The European Commission (EC) has adopted five initiatives aimed at tightening trade with other non-EU actors and improving the screening of foreign direct investments (FDI) within the bloc.

The EC has recommended that all member states employ a screening mechanism for direct investments from abroad in place to strengthen scrutiny of non-EU business initiatives across its territory.

It also identified four risk categories of supply chains; physical and cybersecurity of critical infrastructure; technology security and technology leakage; and the weaponisation of economic dependencies or economic coercion.

The package aims to make the EU’s economy more secure while remaining open to trade, investment and research in line with the European Economic Security Strategy, adopted in June 2023.

Critical technologies, including advanced semiconductors, artificial intelligence and quantum technologies will fall under the legislation.

“The EU has benefitted greatly from being an export powerhouse, investing abroad and keeping its market open to trade and foreign investors,” said Valdis Dombrovskis, executive vice-president and EU commissioner for trade. “But to keep making the most of these opportunities, we must be more clear-sighted about the risks we face at this time of profound geopolitical turmoil and fast technological shifts.

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By GlobalData

“We must improve our understanding and coordination in tackling these shared challenges so we can better protect ourselves, make investments safer and control the export of sensitive products to avoid them getting into the wrong hands.”

The EU FDI screening regulation came into force in October 2020, establishing a cooperation mechanism whereby member states and the EC would exchange information and notify any investment issues. The EC has so far reviewed over 1,200 FDI transactions notified by member states over the past three years.

Almost three years later, in June 2023, the EC and the High Representative developed a European Economic Security Strategy to minimise risks in the context of rising geopolitical tensions with countries including Russia, China and Iran.

In addition to increased oversight of FDI inflows, the bloc will step up the monitoring and assessment of outbound investments. The measure will help prevent “a narrow set of advanced technologies” from ending up in the hands of actors that could “use them against the EU or to undermine international peace and security”.