Part I - The Transatlantic Regulatory Matrix: The “Brussels Effect” and the Dual Pillars of CFIUS and EU FDI Screening

Globalization has profoundly transformed international trade and investment. In particular, economic integration between the United States (“U.S.”) and the European Union (“EU”) supports nearly 50 million jobs in the EU. This deep integration has subjected cross-border mergers and acquisitions to scrutiny beyond traditional competition law. Increasingly, transactions face review by both antitrust regulators assessing their implications for market competition and national security authorities evaluating the strategic implications of foreign investment. Therefore, merger control and foreign investment review have evolved from two distinct regulatory processes into complementary pillars of transatlantic transaction review. Reflecting this convergence, both types of regulatory approval commonly serve as closing conditions in transatlantic sale agreements.

By examining the extraterritorial reach of European regulatory frameworks and comparing U.S. and EU foreign investment screening regimes, this article assesses whether the two systems are converging or whether their differences continue to create uncertainty and barriers to cross-border transactions.

The “Brussels Effect” in Global Antitrust and Market Regulation

To understand the influence of European regulatory standards on transatlantic transactions, the concept of the “Brussels Effect” must be examined. Columbia law professor Anu Bradford describes it as the EU's capacity to externalize its regulatory standards beyond its territorial borders through market forces rather than formal international agreements. She identifies five conditions underlying the Brussels Effect: a large EU market, regulatory authority, strict rules, captive companies, and high regional production costs.

In simple terms, the Brussels Effect arises from the substantial purchasing power of the EU internal market. Thus, multinational corporations may find it economically unviable to have separate product standards or compliance models for the EU, and other ones for the rest of the world. Instead, they choose to adopt a single, higher standard across their global operations, often the EU standard. One of the most notable examples of the Brussels Effect is the EU General Data Protection Regulation (“GDPR”), which has had a global impact, with many governments using it as a reference point for the creation of their own policies, and worldwide companies adjusting their own policies to align with the GDPR standards.

European competition and market regulations therefore influence how firms structure global operations, encouraging compliance with EU standards before international transactions are permitted. However, not everyone agrees with this assessment. According to Bauer & Pandya at the European Centre for International Political Economy, the EU’s drive for strategic autonomy could actually end up hindering innovation and limiting openness due to the expansion of regulation without international cooperation. This concern can be linked to the push for European strategic autonomy since 2008 and the slow progress in certain free trade negotiations, such as those involving Mercosur and Australia.

Comparing U.S. CFIUS and EU Foreign Investment Screening

Cross-border transactions are also subject to national security review, making it necessary to distinguish between the U.S. Committee on Foreign Investment in the United States (“CFIUS”) and the EU Foreign Direct Investment (“FDI”) screening framework. CFIUS, established in 1975 and chaired by the U.S. Department of the Treasury, is an interagency body empowered to review foreign investments that may affect national security. Following the enactment of the Foreign Investment Risk Review Modernization Act in 2018, CFIUS jurisdiction expanded to certain non-controlling investments involving Technology, Infrastructure and Data businesses, as well as mandatory filings for certain foreign-government-related investments.

From a legal standpoint, the EU lacks a centralized screening authority comparable to CFIUS, reflecting the division of competences under European treaties. EU FDI screening operates through a decentralized mechanism coordinated by the European Commission, reflecting a division of competences: while the EU establishes a common framework based on its exclusive competence over trade policy under Article 207 of the Treaty on the Functioning of the European Union, the final decision to authorize or veto an investment rests with each Member State, consistent with its responsibility for national security under Article 346 of the same treaty.

How Regulation (EU) 2026/1386 Reshapes EU Foreign Investment Screening

To address these outstanding differences, Regulation (EU) 2026/1386, adopted on 17 June 2026 and entering into force on 16 July 2026, will apply from 17 January 2028. Unlike Regulation 2019/452, which established a coordination framework, the new Regulation requires every Member State to operate a national screening mechanism. It also introduces a mandatory minimum sectoral scope covering critical technologies such as semiconductors, artificial intelligence and quantum technologies, together with dual-use goods, strategic raw materials and critical financial infrastructure.

The limitations of the previous approach were illustrated in Xella Magyarország (Case C-106/22), where the Court ruled that Regulation 2019/452 did not extend to intra-EU acquisitions merely because the acquiring company was indirectly owned by foreign investors. The adoption of Regulation 2026/1386 addresses this limitation by extending screening to certain intra-EU investments involving ultimate non-EU control.

The EU screening framework has rapidly evolved into an almost universal system across Member States. Screening activity increased from approximately 1,800 cases in 2023 to more than 3,100 in 2024, although around 86% of transactions still receive unconditional approval, indicating that the regime primarily increases regulatory scrutiny rather than prohibiting investment.

Stricter, Not Closer: The Future of Transatlantic M&A Regulation

Antitrust rules and security reviews now heavily overlap in cross-border M&A transactions, yet the U.S. and EU are not converging institutionally. CFIUS remains one centralized body, while the EU treaty system (Articles 207 and 346 TFEU) leaves final screening decisions with each Member State, even under Regulation 2026/1386's tighter minimum standards. Both systems are growing stricter in parallel, but not necessarily more alike. This creates additional uncertainty rather than simplification: deal teams must navigate distinct regimes with separate timelines and veto points. The Nvidia-Arm bid illustrates this burden in practice, as regulatory concerns across jurisdictions ultimately led to the abandonment of one of the decade's largest technology deals.

To be continued in Part II.

Sergio Garrido Vallespí is an Associate at Sullivan & Cromwell LLP in New York. His practice focuses on corporate and transactional matters. Sergio received an LL.M. from Georgetown University Law Center in 2024 (cum laude), an LL.M. from ESADE Law School in 2023, and an LL.B. from ESADE Law School in 2022. He is admitted to practice in New York and Spain. He can be reached at garridos@sullcrom.com.

Maria Alejandra Gonzales Pinedo is a student pursuing a Double Master's Degree in Access to the Legal Profession and International Business Law at ESADE in Barcelona, Spain. She holds a Bachelor of Laws from ESADE, during which she completed an academic exchange semester at Columbia Law School. Her legal research centers on EU regulatory compliance, private international law, and cross-border commercial dispute resolution. She will be joining the Litigation and Arbitration practice at Osborne Clarke as an incoming legal intern. She can be reached at mariaalejandra.gonzalespinedo@alumni.esade.edu.

The views and interpretations expressed in this Article are those of the authors and do not necessarily reflect those of their respective employers or clients.