The European Commission has released a long-anticipated package aiming at enhancing what it terms its “economic security”.
Today’s package includes one single concrete legislative proposal to amend an existing regulation on foreign direct investment screening.
Other proposals on dual-use exports and potentially screening outbound investments are still in an early stage, with the commission aiming to increase dialogue with and among member states, without excluding new regulations in future.
The key focus of the commission in the area of outbound investments is artificial intelligence, semiconductors and quantum technologies. The EU body aims to issue new policy recommendations in 2025 on the basis of a 12 month data-gathering and evaluation process that it wants to start with EU capitals this summer.
The new package also involves the European Commission refocusing its current research and development funding programme Horizon Europe on civil technologies that could have a military use that benefits the EU. It also aims to increase ‘research security’ in international cooperation, through better due diligence in research bids.
FDI screening – making it mandatory
The changes to the existing FDI screening regulation include making such activities mandatory for all member states and making it mandatory to screen ten sectors deemed as critical by the commission.
Assuming EU member states accept this proposal that steps into security, a national competence of member states as per the bloc’s treaties, the move would be a step-change to the current peer-pressure and coordination based mechanism of the regulation originally enacted in 2018.
“This is something we need to navigate carefully”, said commission executive vice-president Valdis Dombrovskis. “We hope on understanding on this point” from member states, adding that the regulation continues to respect national competences and remains chiefly a coordination mechanism.
It would be “misguided” to enter into discussions as to competences given the current security situation in the EU, said executive vice-president Margarethe Vestager.
The commission does not expect the new regulation to come into force before the European elections in June 2024.
The sectors to be made mandatory are advanced semiconductors, artificial intelligence; quantum: biotechnologies; advanced connectivity, navigation and digital; advanced sensing technologies; space and propulsion; energy; robotics; and advanced materials.
The new FDI screening proposals also aim to include the screening of inward investments from other EU member states when the ‘original’ investor is from outside the EU. This, explains the commission, is “in order to avoid a situation where, for the purposes of the proposed regulation, investments carrying comparable risks for the EU are treated differently.”
The regulatory proposal also mandates specific, harmonised rules on how FDI screening is to be undertaken by member states. The rules are mainly about having adequate procedures in place for governments to investigate foreign investments, from resources to the timelines used.
Dual use export controls – going faster than multilateral regimes
The commission is not yet tabling a concrete regulatory proposal related to its dual-use export control regime. The EU regime principally transcribes multilateral regimes on dual-use technologies such as the Wassenaar Arrangement or the Australia Group into EU law. Implementation is left to national capitals. The latter may also take unilateral, national decisions.
The commission wants closer coordination and communication with and among member states via a new “senior level forum”, said a senior EU official.
The commission wants the EU to put onto its rule-book technologies that are close to being adopted at the multilateral level but the adoption of which is being blocked there for a range of geopolitical reasons. For example Russia is part of the Wassenaar Arrangement on weapons of mass destruction and its veto powere there plays a major role in the context of its current war in Ukraine.
The commission is not yet entirely clear how it will go about, whether it will want this update to happen via a delegated regulation or a separate legislative act.
