By Dr. Roland Stein, LL.M. Eur., BLOMSTEIN / CELIS Deputy Director
The CELIS Forum on Investment Screening (CFIS) 2023 conference in Prague provided valuable insights into the multifaceted realm of economic security in the European Union (EU). The discussions centered on critical issues such as the screening of foreign inward direct investments, outward investment controls, sanctions, and export controls. In my view, this comprehensive exploration revealed three pivotal takeaways, emphasizing the intricacies and challenges that the EU faces in this vital domain.
I. International Collaboration and Diverse Approaches
A fundamental conclusion drawn from the CFIS deliberations was the necessity for the EU to engage in extensive dialogues with a wide array of nations. While significant trading partners (and allies) such as the USA, Canada, and Australia have been discussing about the concept of economic security for some time, also emerging economies like India and technologically advanced nations like Japan and Switzerland have been actively shaping their economic security policies – all in line with each country’s overall policy and political reality. Japan, for instance, has enacted a robust legal framework for promoting economic security (ECSA) last year. In addition, METI is conducting an unique industry-oriented economic security policy in cooperation with a broad number of stake holders. All this is to ensure that foreign (in particular Chinese) investments do not compromise Japanese national security. Switzerland is traditionally focussed on its permanent neutrality and reliant on trade and access to international markets as well as international supply chains. It has nevertheless adopted the Foreign Economic Policy Strategy, which – while recognizing the role of open markets – aims to diversify the country’s trade relations and sets priorities and priority countries. India’s economic security policy is primarily focused on achieving self-reliance and promoting economic growth and stability. The country aims to enhance its economic security by diversifying its trade relationships, boosting domestic production and investing in critical sectors such as technology and infrastructure. Learning from these examples is crucial for the EU as it rapidly develops and implements its own rules and regulations.
II. Balancing National Security, Economic Prosperity, and Other Considerations
The second key insight underscores the intricate balance the EU must strike between on the one hand safeguarding national security but on the other hand fostering economic freedom and prosperity – while also addressing other, similarly important concerns such as human rights, supply chain security, and climate protection. This already sounds complicated in theory – finding a sensible middle ground in practice is probably the most challenging matter in modern policy, in particular because there are a number of cases in which these interests contradict each other. For instance, while a robust and reliable supply chain also favours economic and national security, it may not be in line with human rights and climate policy. Likewise, restrictions on foreign direct investments based on national security concerns may have an at least temporary detrimental impact on a country’s economic development. Equalling economic and national security, as is sometimes suggested, is certainly not in line with the EU’s overall, compromise-based approach. Rather, striking a balance necessitates nuanced policymaking and strategic collaborations between EU institutions and member states.
III. Unique Challenges and Stakeholder Complexities
While searching for the right balance is a (never ending) difficulty common to all countries developing their economic security agenda, there are some distinctive challenges the EU faces, in particular because of its unique nature as a union of sovereign nations. Defining the concept of “national” security becomes intricate within this framework – only to start with, there are 27 countries setting their national interests. In addition, the EU’s multifaceted architecture involves numerous stakeholders, each with varying levels of investment in foreign direct investment issues. Moreover, the absence of a centralized intelligence or defence service within the European Union, coupled with the divergent legal traditions and specificities of member states, further complicates harmonization efforts. Lastly, the EU’s fundamental freedoms and the ECJ’s case law (including its latest decision in the Xella case) may introduce limits on the review of intra-EU investments, adding another layer of complexity to the EU’s economic security puzzle.
The insights gleaned from the CFIS 23 discussions underscore the complexity of the EU’s economic security landscape. Engaging in in-depth global dialogues, learning from the policies of other nations (both allies as well as others), and finding a delicate balance between competing interests are vital tasks for the EU. By adapting and integrating these lessons, the EU can navigate these challenges effectively, ensuring economic security while upholding its core values and commitments. As the EU moves forward, it must continue to evolve its own strategies, fostering international collaborations and remaining adaptable in the face of an ever-changing global economic landscape.