The economic and trade agenda in Brussels last week has been dominated by the « European Economic Security Package. » Despite the European Commission’s hope that international cooperation is not viewed through a lens of « risk, » this package, as part of the EU’s « de-risking » effort, is set to create more barriers and obstacles in the EU’s bilateral investment environment, exports, and scientific research cooperation, especially in areas deemed « risky » by the EU.
After the package was announced by European Commission
Vice-Presidents Vestager and Dombrovskis, the EU’s lawmakers
quickly followed up. Last week, the European Parliament’s INTA
committee held two discussions with officials from the Commission’s
DG Trade on the EESP as well as the revision of the FDI
screening regulation. This week, Ms. Vestager and Mr. Dombrovskis
will head to Washington, D.C., to attend the EU-US Trade and
Technology Council, including presenting the package.
People
should not look at the rest of the world only through the lens of
« risk, » otherwise they lose the reward from international
cooperation, Sabine Weyand, Director-General for Trade of the
European Commission, told MEPs on January 24, hours after the
commission unveiled the EESP, which consists of five initiatives on
FDI screening, outbound investments, export control, dual use
research, and research security. However, she inevitably addressed
the fact that the package is part of the EU’s « de-risking »
efforts.
On Thursday, another DG-Trade official was dispatched to discuss with parliamentarians the revision of the FDI screening mechanism, a key element of EESP. The Commission side seemed surprised that media headlines around the EESP were almost all about China.
If you look at EESP’s content and context, it involves other countries as well, as Weyand noted. Another official was more straightforward, stating that a new element in the FDI screening mechanism revision is to review investments in the EU by sanctioned individuals or entities, reflecting the « reality » after the Ukraine crisis.
This is one example of how geopolitical conflicts have profoundly changed the political and economic landscape of the 27-country bloc. The consciousness of « risk » looms over the EU’s external economic and trade agenda, surpassing the importance of economic « growth » or recovery and accelerating the trend towards inward-lookingness and protectionism within the bloc.
Despite the EU’s hopes that its various economic tools (FSR, FDI screening, anti-coercion instruments, etc.) « do not change the openness of the EU market and the competitiveness of EU industries, » its policy shift—as ECB President Lagarde put it at the Davos Forum, emphasising « security » over « efficiency » in external relations—may in practice diverge from openness and development.
Returning to European Commission President von der Leyen’s signature EESP, its five initiatives are closely interconnected. For instance, the critical revision of the FDI screening mechanism was proposed to extend to military and dual-use items, critical technologies, and critical entities in the financial sector. The subjects of screening include not only non-EU companies but also foreign-controlled European subsidiaries, encouraging coverage of greenfield investments. The package also fuels « pressure » on the remaining five countries yet to establish FDI screening mechanisms: Ireland, Greece, Cyprus, Croatia, and Bulgaria.
One aspect of the European Commission’s revised FDI screening mechanism that brings significant uncertainty to investments is the post closing review, which allows for scrutiny and prohibition of deals at least 15 months after completion.
The European Commission hopes to focus on high-risk investment deals in the future and lists « EU interests » and critical technologies in two annexes. It is foreseeable that, in addition to the key strategic industries previously focused on by the FDI screening mechanism, foreign investment in some « future-oriented » high-tech industries may now fall under regulatory oversight.
The fate of Brussels’ EESP is also linked to the upcoming EU election. As analysed, the current presidency of Belgium is prioritising legislations that can be completed during its tenure. With the European Parliament’s last formal discussion in April, it is expected that discussions may resume in September with the new Parliament and Committees. Even if the package gets through legal wrestling between the EP and member states, with implementation scheduled around 15 months later, overall, it seems unlikely that the new rules will apply before 2026.
Nevertheless, the EESP has attracted widespread attention for its significant and far-reaching impact on investment, trade, and technology, sparking controversy at the same time. The Chinese business community’s concerns were loud. However, complaints about the Commission’s EESP are not uncommon, such as the German machinery industry association stating that the new measures “make export controls more complex, create more bureaucracy, but do not promote development.”
