Concerned about mounting geopolitical risks, the European Union on Wednesday unveiled a series of steps to bolster the 27-member bloc’s economic security as it seeks to reduce reliance on countries such as China and Russia while protecting key sectors and emerging technologies.
The proposed measures, which could take years to implement, are seen as largely targeting the EU’s “systemic rival,” Beijing, as they could limit Chinese investments and access to key areas, in line with a strategy championed by Washington.
Although the economic security package is “country agnostic,” it is “closely tied to the ongoing debate on the impact of China’s industrial policy on the EU and Beijing’s increased use of economic coercion to exert pressure on third countries,” said Alicja Bachulska, a policy fellow at the European Council on Foreign Relations.
While these decisions should be understood primarily through the lens of the EU’s own considerations, the growing Sino-U.S. rivalry plays an important role, as Washington and Brussels see eye to eye on many China-related issues, added the expert.
Set out by the European Commission, the EU’s executive, the package outlines five new initiatives, including tightening inbound investment screening rules that would require all member states to screen and potentially prevent foreign direct investments (FDI) that may pose a risk to the bloc’s security.
“With FDI, we want to focus on riskier transactions and spend less time and resources on low-risk ones,” EU trade chief Valdis Dombrovskis said Wednesday, adding that this would also extend to intra-EU transactions where the investor is controlled by a foreign entity.
At a time of “profound geopolitical turmoil and rapid technological change, we must be serious about the risks that we face,” said Dombrovskis.
The approach, he added, is to increase the EU’s capacity to assess risks and vulnerabilities, and to address them in a “proportionate and targeted way.”
Emily Benson, an international trade expert at the Center for Strategic and International Studies, said the FDI proposal seeks a legislative fix to harmonize the screening process as many EU countries have diverging methodologies while five of them have no screening regime in place at all.
The new EU initiatives also include a more coordinated approach to the export of dual-use goods, meaning those that can be used for both civil and military purposes such as advanced electronics.
“We do not want them to get into the wrong hands and ultimately undermine EU or global security,” Dombrovskis said, noting that the bloc must improve the “coordination, effectiveness and efficiency of its current (export) regime and practices.”
Moreover, Brussels has proposed a 12-month monitoring period to assess whether outbound investments risk harmful leakage of sensitive tech to strategic competitors in areas such as artificial intelligence, semiconductors, quantum computing and biotechnology.
The new package also covers “research security,” as the commission looks into ways to “prevent the undesirable transfer” of critical knowledge and dual-use tech to third parties through universities or public research institutions.
“We recommend conducting risk appraisals that include specific elements of a country's profile,” EU competition commissioner Margrethe Vestager said, citing risk factors such as “civil-military fusion, the human rights situation, or the level of academic freedom,” in what appeared to be veiled hint at China.
The proposed measures, which appeared to borrow a concept from the United States and Japan, follow up on a broader economic security strategy outlined by Brussels last June that includes “de-risking” supply chains, preventing leakages, limiting the risk of economic coercion and partnering with like-minded countries.
"The economy has become a geopolitical factor,” said Roderick Kefferputz, director of the Heinrich-Boll-Stiftung European Union think tank.
"This is about making sure that Europe’s economic strength and openness does not have negative geopolitical consequences, for example, by allowing systemic rivals to gain critical European technologies that give them a military edge."
The package comes after EU officials, including European Commission President Ursula von der Leyen, made it clear that Brussels intends to “de-risk” economic ties with Beijing.
The aim, they said during a recent trip to China, is to reduce “excessive dependencies” and increase supply chain resilience.
“Amid questions about Europe’s competitiveness and the attractiveness of its market, the EU is increasingly concerned about the growing global unpredictability, both politically and economically,” said Bachulska, adding that the package should be seen only as a first step toward tackling future challenges.
For its part, Beijing is concerned that the EU’s de-risking strategy will not only reduce China's influence but also slow its economic expansion and development as a technological superpower.
The first steps are already under way. In October, Brussels launched an anti-subsidy probe into electric vehicle imports from China, arguing that their prices are being “kept artificially low” owing to “huge state subsidies,” a move that has been heavily criticized by Beijing.
China’s Chamber of Commerce to the EU expressed concern about the recently proposed measures, saying in a statement that about half of the members it surveyed were worried about its negative impact as Chinese companies are “prepared to intensify investments and engagement in Europe.”
But these measures are not just about China and Russia.
With the possibility of Donald Trump winning the U.S. presidential election in November, Brussels also wants to speed up its efforts to strengthen its own market and ensure it can be resilient in the era of unpredictability.
Indeed, Benson points out that in some ways, the EU strategy follows a number of moves to help craft a more cohesive geopolitical bloc.
In other ways, she added, this move represents a European response to a series of exogenous shocks, whether relating to the Russian invasion of Ukraine, U.S. extraterritorial tech export controls or growing tensions over Taiwan.
“The European Union recognizes that today’s geopolitical environment requires additional unity throughout the bloc, and this strategy represents a concrete step towards advancing that goal.”
But coordination and implementation of these measures might prove cumbersome as the package consists mostly of nonbinding legislative proposals, and EU members see decisions on export and investment controls as their own. According to Reuters, the changes could take up to three years to enter force.
China is also aware of this, which is why Beijing has been holding bilateral meetings with the leaders of several European countries, including France, Germany and Spain, to strengthen country-to-country ties and take advantage of differing views within the bloc.
Because of this, it is difficult to predict whether this could mark the beginning of a larger trade conflict between Beijing and the EU.
But even if these measures were eventually to achieve their intended effect, they would have little overall impact unless like minded-nations can coordinate a joint approach, said Kefferputz.
“It makes no sense for the EU or the U.S. to limit exports of critical technologies or outbound investments and then have other partners in the world fill the gap,” he said.
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