Moves to curb outbound investment eyed by end of 2023 under EU security plan

Companies could see proposals new EU curbs on outward investment flows before the year's end as the European Commission seeks to stop capital leaving the bloc and helping foreign countries develop their military and intelligence capacities, under a new economic-security proposal seen by MLex.

The European Commission also wants to propose new measures enhancing its scrutiny of inbound investments in the same timeframe.

The policy initiatives are contained within a new economic security strategy to be unveiled tomorrow and seen by MLex. The commission has been warning since March that an outbound investment vetting mechanism was necessary and would be proposed as quickly as feasible.

The paper responds to growing fears that economic openness can expose European countries to heightened security risks, and more restrictions are needed to scale back relations with countries such as Russia and China. Today, the Italian government blocked China from increasing its investment in tire maker Pirelli.

The EU has become aware of the risks as a result of the war in Ukraine, which has sent shocks through supply chains, caused price surges and highlighted a "scarcity of critical inputs."

It believes there is also a risk to infrastructure such as pipelines, cables and data services. This, in turn, will affect the bloc's ability to develop next-generation technologies — such as robotics and AI — as well as expose EU states to "weaponized" trade policies by other countries.

The paper puts forward a slew of ideas to ensure the EU "de-risks" its economic relationships and develops greater "resilience."

While many EU countries police investments coming into their economies — blocking Chinese acquirers of strategic assets — the commission says greater attention is needed for outbound investments.

It wants to "ensure that companies' capital, their research, expertise and knowledge are not used to fuel technological advances that will enhance foreign military and intelligence capabilities of countries who may use them to undermine peace and security."

Patrolling outbound investments can "counter the risk of technology and knowhow leaking," it says.

The commission proposes establishing a group of experts from EU countries, operating a "confidential cooperation mechanism."

"The commission is therefore examining possible measures to address security risks related to outbound investments, with a view to tabling proposals before the end of the year."

Inbound investment

The paper highlights risks to national security through foreign direct investment, technology leakage, and exports that could be deployed for military purposes.

To address this, the commission proposes studying the risks and integrating them in ongoing policy reviews. It also wants to present a list of dual-use technologies that could pose a military risks, for EU governments to adopt in September.

But it believes more work is needed on policing inbound investment as well.

Its drive for better cooperation on screening foreign investments has led to more than 1,000 transactions being reviewed since October 2020, the paper says.

But it says a proposal on reviewing those rules — which just set out a cooperation mechanism — may come "before the end of 2023."

"Member States who have not yet implemented national FDI screening mechanisms should do so without further delay," the document reads.