Articles Posted in EU Investment Screening

On January 16, 2025, the European Commission issued a recommendation encouraging EU Member States to begin reviewing outbound investments in critical technologies including AI, semiconductors and quantum technologies to assess whether such transactions pose risks to EU economic security (the “Recommendation”). The Recommendation constitutes a call for Member States to establish or adapt existing investment screening mechanisms in consultation with relevant stakeholders. The  underlying objectives of the Recommendation are to: (i) ensure the protection of home-grown EU technologies that could bolster military or intelligence capabilities of adversarial states; and (ii) foster a fact-based understanding of the risks posed by outbound investments.

Background

This development follows from the EU’s adoption of its Economic Security Strategy (EES) in January 2024. The EES constituted a major initiative by the EU Commission to address vulnerabilities in the bloc’s national security strategy in light of escalating geopolitical tensions, the current state of significant global economic integration, and the development of sensitive technologies. It called for and envisioned a move towards several objectives, including assessing the need for an EU outbound investment review mechanism.

This latest step follows on from similar initiatives on the other side of the Atlantic. For example, the U.S. recently adopted outbound investment screening measures focusing on sensitive technologies such as semiconductors, artificial intelligence (AI) and quantum computing (see our discussion of this update here). As highlighted further below, the Recommendation serves as another example of coordination between the EU and the U.S. in relation to national security and trade policy measures.

The Assessment Framework Outlined in the Recommendation

In actioning the Recommendation, Member States are instructed to consult with relevant stakeholders (including businesses, academia and civil society) and to focus on outbound investments in the same sectors as those covered by the U.S. outbound investment screening measures, namely: semiconductors (including their design, manufacturing and input materials); AI (especially generative AI with applications in the biotechnology, space and defense sectors); and quantum technologies (including in relation to quantum computing, communications and sensing).

The Recommendation further suggests that Member States should review:

• current and new transactions as well as past transactions completed since January 1, 2021 (or earlier, if a Member State considers that a transaction poses a particular concern);
• transactions entered into by “EU Investors” (i.e., persons resident or established in the EU), including mergers, acquisitions, transfers of assets, greenfield investments, joint ventures, and certain non-controlling / minority investments;
• indirect transactions (e.g., where made through an entity established in a non-EU jurisdiction or in the context of a joint venture with a non-EU entity); and
• transactions that entail a gradual transfer of assets over time, amongst other types of transactions.

Key risks that Member States are advised to assess for when screening outbound investments include:

• the potential impact of the transaction on EU economic security taking into account whether the entities engaging in the transaction participate in EU projects or programs (i.e., collaborative projects or programs funded at EU level, involving organizations across Member States, and aimed at achieving EU policy objectives), where relevant; and
• the risk of technology leakage taking into consideration the main types of threats and threat actors, relevant geopolitical factors and behavioral patterns in relation to technology acquisitions, where relevant to the likelihood of negative impacts on EU economic security.

The Recommendation states that when conducting risk assessments, Member States should take into account aspects of transactions such as: their context; the maturity level and general availability of the technology in question in the country targeted by investment; the value chain and supply chain of the technology involved; how the technology may develop and its potential use cases; the extent to which the ecosystem of the technology is interconnected and whether the company in question participates in any EU projects or programs.

The Commission notes that the EU Expert Group on Outbound Investment established in July 2023 is working to develop a common methodology for assessing outbound investment transactions. Member States are encouraged to follow this when it is available.

Reporting on Actions Taken

The Recommendation also urges Member States to exchange information about how they are implementing the actions outlined in the Recommendation, to report on the progress of their work in this regard to the Commission by July 15, 2025, and to submit a comprehensive report on the same to the Commission by June 30, 2026. Where Member States identify any key risk factors relating to outbound investments that are likely to affect the EU’s economic security, details should be provided to the Commission.

Takeaways

The Recommendation stops short of introducing a formal outbound investment screening mechanism at the EU level but is a warning that there may be one to come, depending on feedback following implementation of the Recommendation by Member States.

EU companies engaging in outbound investments involving critical technologies should be aware that such transactions are likely to come under increasing scrutiny under national laws of Member States in the near term.