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EU looks to ban companies from making sensitive tech in China

Brussels moves to create new powers to clamp down on companies outsourcing key supply chains to autocratic countries.

The EU on Tuesday revealed plans to prevent European companies from making sensitive technologies such as supercomputers, artificial intelligence and advanced microchips in countries like China.

Through the European Economic Security Strategy, unveiled by Commission President Ursula von der Leyen, Brussels wants to intervene more in how European companies invest and trade in countries around the world. EU heads of government and state are expected to discuss the proposals at their June 29-30 summit.

The document avoids any specific mention of China — but it’s clear that Beijing, along with Russia, are the top targets. 

The strategy is “country agnostic,” EU competition chief Margrethe Vestager said at a press briefing, but the EU will use a “geopolitical filter” when assessing risks: “We cannot treat supply dependencies on a systemic rival the same as we would treat the dependency on an ally.” 

The document also develops ideas from last month’s G7 summit, where “de-risking” from China was a major point of discussion. Japan already has an such a strategy, but von der Leyen stressed “Europe becomes the first major economy to set out a strategy on economic security.”

At the same time, von der Leyen said China remains a key partner on the global challenges of the day, such as climate change. Otherwise, “the vast majority of trade and economic relations with countries and also China is business as usual,” she said.

The EU’s foreign affairs chief Josep Borrell said: “We are not in a confrontational mood with China.” 

Take back control

Through the strategy, Brussels will assess strategic risks and then look into which instruments are needed to tackle those risks. “When we don’t act together, we’re a playground. When we do act together, we are a player,” Vestager said.

The EU will propose strengthening its control through three areas: a review of its inbound investment screening (controlling when foreign companies buy up critical companies or infrastructure in Europe); more cooperation on export controls (when EU companies sell things such as weapons or espionage software to hostile countries); and outbound investment screening.

Of the three areas, outbound investment screening is the most controversial: It would create new EU powers to control outsourcing of key industries and technology to potentially problematic countries, with the Commission planning to legislate to stop companies from moving supply chains for “advanced technologies” to autocracies.

The reasoning behind the move is that companies may be putting European intellectual property and national security at risk by outsourcing too much of their supply chains to countries such as China. With the new law, the EU could prohibit those outbound investments when it sees security risks.

“The EU’s division between trade instruments controlled by the European Commission and security instruments controlled by member states is increasingly inadequate in the face of technological and industrial rivalry where economic security and national security are intertwined,” said Tobias Gehrke of the European Council on Foreign Relations think tank. 

Quantum of solace

The EU specifically mentions “quantum computing” (which could be used to crack the most secure communications), “artificial intelligence” and “advanced semiconductors” as areas in which the EU could prevent outsourcing.

However, the new instrument is far from a done deal. Several EU countries are wary about the impact of the investment climate of the EU and Brussels overstepping. 

One diplomat from an EU country said the Commission has clearly taken into account the worries of the bloc’s bigger members on not moving too fast on outbound investment screening. “We need some time to reflect on this,” the diplomat said. “There is a certain cautiousness. We first need to look at the gaps before we start talking about next steps.”

Businesses are also skeptical. “Any initiative on outbound investment needs to be carefully assessed and in our view should be well-targeted and used only as last resort when serious security concerns are effectively proven,” said industry organization Business Europe.

The EU executive will finalize the new initiative by the end of the year, but it is not yet decided whether that will be a legislative proposal or more a stepping stone towards a concrete instrument by the next Commission, which will be formed after elections to the European Parliament in a year’s time.

Source : Politico