EU faces challenges as it doubles down on its economic security agenda
While economic security has long been a key narrative for the US government, its central role in European politics is of a much more recent vintage. The latest signal of this new political emphasis in the EU came last Wednesday with the unveiling of five new initiatives designed to deepen the bloc’s policy of “de-risking” from China.
This package, which aligns with the June 2023 European Economic Security Strategy, doubles down on a potentially significant shift in the EU’s political economy in recent years. The continent has long had a reputation for its open approach to trade, investment and research, and a key question moving forward is to what degree that might now be eroded in a new geopolitical landscape.
The five initiatives are: a legislative proposal to strengthen foreign investment screening; more-effective EU control over exports of dual-use goods; options to support research and development in technologies with dual-use potential; enhanced research security across the EU; and better monitoring and assessment of outbound investment risks. The fifth initiative, for outbound investment, is currently subject to consultation during a three-month review period.
While no countries are cited as specific targets of these new economic security measures, China is the main source of concern in Europe, especially after Beijing’s economic blockade of Lithuania over the EU member country’s deepening ties with Taiwan. The Baltic nation was subjected to a Chinese ban on exports after Lithuania allowed Taiwan to open a representative office in the capital, Vilnius, in 2021.
Therefore, the wider context to Wednesday’s announcement includes a broader chill in relations with China that dates back at least to the onset of the COVID-19 pandemic in 2020, plus Russia’s invasion of Ukraine. Against this backdrop, European Commission President Ursula von der Leyen has made significant moves to develop and implement this new economic security and de-risking policy paradigm.
The unveiling of the five new initiatives is significant because one of the key criticisms of the European policy shift is that it lacks the de-risking tools required to make it a reality. Prior to this week’s announcement, the biggest single measure revealed by Brussels was an anti-coercion measure announced late last year.
That tool is intended to act as a deterrent but will also enable the EU to impose countermeasures on any country that attempts to exercise economic coercion over one or more member states. Such countermeasures include increased customs duties, intellectual property restrictions and export controls, all under a time-bound procedure lasting no more than a year.
The European Council will have significant involvement in the decision-making process used to determine whether economic coercion is taking place. Meanwhile, the European Commission will be given implementation powers in decisions about the EU’s response measures, while also ensuring the increased involvement of member states in these decisions.
The unveiling of the five new initiatives is significant because one of the key criticisms of the European policy shift is that it lacks the de-risking tools required to make it a reality.
This instrument can be triggered by a wide range of coercive economic practices through which a country applies, or threatens to apply, measures that affect trade or investment in an attempt to prevent, or achieve the cessation, modification or adoption of a particular action by the EU or one of its member states. Input from external stakeholders will be taken into account when considering the activation of this tool, and businesses will be encouraged to come forward with any relevant information.
This new EU regulation, which came into force in December, is potentially a major milestone in the bloc’s shift toward economic security. It proposes to carry out a thorough assessment of the 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 leakage; and the risk of weaponization of economic dependencies or economic coercion.
Building on this, the package of measures revealed on Wednesday aims to further strengthen the protection of the EU’s economic security through proposals that include: improved screening of foreign investment coming into the EU; enhanced European coordination of export controls, in alignment with existing multilateral regimes; identification of potential risks arising from outbound investments in a narrow set of technologies; the promotion of better support for research and development involving technologies with dual-use potential; and the enhancement of research security at national and sector levels.
The new measures are likely to be welcomed by many of the 27 EU member states, especially those in Eastern Europe which tend, with the exception of Hungary, to have more hawkish attitudes toward China. However, a key question remains about whether, even with the new measures, this emerging toolkit can truly deliver on the de-risking goal set out by von der Leyen.
For instance, a study by the European Council on Foreign Relations proposed that the EU also develop a comprehensive resilience architecture that includes a strong agenda for improving economic strength and trade links, establishes a Resilience Office, and implements a reformed blocking statute that can counter secondary sanctions. It is proposed that a Resilience Office could provide strategic coordination of the EU’s response to, and evaluate the costs of, economic coercion, while a blocking statute could facilitate targeted countermeasures against companies based in third-party countries.
The significant challenges that exist in implementing these types of economic security frameworks are underlined by the experience of the UK in the past two years.
Late last year, UK Deputy Prime Minister Oliver Dowden announced plans to make British powers to screen foreign direct investment more business friendly. He has launched a review with the aim of “narrowing and refining” the National Security and Investment Act, which allows the government to potentially veto any takeovers it has concerns about. The legislation was introduced in an attempt to address security concerns related to the acquisition of UK companies by foreign counterparts, including those in China.
Taking all of this together, as much as the political momentum is growing behind the EU’s de-risking agenda, the actual implementation might turn out to be rather challenging, as highlighted by the recent UK experience with its own economic security initiative.
• Andrew Hammond is an associate at LSE IDEAS at the London School of Economics.