Background: the European Economic Security Strategy
In June 2023, the European Commission and the High Representative published a Joint Communication on a European Economic Security Strategy to minimise the risks in the context of increased geopolitical tensions and accelerated technological shifts.
The strategy identifies risks to EU economic security in four areas, namely
- the resilience of supply chains, including energy security;
- physical security and cybersecurity of critical infrastructure;
- technology security and technology leakage; and
- weaponisation of economic dependencies or economic coercion
The strategy outlines the EU’s three-pronged approach to mitigating these risks by:
- Promoting the EU’s competitiveness and growth, strengthening the Single Market, supporting a strong and resilient economy, and strengthening the EU’s scientific, technological and industrial bases.
- Protecting the EU’s economic security through a range of policies and tools, including targeted new instruments where needed.
- Partnering and further strengthening cooperation with countries worldwide that share the EU’s concerns and those with which it has common economic security interests.
The Economic Security Package is an integral part of the roll-out of the EU’s Economic Security Strategy and comprises five elements:
- A legislative proposal for the revision of the EU Foreign Direct Investment Screening Regulation to improve its effectiveness and efficiency.
- A White Paper launching a process to identify potential security risks linked to EU investment in third countries (outbound investment).
- A White Paper on how to make EU controls more effective for export of goods with civilian and military use (dual-use goods), aimed at upholding international security and safeguarding EU security interests in the context of growing geopolitical tensions.
- A White Paper on enhancing support for research and development involving technologies with dual-use potential.
- A proposal for a Council Recommendation on enhancing research security.
Strengthening foreign investment screening in the EU
Since 11 October 2020, foreign investment into the EU has been subject to the EU’s Foreign Direct Investment Screening Regulation (Regulation 2019/452) (FDI Screening Regulation). The FDI Screening Regulation introduced the first EU-wide foreign investment screening cooperation mechanism between the European Commission and Member States and increased scrutiny of foreign investments into the EU in strategic industry sectors, infrastructure and key future technologies.
Based on the extensive evaluation and lessons learned over the past three years (the Commission reviewed more than 1,200 transactions that have taken place since 2020 and conducted a public consultation in 2023), the Economic Security Package proposes to revise and strengthen the current FDI Screening Regulation by:
- Ensuring that all Member States have a screening mechanism in place and harmonising national rules to make cooperation with other Member States and the Commission more effective and efficient. Today, there are still some Member States without FDI screening mechanisms, and there are significant discrepancies between the review processes at the Member State level.
- Expanding the scope of the rules to transactions within the EU where the direct investor is established in the EU but is ultimately controlled by people or entities from a non-EU country. In its recent Xella judgment, the Court of Justice of the EU confirmed that the current FDI Screening Regulation only applies to investments in the EU made by undertakings constituted or otherwise organised under the laws of a third (non-EU) country.1
- Establishing a minimum sectoral scope that all Member States are required to screen transactions.
Monitoring and assessing outbound investment risks
There is a growing concern in the EU that investments made by EU companies in advanced technologies in third countries (outbound investments) could potentially enhance military and intelligence capacities of actors who may use these capabilities against the EU or to undermine international peace and security. There is currently no systematic monitoring or control of outbound investments in such advanced technologies, posing a substantial knowledge gap around the level of outbound investments, the destinations and the potential risks related to them.
The White Paper on Outbound Investments has launched a process to identify potential security risks linked to outbound investments via a series of steps that will ultimately decide if a policy response is warranted, and if so, what response:
- A 12-week public consultation will gather stakeholder input and views on the monitoring and subsequent risk assessments that Member States would have to undertake. The consultation is open until 17 April 2024 and can be accessed via the Directorate-General for Trade website.
- The Commission’s Recommendation to Member States is scheduled for summer 2024. It will take into account the outcome of the public consultation and recommend that Member States monitor outbound investments in critical technologies for a 12-month period and then report to the Commission and other Member States.
