May 25, 2023
US Push for Controls on Investment in China Hits EU Resistance
(Bloomberg) -- The European Union is cautious about imposing controls on investments into China, despite encouragement from the US to develop tougher legal tools.
At a meeting in Brussels on Thursday, EU trade ministers discussed their misgivings about the plan to monitor investments that could pose a risk to European security, according to officials familiar with their conversations. Similar concerns were voiced at a meeting of EU ambassadors on Wednesday, the people said.
“We are in the early stages of the discussion and will require substantial engagement with member states when the work is more advanced,” Commission Vice President for Trade Valdis Dombrovskis said after Thursday’s meeting.
As EU member states digest the new threats of a world that is being reshaped by the war in Ukraine and China’s increasingly assertive approach to geopolitics, even some long-standing defenders of free trade and open markets are starting to appreciate heightened risks to their economies.
“It is really important to understand how the supply chains and value chains really work,” said Ville Skinnari, Finland’s trade minister. “One could argue that we should have done it earlier.”
The European Commission, the EU’s executive arm, is working on an outward investment screening tool as part of an economic security strategy which is due to be published in the second half of June. The issue has become a priority because of the mounting concern about China’s support for Russia since the invasion of Ukraine.
While European and US officials are discussing aligning their approaches for screening outbound investment, the work in Washington is much more advanced, EU officials and diplomats said.
Dombrovskis and his fellow commission vice president, Margrethe Vestager, are due to meet US Secretary of State Antony Blinken, Commerce Secretary Gina Raimondo and Trade Representative Katherine Tai in Sweden next week.
Western officials are concerned that investment in China could increase the risk of Beijing acquiring sensitive information or, more generally, help the development of a strategic rival. Nevertheless, the EU’s Brussels-based executive arm is facing a struggle to win support for member states for its plans.
“It is an instrument that is extremely difficult to apply,” Spain’s junior minister for trade, Xiana Mendez, said in an interview after the talks. “Nobody is enthusiastic about it.”
She said that her colleagues were concerned about the technicalities of how the tool would be applied and it would be unlikely to come into force before European election in June 2024. Vestager told reporters separately that creating such a legal instrument would be a “very tricky.”
As part of its economic security strategy, the commission will assess security risks to supply chains as well as critical technologies and infrastructure, Vestager said.
The commission is still assessing whether controls on outward investment are necessary and will take a view on that in the light of its assessment of the geopolitical risks.
All the same, Vestager emphasized that unless the EU devises its own framework for assessing geopolitical risks it will allow China, or indeed the US, to set the terms of the discussion.
“If we do not assess the risks from a European perspective, then the dividing lines will be drawn either in Beijing or in Washington,” she added.
--With assistance from Leo Laikola.
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