The EU’s new Economic Security Package: Our Briefing
- Arne Mielken
- Feb 7, 2024
- 10 min read
The EU is preparing for its upcoming security challenges with the help of its new Economic Security Package.
In light of escalating geopolitical tensions and rapid technological advancements, the EU's new Economic Security Strategy, which was adopted in June 2023, attempts to reduce threats to the EU's economic security.
On January 24, 2024, the European Commission approved the Economic Security Package, a comprehensive trade, investment, and research package, as part of the strategy's implementation.
5 Goals
In the Economic Security Package, the EU outlines its intentions to
update the EU Foreign Direct Investment Screening Regulation to better regulate foreign investments within the EU;
track and evaluate the risks associated with outbound investments—that is, out-of-country investments made by EU companies in cutting-edge technologies;
make the EU's export restrictions on dual-use goods more effective;
strengthen funding for research and development in fields where technologies have the potential for multiple uses; and
improve the security of European research.
A Joint Communication on a European Economic Security Strategy was released in June 2023 by the European Commission and the High Representative in an effort to reduce risks in the face of escalating geopolitical unrest and rapid technological advancements.
4 Areas
Risks to EU economic security are identified in four areas by the strategy:
the energy security and robustness of supply chains;
critical infrastructure's physical security and cybersecurity;
technology leakage as well as security; and
economic coercion or dependence being weaponized
3 Steps
The plan lays out the three steps the EU will take to reduce these risks:
supporting a robust and resilient economy, enhancing the EU's industrial, scientific, and technological foundations, and fostering the EU's competitiveness and growth through fortifying the Single Market.
safeguarding the economic security of the EU by using a variety of laws and instruments, including targeted new ones when necessary.
forming alliances and deepening ties of cooperation with nations around the world that the EU shares interests in economic security and that also share its concerns.
Magic 5
Five components make up the Economic Security Package, which is a crucial component of the EU's Economic Security Strategy rollout:
A legislative proposal aimed at improving the efficacy and efficiency of the EU Foreign Direct Investment Screening Regulation.
A White Paper outlining the procedure for determining possible security threats associated with EU outbound investment in third-world nations.
A White Paper outlining measures to strengthen controls over the export of dual-use goods, or goods with both military and civilian applications.
A White Paper on strengthening funding for technology-related research and development that has the potential for dual use.
A suggestion for improving research security as a Council recommendation.
1. Increasing EU screening for foreign investments
Regulation 2019/452, also known as the Foreign Direct Investment Screening Regulation, has applied to foreign investment into the EU as of October 11, 2020. The FDI Screening Regulation raised scrutiny of foreign investments into the EU in critical infrastructure, industry sectors, and future technologies. It also established the first EU-wide framework for cooperation on foreign investment screening between the European Commission and Member States.
The Commission examined over 1,200 transactions that have occurred since 2020 and held a public consultation in 2023. Drawing from this extensive evaluation and lessons learned over the previous three years, the Economic Security Package proposes to strengthen and revise the current FDI Screening Regulation by:
implementing a screening mechanism and harmonise national regulations. There are still some Member States that do not have FDI screening procedures in place today, and there are notable differences in the review procedures amongst Member States.
extending the reach of the regulations to deals inside the EU in which the direct investor is based there but is eventually managed by individuals or organisations from a non-EU nation. The Court of Justice of the EU affirmed in the recent Xella ruling that the extant FDI Screening Regulation is limited to investments made in the EU by entities established or otherwise structured in accordance with the laws of a third (non-EU) nation.
defining a minimum sectoral scope for transaction screening that all Member States must adhere to.
2. Keeping an eye on and evaluating outbound investment risks
Within the EU, there is growing concern that outbound investments (i.e., investments made by EU companies in third countries where advanced technologies are available) may strengthen the military and intelligence capabilities of actors who could use them to undermine international peace and security or to wage war against the EU. There is currently a significant knowledge gap regarding the amount of outbound investments, the destinations, and any potential risks associated with them because there is no systematic monitoring or control of outbound investments in such cutting-edge technologies.
In order to determine whether a policy response is necessary and, if so, what kind of response, the White Paper on Outbound Investments has initiated a process to identify potential security risks associated with outbound investments through a series of steps:
Stakeholder opinions on the monitoring and ensuing risk assessments that Member States would have to conduct will be gathered during a 12-week public consultation period. Access to the consultation is available through the Directorate-General for Trade website and will remain open until April 17, 2024.
The summer of 2024 is when the Commission plans to recommend something to the Member States. It will recommend that Member States track outbound investments in critical technologies for a year and then report to the Commission and other Member States, taking into account the results of the public consultation.
The Commission and the Member States will then conduct a shared risk assessment based on the monitoring results to ascertain whether the monitored transactions represent threats to EU security (to be completed by summer 2025).
