The recent update released by the EU on its Economic Security Strategy is aimed at positioning it as a geopolitical as well as a geoeconomic bloc
In late January, the European Union (EU) issued an update on its Economic Security Strategy. It outlined five new initiatives to strengthen the 27-member bloc’s economic security. The update builds on the original European Economic Security Strategy released by the EU on the 20 June 2023.
As a consequence of the COVID-19 pandemic, economies world over reeled from supply-chain shocks, especially in the availability of critical raw materials like rare earth metals. Thus, a fundamental flaw in the trading relations came to the fore: over-reliance on China. This is especially true of the EU, whose trading links with China was and remains significant, with a notable trade deficit. On top of that, the 2022 Russia-Ukraine war and the large energy dependence of the Europeans on Russia also highlighted a particular vulnerability of the EU. Also, the ever-changing technological space implored the decision-makers in Brussels to take urgent actions so that the EU is not left behind in this particular race, which would naturally have adverse economic consequences. By that time, the term ‘decoupling’ promoted by former US President Donald Trump had also entered the lexicon but has subsequently been watered down to ‘de-risking’. Thus, this necessitated a look at the economic security of the EU so that the bloc could be better protected from any economic shock that came its way.
The 2022 Russia-Ukraine war and the large energy dependence of the Europeans on Russia also highlighted a particular vulnerability of the EU.
The 2023 Economic Security Strategy was based on three pillars: promoting the EU’s competitiveness; preventing economic security risks in the EU; and, teaming up with like-minded countries when it comes to achieving economic security. It identified four risks that the EU needs to confront on an urgent basis: resilience of supply chains; physical and cyber security of critical infrastructure; technology security and technology leakage; and, weaponisation of economic dependencies or economic coercion. If one were to look at these, there would be no doubt as to who these risks looked at, namely, Russia and China. It also underlined that the way the risks needed to be addressed should not come in the way of the Union realising the “benefits of an open economy.”
The Strategy also made it a point to mention major EU initiatives which would strengthen its economic security, examples being NextGeneration EU, the EU Industrial Strategy, Critical Raw Materials Act, European Chips Act, the EU Anti-Coercion Instrument among others.
The latest update builds on the 2023 Strategy. It outlines five new initiatives to further bolster the previously-issued strategy. Firstly, improved screening of incoming foreign investment in the EU has been proposed. With the goal of protecting the bloc’s security and order in mind, it has been stated that all the member states should employ a screening system where national rules do not conflict. The initiative also aims to extend this screening to investments from those EU entities whose ultimate control lies in a non-EU country. Secondly, following the ASML case, where the US pressurised the Dutch government to limit the exports of semiconductor manufacturing machinery to China, the EU has introduced a new initiative to have EU-wide coordination on export controls, especially in the case of dual-use goods. Thirdly, screening of outbound investments so that they don’t harm the EU or negatively affect international peace (the emphasis is on the export of critical technologies). So far, no mechanism exists to keep a check on outbound investments and their potential to harm the EU’s economic security. In that respect, the European Commission has released a White Paper on outbound investments which underlines undergoing an analysis for the purpose of developing screening mechanisms for outbound investments. The process in this case will be two-pronged: A consultation with stakeholders over a period of three months and monitoring and assessment of outbound investments at member-state level over a period of 12 months. These two will then result in a ‘joint risk assessment report’, the outcome of which will then determine if a policy action is needed. Fourthly, promoting support for research and development (R&D) of dual-use technologies. A white paper has already been released in this regard. Now, the Commission has launched a public consultation. The goal of the EU in this regard is to become a leader in emerging cutting-edge technologies. Fifthly, at the sectoral as well as member-state level, the EU has advocated for increasing research security. Under EU’s guidance, member-states will be helped to prevent leakage of technology which might be used against the EU itself in the longer run. This has arisen from concerns among EU member states that advanced technology is being leaked from Europe to countries like China.
The European Commission has released a White Paper on outbound investments which underlines undergoing an analysis for the purpose of developing screening mechanisms for outbound investments.
The January update released by the EU intends to position itself as a geopolitical as well as a geoeconomic bloc. Gone are the days when it projected itself as purely an economic bloc with trade at the forefront. Although it is largely seen as targeting Russia and China, the original strategy document of 2023 only mentioned Russia (which is Europe’s main security concern) and the January update has not mentioned any country. This makes the EU well-placed with a second Trump presidency looming on the horizon with his predictable unpredictability.
The emphasis on coordinated mechanisms on export controls intends to avoid a repeat of the arm-twisting by the US as happened in the ASML episode. Outbound investment screening is also an interesting initiative but how far the EU goes with it will only be revealed by the summer of 2025. Initiatives in the case of R&D and prevention of technology leakage represent serious efforts by the EU in the present era of geopolitics.
It can be said that with its Economic Security Strategy and the subsequent update to it, the EU has positioned itself differently from both the US and China and has attempted to chart its own course in the world of today. The introduction of economic security in the EU lexicon has sort of “revolutionised” the EU as we know it as its introduction itself is a hammer blow on the silos in which trade policy (EU competence) and national security (member-state competence) have operated till now. This can have far-reaching consequences for the working of the EU in terms of sharing competences between the Commission and member-states in the longer-term.
The emphasis on coordinated mechanisms on export controls intends to avoid a repeat of the arm-twisting by the US as happened in the ASML episode.
The churn which the world is undergoing today necessitates such action by EU. However, there are still lingering doubts as to what impact this will have on EU and member-state relations. The EU elections and the US presidential elections later this year will also determine the steps which the former will take to strengthen its economic security. As many provisions are advisory and non-binding, getting member-states on board will be a task in itself. Similar is the case in getting businesses in line with the EU’s motives in the absence of any binding rules, penalties or incentives (as has been the concern with de-risking). Raising finances for the implementation of the strategy is another crucial concern. The EU has rolled the dice, only time will tell how the game plays out.
Abhishek Khajuria is a Research Intern at the Observer Research Foundation
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Abhishek Khajuria is a Research Intern with the Strategic Studies Programme at the Observer Research Foundation ...
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