Alignment of the Six Countries of the Western Balkans (WB6) with the EU Regulation on Screening of Foreign Direct Investments

Despite the initial promise and ambition to integrate them as a group, the six Western Balkan countries (WB6) – Albania, Bosnia and Herzegovina, Kosovo, Montenegro, North Macedonia, and Serbia – have made slow progress over the past decade in implementing the reforms required for European Union accession. As things stand, with the possible exception of Albania and Montenegro, none of the WB6 countries has a clear pathway or timeline for membership. On the EU side, a lack of consensus among member states continues to stall the process. This is partly due to widespread public opposition to further enlargement in several EU member states, as well as the limitations of the EU’s institutional structure, which is already under strain and ill-equipped to absorb new members into its complex decision-making system. This stagnation has served as a disincentive for reform in the WB6. However, efforts are underway to keep the process alive. One increasingly discussed approach, particularly among civil society organizations in the region that actively support EU integration, is that of phased accession. This model would enable WB6 countries to gradually align with EU standards by allowing access to specific EU mechanisms in parallel with the implementation of reforms.

This would be implemented in practice by allowing WB6 countries’ institutions and other stakeholders dealing with specific policy areas to engage directly with their peers in the EU in an institutional learning process. EU agencies are typical such mechanisms. They are EU-level institutions specialized in specific policy area that exercise regulatory functions. In this role they drive through expertise – together with the European Commission (which also conducts membership negotiations with WB6 countries) – the EU acquis development in their policy areas. They also guide and support implementation and enforcement of the acquis and are involved in overseeing this.

Rule of law as a component of governance that includes several policy areas is a priority pillar for EU accession, and thus also part of the Cluster 1 (on Fundamentals) of EU membership negotiations in the recently introduced ‘enhanced enlargement methodology’. Moreover, foreign direct investments are critical for the WB6 countries to grow their economies and to make them more competitive and thus more capable to cope with competitive pressure and market forces within the EU. This means openness to FDI from both the EU and other countries. However, increased openness with the rest of the world may bring security risks. Therefore, WB6 countries need to gradually align their legislation with the EU Regulation 2019/452 establishing a framework for the screening of foreign direct investments into the Union (FDI Screening Regulation). In addition, as EU member states, they also need to design national FDI screening mechanisms and make them operational.

The purpose of this policy brief is to better inform decision-makers in WB6 and in the EU institutions on EU requirements in relation to FDI screening and on the state of play in WB6 in this policy issue. It also seeks to inform policy discourse and other players interested in the EU accession process in the WB6. As such, it is mainly designed for policy-makers, think tanks and other policy experts engaged in policy and EU integration advocacy, and is also useful for policy researchers in academia and elsewhere.

The policy brief discusses how WB6 countries could approach alignment of their respective legislation with this regulation and implementation, including the aspect of FDI screening mechanisms at the national level. It consists of three sections. The first section provides a background on the FDI Screening Regulation, summarizing its provisions and obligations. The second section discusses the state of play in this regard in each WB6 country with relevance to this regulation and FDI screening in general, focusing on the current legal and policy framework and the relevant institutional setup. Given that none of them has started with implementation, this aspect is not discussed in this policy brief. The final section puts forward a list of reform priorities that need to be pursued for alignment with this regulation and with regard to implementation on FDI screening.

This report is produced by Kosovar Centre for Security Studies (KCSS) in the framework of the IGNITA initiative, funded by Open Society Foundations—Western Balkans. Views and opinions expressed are those of the author(s) only and do not necessarily reflect those of the Open Society Foundations—Western Balkans.