What investors need to know about the European Commission’s new economic security initiatives and their potential impact on investment screening

On 24 January 2024 the European Commission announced five related initiatives aimed at enhancing EU "economic security" in the face of risks arising from increased geopolitical tensions and accelerated technological shifts. Depending on the form in which they are ultimately implemented, these initiatives are likely to have significant implications for investors seeking to invest in EU-based companies.

By way of overview, the five initiatives presented by the European Commission are:

1. A proposal for a new regulation on Foreign Investment Screening (which would upgrade the existing Foreign Direct Investment Screening Regulation by making screening obligatory for the Member States, laying down a minimum scope and extending it to foreign investments made through EU subsidiaries).
2. A White Paper on improving export controls for dual-use goods.
3. A White Paper on outbound investments launching a process to identify potential security risks linked to EU investment in third countries.
4. A proposal for a Council Recommendation on enhancing research security.
5. A White Paper on enhancing support for research and development involving technologies with dual-use potential

These initiatives follow on from the publication of the European Economic Security Strategy in June 2023 (see our previous blogpost), pursuant to which the EU is pursuing a three-pronged strategy involving promoting the EU's competitiveness, protecting the EU's economic security, and partnering with the broadest possible range of partners (in line with the shift in focus of EU trade policy from liberalising trade through multilateral and bilateral agreements to addressing concerns about the EU's economic security).

The proposals have required careful balancing of the protection of economic security on the one hand and maintaining the openness of the EU economy on the other, whilst also avoiding increased administrative burdens. In addition, they raise delicate competence issues for the EU, national security being a matter reserved for individual Member States.

It is worth highlighting that only one of the five initiatives involves a specific legislative proposal at this stage – a draft new regulation on Foreign Investment Screening to replace the existing EU FDI Screening Regulation (Regulation (EU) 2019/452), following a public consultation last summer and the publication of an evaluation report at the end of November 2023 (see our previous blogpost). The other initiatives are presented as White Papers at this stage, taking stock of developments and reflections so far and suggesting possible future initiatives, or, in the case of enhancement of research security, a proposal for a Council Recommendation (which will not be binding). Any changes to the current regulatory framework are therefore not likely to be implemented for some time yet, and the detail is still to be confirmed. However, it is important for investors to be aware of these proposals and their potential impact.

For more detailed commentary on each of the five initiatives, focussing in particular on the proposed new regulation on Foreign Investment Screening, please see our detailed briefing.

We will be closely monitoring developments in this area and will provide further updates in due course.