BRUSSELS — European Union member countries want to gut a list of critical technologies that would be subject to foreign direct investment (FDI) screening, three EU diplomats told POLITICO, in a move that could make it easier for them to fall into the hands of unfriendly powers like China.
According to a compromise text prepared by Hungary, which currently chairs the intergovernmental arm of the EU, the list no longer includes semiconductors, artificial intelligence or other strategic technologies that European Commission President Ursula von der Leyen wants to be subject to bloc-wide scrutiny.
As part of an economic security strategy that is one of von der Leyen’s signature initiatives, the Commission in January proposed to revise the rules governing how EU countries scrutinize inbound investments into the bloc. The review mainly seeks to harmonize investment screening, and would make it mandatory for countries to have national systems in place.
In the Hungarian text, negotiated line-by-line between the bloc’s 27 member countries and presented last week, an earlier list of critical sectors was deleted, said the three diplomats, who were granted anonymity to discuss the confidential deliberations. This would narrow the scope of deals that would, under the proposed rules, have to be notified to other EU countries and the European Commission.
“It is more a risk for Europe than a gift to China — especially at a time where risks don’t come only from China,” said Francesca Ghiretti, an expert on EU-China relations and FDI screening at Rand Europe, who has published extensively on the subject.
Still, it’s notable that the proposal was diluted during the presidency of Hungary, which is one of the most pro-China governments in the EU, and which has thrown its doors open to Chinese investments into the production both of electric vehicles and the batteries needed to propel them.
Sins of omission
In an annex to its original proposal, the Commission said that EU countries would be required to screen foreign direct investments into artificial intelligence, semiconductors, quantum technologies, energy technologies, space, drones or critical medicines. Screening would also be required if the foreign investor poses a security concern — such as if it is owned by a third country or is subject to EU sanctions.
Scrapping that annex would allow EU countries to retain more control over sensitive technologies and determine what investments warrant screening — a key area of concern for capitals that are wary of overreach by the Commission into their national competence.
According to Ghiretti, however, it would make more sense for EU member countries to focus on making the screening more efficient — and thus less of an obstacle to investors — than on narrowing its scope.
“Screening doesn’t mean blocking. Screening means being aware of what happens inside your borders. And if the problem is that screening processes are too long and disincentivize investments, then that should be the target of the action — not which sectors to cut,” Ghiretti added.
Negotiations are still in their early stages on finding a common position in the Council of the EU, and this is likely to evolve under the Polish presidency which starts in January. Once EU member countries have reached an understanding, interinstitutional talks would begin with the European Parliament on finalizing legislation.
There have been examples of EU countries reviewing foreign investments involving sensitive technologies, such as microchips. Using the country’s investment screening law, the Dutch government probed a Chinese-owned firm’s takeover of a Dutch-based microchip startup in 2023. The acquisition was cleared in the end.
Over at the European Parliament, the work, shepherded by French Socialist heavyweight Raphaël Glucksmann, isn’t yet as advanced. A first report on the file is expected mid-January with a view to adopting the Parliament’s own position by April.
A Hungarian presidency spokesperson declined to comment on the progress of the talks.
Pieter Haeck contributed reporting.
The post EU capitals try to gut investment screening rules aimed at keeping China out appeared first on Politico.
