EU lays out economic security plans, with mind on China

By Philip Blenkinsop

BRUSSELS (Reuters) - The European Commission set out plans on Wednesday to bolster the European Union's economic security through closer scrutiny of foreign investments and more coordinated controls on exports and outflows of technologies to rivals such as China.

The EU executive's package is a response to the multiple risks exposed by the COVID pandemic, Russia's invasion of Ukraine, cyber and infrastructure attacks and increased geopolitical tensions.

The EU executive proposed a revision to its law on foreign direct investment screening that will require all EU countries to screen and possibly block investments in the bloc if they pose a security risk.

Screening will also extend to investments within the EU if the investor is controlled by a foreign company.

The changes could take three years to enter force.

The plans do not name any country, but the EU contrasts "reliable partners" with "countries of concern" and highlights "de-risking", the bloc's policy of reducing economic reliance on China, which the bloc regards with more suspicion due to its close ties to Russia.

China's Chamber of Commerce to the EU said it was concerned about the package, adding that about half of the members it surveyed were worried about its negative impact.

BusinessEurope said the package brought much-needed clarity.

The Commission pushed for greater EU coordination of separate national export controls on products that can be put to use by foreign military or intelligence services.

Research institutes should be more aware of the need for security in their work on key technologies, especially if third countries are involved.

The Commission also proposed a 12-month period of monitoring to assess whether outbound investments risk harmful leakage of sensitive technologies such as artificial intelligence, semiconductors, quantum computing and biotechnology.

EU measures and coordination will prove tricky because EU members guard decisions on export and investment controls as their own. There is, though, a growing appreciation that the bloc needs to combine its economic weight to compete with the likes of China and the United States.

"It's a hot potato that could take some time to go forward. Implementation will be difficult... but there is a new geopolitical reality," one EU diplomat said.

EU trade chief Valdis Dombrovskis said the Commission was aware it needed to navigate very carefully.

"But the context is clear. We are getting into more (conflict-related) geopolitical situations with increasing security risks... and certainly we are stronger if we act together or at least in a coordinated way."

Part of the strategy involves bolstering EU competitiveness, diversifying supply and export markets, boosting research and investment in key technologies and closer partnerships with allies.

(Reporting by Philip Blenkinsop; Editing by Nick Macfie and Bernadette Baum)