In order to address the risks identified, the Commission and the Member States will develop appropriate policy responses as needed (autumn 2025).
3. Increasing the efficiency of EU export controls on dual-use goods
The Commission aims to improve the coordination of export controls on goods with both civil and defence uses, such as advanced electronics, toxins, nuclear or missile technology, in light of the difficult geopolitical environment. This is done to ensure that these goods are not used to compromise security or human rights.
discussion on the current EU export control system is intended to be started by the White Paper on Export Controls, which also lays out steps to close some of the gaps in the system. It suggests that:
In the short term, consider alternate strategies to implement uniform EU controls for those items that have been reached upon with partners at the multilateral level, even if certain nations have blocked the multilateral decision-making process from being officially adopted.
To promote unified EU stances on export controls, establish a forum for political level coordination between the Commission and Member States.
Before new National Control Lists of dual-use items are adopted by individual Member States, adopt a recommendation by the summer of 2024 to enhance technical coordination between Member States and the Commission. Enhancing the EU's ability to recognise supply chain and security threats for the EU as a whole would be a major goal.
Carry out the Dual-Use Regulation evaluation in the first quarter of 2025.
4. A White Paper on strengthening funding for technology-related research and development that has the potential for dual use.
Increasing research and development funding for technologies with potential dual uses
Numerous technologies possess dual-use potential and are essential to the EU's economic security and strategic autonomy. These technologies could help European industry and the larger economy, as they are applicable to a wide range of fields in both the civil and defence domains.
In light of current and upcoming geopolitical challenges, the White Paper on options for enhancing support for research and development involving technologies with dual-use potential evaluates current EU funding programmes and determines whether or not this support is sufficient for technologies with dual-use potential. After that, it presents three possibilities for the future:
Moving forward with the current configuration, this option would expand upon the current strategy that is characterised by a sole focus on either civil (through Horizon Europe) or defence (through the European Defence Programme) applications. It would introduce incremental improvements that are currently available for testing in the EU funding programmes.
Eliminate the program's exclusive focus on civil applications in certain sections. Under certain restrictions, this option would enable the support of strategic emerging technologies in certain programme sections, regardless of their field of application (civil or defence), subject to particular requirements. All other programme components would continue to solely concentrate on civil applications at the same time.
Establish a specific research and development (R&D) instrument with a dual-use potential. This instrument would focus on research with a dual-use potential, while the R&D programmes for the defence and civil sectors would continue to be mutually exclusive.
Comments on the three options presented in the White Paper are welcome from the industry and other interested parties. The Commission website provides access to the consultation, which is scheduled to end on April 30, 2024.
5. A suggestion for a council resolution to improve research security
Risks associated with the worldwide scope of scientific research are referred to as research security. These risks include the following: (i) sharing technology and sensitive knowledge can put national and European security at risk if it is used for military purposes by a foreign research partner; (ii) research and academic education within the EU can be improperly influenced by foreign governments; and (iii) technologies are used both inside and outside the EU to suppress or undermine fundamental values. There are gaps in the EU's knowledge of these risks, associated policies, and countermeasures, which leave openings for potential abuse and impair the efficiency of the European Research Area.
The Proposal for a Council Recommendation offers guidance and a number of support actions to increase awareness and strengthen resilience in order to guarantee uniformity throughout Europe and prevent a patchwork of measures. In its proposal, the Commission lays out:
the fundamental values to be observed when implementing worldwide research protection measures;
how governmental bodies can assist research funding organisations in their role;
what research institutions are capable of; and
the establishment of a European centre of expertise on research security, among other contributions made by the EU to research security.
Conclusion
The EU's new Economic Security Package intends to mitigate economic security threats. The package updates the EU Foreign Direct Investment Screening Regulation, tracks and evaluates outbound investment risks, strengthens dual-use export restrictions, and secures research. The strategy lists energy security, critical infrastructure physical security and cybersecurity, technology leakage, and economic coercion as risks. The plan reduces these risks by supporting a strong economy, improving the EU's industrial, scientific, and technological foundations, fostering competitiveness and growth through the Single Market, ensuring economic security, and forming alliances with like-minded nations. A legislative proposal, a White Paper on security threat assessment, measures to strengthen controls over dual-use goods exports, a White Paper on technology-related R&D funding, and a research security suggestion are included.
In order to protect security and human rights, the European Commission is improving export control coordination on dual-use goods like advanced electronics, toxins, nuclear, and missile technology. The White Paper on Export Controls proposes alternative methods for uniform EU controls, political coordination, and technical coordination between Member States and the Commission. The White Paper also suggests increasing funding for technology-related R&D with dual uses, evaluating current EU funding programmes, eliminating the program's civil application focus, and creating a dual-use R&D instrument.
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