- This will be followed by a shared risk assessment based on the findings of the monitoring, undertaken by the Commission and the Member States to determine whether the monitored transactions pose risks to EU security (to be concluded by summer 2025).
- If needed, the Commission and the Member States will formulate adequate policy responses to address the risks identified (autumn 2025).
Increasing effectiveness of EU control of dual-use goods exports
In light of the challenging geopolitical context, the Commission seeks to take action at the EU level to improve the coordination of export controls on items with both civil and defence uses – such as advanced electronics, toxins, or nuclear or missile technology – so that they are not used to undermine security and human rights.
The White Paper on Export Controls aims to launch a discussion on the current EU export control system and sets out actions to address some of the existing gaps. It proposes to:
- In the short term, consider alternative approaches to introduce uniform EU controls for those items that have been agreed with partners at the multilateral level, even if they could not be formally adopted due to the blockage of the multilateral decision-making process by certain countries.
- Create a forum for political level coordination on export controls between the Commission and Member States to foster common EU positions.
- Adopt a Recommendation by summer 2024 to improve coordination at the technical level between Member States and the Commission on new National Control Lists of dual-use items before they are adopted by individual Member States. A key aim would be to improve the EU’s capacity to identify security and supply chain risks for the EU as a whole.
- Advance the planned evaluation of the Dual-Use Regulation to the first quarter of 2025.
Enhancing support for R&D in technologies with dual-use potential
Many technologies that are critical to the EU’s economic security and strategic autonomy have a dual-use potential. These technologies are relevant for many fields in both civil and defence domains and could benefit European industry and the wider economy.
The White Paper on options for enhancing support for research and development involving technologies with dual-use potential reviews current EU funding programmes in the face of existing and emerging geopolitical challenges and assesses whether this support is adequate for technologies with dual-use potential. It then outlines three options for the way forward:
- Going further based on the current set-up: this option would build on the current approach characterised by an exclusive focus on either civil (through Horizon Europe) or defence applications (through the European Defence Programme). Incremental improvements would be introduced that can already be tested in the current EU funding programmes.
- Remove the exclusive focus on civil applications in selected parts of the successor programme to Horizon Europe: this option would allow strategic emerging technologies to be supported independently of the field of application (defence or civil) in selected parts of the programme – subject to specific conditions. At the same time, all other parts of the programme would maintain an exclusive focus on civil applications.
- Create a dedicated instrument with a specific focus on R&D with a dual-use potential: such an instrument would be devoted to research with dual-use potential, while the civil and defence research and development programmes would maintain their mutually exclusive focus.
Industry and other stakeholders are invited to comment on the three options outlined in the White Paper. The consultation is open until 30 April 2024 and is accessible via the Commission website.
Proposal for a Council Recommendation on enhancing research security
Research security refers to risks related to the international nature of scientific research. These risks include the following: (i) sharing sensitive knowledge and technology can jeopardise European and national security if channelled into military purposes by a foreign research partner; (ii) EU academic education and research can be improperly influenced by or from other states; and (iii) technologies are used to suppress or undermine fundamental values, both in the EU and elsewhere. The level of awareness of these risks and related countermeasures and policies is not even across the EU, creating vulnerabilities that could be exploited and could hinder the functioning of the European Research Area.
To ensure consistency across Europe and to avoid a patchwork of measures, the Proposal for a Council Recommendation provides guidance and several support actions to raise awareness and enhance resilience. The Commission’s proposal sets out:
- the core principles to uphold when research protection measures are implemented internationally;
- how public authorities can support the role of research funding organisations;
- what research organisations can do; and
- the EU’s contributions to research security, including the creation of a European centre of expertise on research security.
- Judgment of 13 July 2023 in Case C 106/22 – Xella Magyarország Építőanyagipari Kft., para. 32. ECLI:EU:C:2023:568.
In-depth 2024-022
