An Insecure Economic Security Package

By Victor De Decker

27 February 2024

Following up on last Summer’s Economic Security Strategy, the European Commission proposed its Economic Security Package, including five initiatives on the following topics: foreign direct investment screening (inbound and outbound), export controls, and research security.

In line with the Strategy, these proposals adopt the EU’s three-pillar approach to economic security by promoting competitiveness, protecting against risks and partnering with third countries. The EU Commission had earlier already initiated a risk assessment for ten critical technologies, to be executed by the member states. Important progress has been made since then, but those who expected the new package to meet the lofty aspirations of the Strategy will be left disappointed.

Earlier in January, the Council had already significantly watered down the Commission’s STEP proposal, which aimed to allocate EUR 10 billion to promote strategic technologies, due to budgetary concerns. Also, the publication of the risk analysis got postponed until at least Spring 2024.

On inbound foreign direct investment screening, a European regulation has been in place since 2020. However, not all member states have established such screening mechanisms. As a part of this newly proposed package, the Commission is now proposing a plan to harmonise this Byzantine patchwork of European screenings capacities, specifying a minimum number of sectors for screening to mitigate differences among member states. While this harmonisation is to be welcomed, it is not imminent due to the legislative procedure that could take several years.

It has become clear now that member states  are reluctant to endorse a screening mechanism for outbound investments. In the proposed package, the Commission is only committing to “consulting Member States and stakeholders” on “risks stemming from outbound investments”. Read: no OFDI screening mechanism will be implemented in the near future. The EU Commissioner for Competition wants to adjust ambitions to avoid exacerbating tensions with the member states on this issue.

When it comes to export controls, Trade Commissioner Dombrovskis, expressed that the Commission aims to establish a European forum to better coordinate member states' export controls at the European level. However, the Commission’s role will be limited to coordination, as it lacks competence on this issue. Such a forum, however, cannot prevent a member state to establish specific export controls that differ from the other member states, as happened in the Netherlands with the export licenses for ASML’s lithography machines

Regarding research and knowledge security, the Commission will better equip member states and research institutions to guard against the risk of unwanted knowledge transfer by offering clarification, guidance, and support. The Commission will also limit the participation of specific third countries in its own research funding programmes. Apart from this, the current package disappoints by only committing to “promoting further discussions” on research security and “proposing” that “the Council recommends measures at enhancing research security.” In other words: the ball is now – again – in the member states’ court.

As consultation rounds ensue, the timing of policy implementation remains uncertain, leaving critical decisions on economic security deferred to a future marked by erratic political dynamics and uncertain electoral outcomes. All in all, the package largely defers substantial decisions until after the European elections, indicating a reluctance – mostly at member state level –  to engage in controversial matters amid political transitions. Notwithstanding, Commission-led harmonisation and simplification will only serve its role up to a certain point. It is high time for member states to step up their game by developing economic security capacities as well.