The EU’s new Joint Communication on a European Economic Security Strategy proposes a methodology for an EU economic security risk assessment and identifies measures to mitigate these risks. The Strategy is noteworthy because it offers a comprehensive view of the EU’s overarching strategy for multiple existing or proposed new EU legislative and policy tools including export controls, FDI screening and domestic investment in critical technology through the EU’s own proposed Chips Act, and how these tools would work together to reduce EU economic security risks. It also signals the EU’s intention to align more closely with the U.S. regarding China, including with respect to reducing supply chain dependencies and new tools like outbound investment controls.
(This is the second post of a three-part series on U.S., UK and EU alignment on economic security strategy.)
Overview of the Strategy
Key risk areas identified in the Strategy include supply chain resilience (including energy security), critical infrastructure physical and cybersecurity, technology leakages and security and the weaponization of economic dependency/economic coercion.
The risk assessment methodology will include, inter alia, establishing a list of technologies which are critical to EU economic security and assess their risks. In addition, the methodology foresees reviewing existing economic and national security regimes such as at the EU FDI Regulation and the EU Dual-Use Regulation as well as introducing a proposal for outbound investment controls by the end of the year.
Proposed risk mitigation measures include:
- Leveraging existing tools like trade defense, 5G/6G security, FDI screening, export controls and foreign subsidies controls;
- Considering the adoption of new tools like outbound investment controls “in a narrow set of key enabling technologies with military applications” such as quantum, AI and semiconductors;
- Investment in EU critical technology R&D and production capabilities; and
- Partnering with international partners to strengthen economic security including through furthering/finalizing trade agreements.
The Strategy served as a basis for the discussions relating to China between Heads of State and Government in the European Council on July 29 and 30, 2023. The European Council concluded that, with respect to China, “the European Union will continue to reduce critical dependencies and vulnerabilities, including in its supply chains, and will de-risk and diversify where necessary and appropriate.”
The Strategy stands out for presenting a big picture overview on the EU’s overall strategy for reducing EU economic security risks, and how existing and proposed new EU legislative and policy tools fit within that strategy.
For example, the proposed EU Chips Act (which would promote investment in the EU semiconductor industry) and proposed Critical Raw Materials Act (which would facilitate the extraction, processing and recycling of critical raw materials in the EU) aim to develop the EU’s domestic critical technology capability.
In parallel, the proposed EU Anti-Coercion Instrument (which would allow the EU to adopt trade measures like increased duties, import/export restrictions and tighter FDI controls in response to economic coercion) would protect the EU against undue economic influence from powerful foreign governments.
It also signals the EU’s intention to align more closely with the U.S. regarding China, including with respect to reducing supply chain dependencies and introducing new tools like outbound investment controls.
The Strategy suggests there will be greater EU-level centralization of economic security issues in the future. It will be interesting to note whether the review of the EU FDI Regulation will likely lead to a recommendation to centralize or partly centralize FDI screening at EU level (as it the case for EU merger and foreign subsidy control).