2024 Year-in-Review I Holiday Break

By Kilian Wagner (CELIS Blog Editor, University of Vienna)

I. 2024 – Economic Security Developments in Review

With a busy year coming to an end, it is time to take stock of the main developments in the area of economic security from an EU perspective. A number of new policy initiatives have been launched in 2024, while we can also see further practical implications of tools set up in the previous years. The year started with the publication of the long-awaited European Economic Security Package (EESP - for a first analysis on the CELIS blog see here) by the European Commission (EC) on the implementation of the European Economic Security Strategy (EESS) from June 2023. As some initiatives, such as the revision of the FDI Screening Regulation or plans for screening outbound investments are still ongoing, we have already seen results in other fields, e.g. in strengthening research security. At the same time, the year has seen the publication of the reports by Mario Draghi, Sauli Niinistö and Enrico Letta, calling for more competitiveness, more resilience and a stronger single market. Their findings will certainly guide the way forward by the new EC and complement the work strands as outlined in the Political Guidelines and commissioners’ mission letters.

II. The European Economic Security Package – where do we stand at the end of 2024?

Published on 23th January 2024, EU institutions and member states commenced the work on the implementation of the five initiatives of the EESP. A first success was the quick adoption of the Council Recommendation to enhance research security on 23th May. The choice for a non-binding recommendation rests on the shared competence between EU and member states in this the area and respects the fundamental principles of academic freedom and institutional autonomy. It seeks to raise awareness for malign interference in research and provides guidance for risk assessments and on enhancing research security. Only shortly thereafter, the Council adopted Conclusions on the White Paper on Export Controls that pave the way forward in this area. In particular, it invites the EC to undertake further analysis on how to evade the consequences of the current deadlock in multilateral export control regimes. With the White Paper on options for enhancing support for research and development involving technologies with dual-use potential, the EC launched a public consultation on guidance for future EU funding programs. According to the EC, the responses were mostly favorable to the current set-up divided in an exclusive focus on either civil applications (Horizon Europe) or defence applications (through the European Defence Programme).

The ongoing works on outbound investment screening and the revision of the reform of the FDI Screening Regulation have proved to be more complex. Following a public consultation on outbound investment screening, the EC was expected to adopt a recommendation to member states for a monitoring and review of outbound investments in summer 2024 (for a recent update see here). The absence of such a recommendation at the end of the year is likely to delay the further steps, including member states’ monitoring and the final assessment by the EC on required policy responses. In contrast, the final rule implementing the US’ outbound screening mechanism will become effective on 2nd January 2025.

Likewise, the works on the revision of the FDI Screening Regulation are ongoing. The EC’s proposal addresses shortcomings of the current Regulation. The cornerstones encompass obligatory screenings of investments in certain sectors, the closing of loopholes by covering indirect transactions and streamlining the EU cooperation mechanism (for comprehensive analysis see our previous posts here and here). As recently uncovered, a Council presidency compromise text allegedly narrowed down the scope for mandatory screenings (see here for the coverage by Politico). It remains to be seen how the discussions will evolve under the Polish presidency and what position the European Parliament will adopt as a co-legislator, which is expected in early 2025. The fact that by now 24 member states have introduced screening legislation – as confirmed by the EC’s 4th Annual Report on FDI Screening – may provide some relief in the meantime (see here for an analysis of the report).

III. Reconciling (economic) security and competitiveness

Although the initiatives of the EESP mostly fall within the “protect” pillar of the EESS, significant progress has also been made on the pillars “promote” and partnering” in 2024. On 23rd May, the Critical Raw Materials Act (CRMA) entered into force (for a CELIS blog analysis see here). In addition to enhancing extraction, processing and recycling of critical raw materials in the EU, the act aims at diversifying external supply chains via strategic partnerships and trade agreements. Shortly thereafter, the Net-Zero Industry Act entered into force on 29th June. Reducing regulatory burden and facilitating access to finance shall scale up the manufacturing of clean technologies in the EU.

As outlined in the report by Mario Draghi, the EU’s defence industry has suffered from fragmentation and decades of underinvestment. Thus, the EU has stepped up to boost its defence readiness and enhance its capabilities. On 4th March, the EC published the European Defence Industry Strategy and the associated European Defence Industry Program (EDIP). The proposed regulation reserves a budget of EUR 1.5 billion for actions including industrial reinforcement, cross-border industrial partnerships and common procurement, following a “buy European” approach (see here for an analysis on the CELIS blog).

As a new feature, provision on “security of supply” have been introduced along several recent legislative initiatives, including the CRMA, EDIP as well as in the proposed Internal Market Emergency and Resilience Act. Based on the EU’s competence for harmonization in the internal market under Article 114 TFEU, these rules establish supply chain monitoring and information sharing obligations. Moreover, priority-rated requests and orders under a crisis mechanism may allow for market interventions. In light of the findings by the Niinistö report, there is more to be expected in the upcoming years (e.g. a proposed EU Preparedness Law).

Finally, the political agreement on an EU-Mercosur partnership marks a cornerstone for the “partnering” pillar of the EESS. However, amidst growing opposition among EU member states, the final approval by the Council is anything but set in stone.

IV. Economic Security in Action

In addition to these major policy achievements at EU level, the practical implications of economic security tools become ever more apparent. Newly adopted screening mechanisms and the expansion of existing ones has also led to more screenings and notifications under the EU cooperation mechanism. Nevertheless, this has also been accompanied by growing experience in the regulatory field of FDI screening (see here for a detailed analysis of the EC’s 4th annual review of the FDI Screening Regulation).

2024 also marks one year of practical experience on the Foreign Subsidies Regulation (see here and here for our coverage on the CELIS blog). Designed to tackle distortions in competition caused by subsidized foreign enterprises, it allows the EC to review foreign subsidies in M&As and public procurement, complemented by the possibility of ex officio investigations. In addition to the large number of notifications and first in-depth assessments, several issues including the assessment of distortions and the balancing test remain unclear.

Most media attention received the EC’s probe under the Anti-Subsidy Regulation on imports of Chinese electric vehicles (EVs) (for a very first analysis after the initiation of the investigation on the CELIS blog see here). Following its findings that the entire EV production value chain benefits from subsidies, definitive countervailing duties on imports of EVs from China entered into force on 30th of October. Negotiations on a solution remain intact but the EU and China have both requested consultations under the WTO’s Dispute Settlement Body with respect to the enactment of trade defence measures. Despite the ongoing Appellate Body crisis, the EU’s and China’s membership in the Multi-Party Interim Appeal Arbitration Arrangement (MPIA) preserves the chances for a rules-based international dispute settlement.

V. Conclusion and Outlook

This glimpse into 2024 demonstrates the dynamic nature and accelerating pace of developments in the area of economic security. The new EC in place with its ambitious political guidelines gives a hint on what is to be expected in the near future. As Maroš Šefčovič will be responsible for Trade and Economic Security, an experienced EU commissioner takes the lead on the further implementation of the EESS. With Andrius Kubilius, the EC for the first time has a commissioner for Defence and Space, who is expected to deliver a White Paper on the Future of European Defence within the first 100 days of the mandate. The CELIS Blog is set to continue to provide first-hand analysis of these developments and to contribute to the ongoing debate. With thanks to our readers for their continued interest, the CELIS Blog editors are taking a holiday break and wish a joyful holiday season. We will resume publications on January 15th.

 

 

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