Europe pushes economic security agenda
While economic security has long been a key narrative of the U.S. government, its centrality in European politics is of a much more recent vintage.
The latest signal of this new political emphasis in the European Union came on Wednesday with the release of five new initiatives that will simultaneously deepen the bloc’s “de-risking” policy from China.
The package doubles down on the potentially significant shift in the EU’s political economy in recent years.
The continent has long had a reputation for openness of trade, investment and research, and a key question going forward is to what degree that will now be eroded in a new geopolitical landscape.
The five initiatives are a legislative proposal to strengthen foreign investment screening, more effective EU control of dual-use goods exports, options to support research and development in technologies with dual-use potential, enhancing research security across the EU and better monitoring and assessment of outbound investment risks.
The fifth issue of outbound investment is now being consulted in a new three-month review.
While no countries are specifically cited as the targets of this new economic security package, China is the primary source of concern in Europe, especially after its economic blockade of Lithuania over the Baltic member country’s deepening ties with Taiwan.
Lithuania faced an export ban from China when it allowed Taiwan to open a representative office in its capital, Vilnius, in 2021.
The wider context of Wednesday’s announcements includes the broader chill in relations with China that dates back at least to the onset of the COVID-19 pandemic in 2020 and Russia’s invasion of Ukraine.
Since then, European Commission President Ursula von der Leyen has made moves toward this new economic security and “de-risking” policy paradigm.
Wednesday’s release of the five new initiatives is so significant as one of the key criticisms of Europe’s policy shift is that it lacks the “de-risking” tools to make this a reality.
Before this week’s announcement, the biggest single measure showcased by Brussels was an anti-coercion measure released late last year.
That tool is intended as a deterrent but will enable the EU to impose countermeasures on any country that exercises economic coercion over any member states.
Such countermeasures include increased customs duties, intellectual property restrictions or export controls under a time-bound procedure lasting no more than a year.
The European Council will have significant involvement in the decision-making process, determining the potential existence of economic coercion.
Meanwhile, the European Commission will be given implementing powers in decisions on the EU’s response measures, while ensuring increased involvement of member states in these decisions.
The instrument can be triggered by a wide range of coercive economic practices where a country applies or threatens to apply a measure affecting trade or investment in order to prevent or obtain the cessation, modification or adoption of a particular act by the EU or a member state.
Input from external stakeholders will be taken into account when considering activation of the instrument, and businesses are encouraged to come forward with relevant information.
The new EU regulation, which came into force in December, is a potential milestone in the EU’s new economic security shift.
It proposes to carry out a thorough assessment of risks in four areas: risks to the resilience of supply chains, including energy security; risks to the physical and cyber security of critical infrastructure; risks related to technology security and technology leakage; and risks of weaponization of economic dependencies or economic coercion.
Wednesday’s package aims to further strengthen the protection of EU economic security by proposing improved screening of foreign investment into the EU, enhancing European coordination in the area of export controls in alignment with existing multilateral regimes; identifying potential risks from outbound investments in a narrow set of technologies; promoting better support for research and development involving technologies with dual-use potential; and enhancing research security at national and sector level.
The new package is likely to be welcomed by many of the 27 EU member states, especially those in Eastern Europe, which tend, except Hungary, to have the most hawkish disposition to China.
However, a key question remains about whether — even with the new measures — this emerging tool kit can truly deliver on the de-risking goal set out by von der Leyen.
The significant challenges of implementing these economic security frameworks are underlined by Britain’s experience in the last two years.
Late last year, U.K. Deputy Prime Minister Oliver Dowden announced plans to enhance the business-friendliness of the U.K.’s foreign direct investment screening powers.
He has launched a review aimed at “narrowing and refining” the National Security and Investment Act, allowing the government to veto takeovers. The legislation was introduced to address security concerns related to the acquisition of U.K. companies by foreign organizations, including from China.
Taken together, while much political momentum is growing behind the EU’s “de-risking” agenda, implementation may be challenging. This is highlighted by the recent U.K. experience with its own economic security policy.
“China is the primary source of concern in Europe. ”