Home » Brussels seeks new controls to limit China acquiring high-tech

Brussels seeks new controls to limit China acquiring high-tech

The EU is exploring ways to police how European companies invest in production facilities overseas, following similar US moves to limit the ability of China and other rivals to acquire cutting-edge technologies from the west.

Valdis Dombrovskis, the bloc’s trade commissioner, told the Financial Times that new restrictions were needed to prevent companies circumvent export bans on sensitive technology by manufacturing it elsewhere.

The EU has prohibited its companies from selling products that could help Russia’s armed forces in their war in Ukraine, but re-exporting loopholes remain.

The new measures would come against the backdrop of Washington having long pressed its allies to follow its export bans on sensitive technology to China. After months of direct negotiations with the Biden administration, the Netherlands said last week it would bar the most advanced silicon chip making machines from reaching China.

The White House is working on an act that would establish an outbound FDI screening agency with a narrow scope to prevent offshoring production, after the US Congress has so far failed to agree on a text with a broader scope.

“Outbound investment controls are the other side of the coin of export controls,” Dombrovskis said. “Because you can effectively ban exports of so-called dual use technologies — which we have done for instance to prevent feeding Russia’s war machine — but that still leaves room for the leakage of sensitive technologies through investments on the ground.

“So we need an EU-wide discussion on how to capture this possible circumvention in a way that achieves the desired result, but being very mindful of any unintended consequences on financial markets and on the EU’s own investment environment.”

Officials acknowledge that plans are at an early stage and could take years to implement in the face of member state scepticism. They are in charge of export and investment controls and countries such as the Netherlands and Germany want to preserve their deep economic ties with China. Bulgaria does not even screen inward investment. But Russia’s war in Ukraine has led to greater collaboration.

European countries are broadening their definition of economic security after years of laissez-faire economics left them exposed to Russian energy blackmail and Chinese inputs for the green transition, officials say. The bloc is getting closer to the US approach of seeking to retain key capabilities and a technological edge over rivals.

In 2020 new rules obliged governments to notify Brussels of inbound FDI that could threaten security or public order.

In 2021 member states submitted 414 notifications under the FDI Screening Regulation to the commission, 10 per cent of the 4,000-plus transactions in the EU that year, according to an annual report. They are advised, but not bound, to follow commission opinions.

Overall only 1 per cent of all EU cases were blocked and 3 per cent withdrawn by the parties after questions were raised.

A quarter received clearance with conditions attached and the rest were approved. The IT and manufacturing sectors were most likely to be screened.

Dombrovskis also said the EU needed a more joined-up approach to export controls, especially as international forums, which used to enforce the rules, are blocked by Russia’s presence.

“We face a rapidly evolving geopolitical and technological environment characterised by new risks. These come from ‘emerging’ technologies such as high-end semiconductors, AI, quantum, hypersonics and biotechnologies,” the Latvian politician said.

“At the same time, current approaches to export controls in the EU are under pressure. Events in Ukraine have also highlighted the risk of member states adopting national controls without much co-ordination to address their pressing ‘national security’ considerations.”

He said that would initially involve an “EU approach” with governments aligning their controls.

“In the medium term, we need to reflect on how we could reinforce the EU framework and create the capacity to adopt proper EU-level export controls, while respecting the priority given to the adoption of controls, whenever possible, by the multilateral export control regimes,” Dombrovskis said.

Some EU officials are pushing for this to give the region more bargaining power. The Netherlands announced the introduction of export licences for the “most advanced” chipmaking tools after heavy US pressure, with Belgium prime minister Alexander de Croo accusing Washington of bullying.

Dutch trade minister Liesje Schreinemacher has urged other EU countries to follow The Hague’s upcoming rules, to be outlined in the next few months. But she made clear last week that co-ordination was the most Brussels should do, as decisions on export controls remain firmly in national hands.