 of 15 March 2020, amended by Commission Implementing Regulation (EU) 2020/426 of 19 March 2020.
Under the Implementing Regulation (EU) 2020/568 an authorization requirement for exports (i.e. deliveries outside the customs territory of the EU) of the goods listed in Annex I continues to apply to PPE. The United Kingdom of Great Britain and Northern Ireland is considered an EU member state during the transition period according to Art. 127 (3) of the withdrawal agreement. Deliveries within the customs territory of the EU are not restricted by the Implementing Regulation (EU) 2020/568.
The Regulation only applies to certain types of PPE as specified in Annex I. As in previous Regulations, the Commission uses a combination of a description of the goods and the CN codes. Regarding the previous Regulation, there was some confusion on the scope. Among other issues, it was unclear whether the description of PPE should be read cumulatively, i.e. if products would need to meet both the criteria in the product description and the CN code to be subject to the export authorization requirement.
The Commission said in a frequently asked questions (FAQ) document published on April 16 that for an individual item to fall within the scope of the Regulation, it had to fall under the indicated CN code and meet all the requirements provided in the description. Although there is no obvious reason why Annex I to Implementing Regulation (EU) 2020/568 should be interpreted differently than the previous Regulation, the FAQ are not legally binding and they refer to the previous Regulation, not the new one.
Furthermore, the FAQ stated that in some cases, the CN codes listed in Annex I covered a variety of goods targeted by the regulation. In the case of a CN code being marked with an “ex”, the CN code should be considered in combination with the product description. In the new Regulation, all CN codes are marked with an “ex”. While this seems to indicate that products need to fall under the CN code and meet the criteria set out in the product description, one particular sentence in the reasoning of the Regulation causes further confusion. Recital 19 says that “the CN codes should be given for information only”. The exact meaning of this sentence remains unclear. The European Commission has not yet offered any guidance whatsoever on how to read Annex I since publishing the new regulation. Judging by the Commission’s approach so far, it is likely that it will clarify this issue shortly by publishing new or updated FAQ which will likely be similar to the FAQs submitted on the former Regulation.
How to determine whether your product is covered by the Regulation
The granting of export licenses under the Regulation falls within the competence of the Member States, which means that procedures might differ. For example, the German Federal Office of Economics and Export Control (Bundesamt für Wirtschaft und Ausfuhrkontrolle – BAFA) recommends the following procedure for classifying for product:
Step 1: Determine whether one of the CN codes applies to your goods using the Combined Nomenclature.
Step 2: If your goods fall under a CN code, check the product description. Your goods fall under Annex I of the Implementing Regulation (EU) 2020/568 even if not all criteria listed in the description are met. One descriptive attribute is sufficient.
Step 3: In addition to the description, check Regulation (EU) 2016/425 (personal protective equipment) or Directive 93/42/EEC (medical devices).
Step 4: Goods that do not comply with European Standards (EN) can also be listed according to Annex I of the Implementing Regulation (EU) 2020/568 if they comply with comparable foreign standards.
In case of remaining doubts, BAFA’s ELAN-K2 online tool provides the possibility to submit an inquiry to determine whether the Regulation covers a specific good.
The Commission’s new export authorization scheme is narrower than the previous one, as the scope of products covered by the Regulation has been further limited, while at the same time the list of destination countries which are not subject to an export license has been extended. The adoption of Implementing Regulation (EU) 2020/568 once again emphasizes the need to closely monitor regulatory developments during the current COVID-19 pandemic.