The Commission Proposes to Harmonize Foreign Direct Investments into the EU, to Regulate Outbound Investments and to Further Regulate the Exports and R&D of Dual-use Products

In response to escalating geopolitical tensions and revolutionary technological changes, the European Commission (the “Commission”) has recently introduced a set of initiatives to enhance the economic security of the European Union (the “EU”). These measures which includes a new regulation as well as White Papers are aligned with the European Economic Security Strategy of June 2023.

The Commission’s initiatives are structured around five key areas:

• Foreign Investment Screening: The Commission’s proposal aims to enhance the screening of foreign investments into the EU, ensuring the protection of the EU’s security and public order. The proposal entails a revised EU Foreign Direct Investment Screening Regulation. The Commission seeks to strengthen the resilience of the EU’s economic infrastructure by i) mandating all Member States to adopt national screening mechanisms, ii) ensuring that all Member States have harmonized screening mechanisms in place and iii) extending scrutiny to investments by EU entities controlled by non-EU actors.
• Monitoring Outbound Investments: EU investors play a key role in open global markets. Outbound investments in a narrow set of sensitive technologies pose a potential risk to the EU should they be used to enhance the military and intelligence capabilities of countries who may later use them to threaten the EU’s and wider global security. Currently there is no EU control system in place for outbound investments. The Commission has proposed a comprehensive risk assessment framework in its White Paper on Outbound Investments. This entails three-month stakeholder consultations and monitoring activities to identify and mitigate risks associated with outbound investments.
• Enhanced Export Controls: Against a backdrop of challenging geopolitical dynamics, the Commission suggests improved coordination of export controls of dual-use goods in its White Paper on Export Controls. These measures aim to prevent the misuse of such goods and uphold security and human rights standards.
• Support for R&D of Dual-Use Technologies: The Commission has launched a public consultation to encourage research and development efforts in technologies with dual-use potential. By evaluating and soliciting input from stakeholders, the goal is to combine a strategic course for innovation with a mechanism for addressing security concerns.
• Research Security Enhancement: The Commissions has recognized vulnerabilities within an open, borderless research and innovation sector and proposes a Council Recommendation to provide guidance and support to Member States. These measures aim to mitigate risks associated with malign influence and uphold the integrity of international research cooperation.

In pursuing these initiatives, the Commission reaffirms its commitment to advancing the economic security of the EU while navigating complex geopolitical realities. These measures signal the Commission’s proactive approach to safe economic interests in an increasingly interconnected world.

Does the Commission’s proposal consider the potential negative impact on businesses?

The proposal to move for harmonization as well as increased control and coordination was not unexpected. We live in a world of escalated geopolitical tensions and the Commission’s role is to identify and protect our public order and commercial vulnerabilities. However, it can be questioned whether European investments abroad jeopardize public security and order in the EU except in very particular circumstances. Rules should be tailored in a narrow and proportionate way to only catch investments that could pose a likely threat to security in the EU. Hopefully the public consultations will provide valuable comments that will ensure that any future EU legislative measures are proportional and create the improvements we need in the EU without adding a complex and complicated bureaucracy for companies. We will monitor the upcoming developments and get back with further information.