The European Commission has published a strategy to “ensure economic security”

The European Commission has published a “economic security” strategy aimed at supporting technological development through the introduction of new protective measures. They will affect both trade – for this it is planned to launch a “stress test” of critical supply chains, and investments – here in the EC they propose to strengthen control not only over incoming, but also outgoing investments, primarily in dual-use technologies. These measures, according to the commission, should reduce dependence on countries that can potentially use economic ties for political purposes – it is recommended to increase trade, on the contrary, with countries that share the EU’s concerns.

The European Commission has published a strategy to “ensure the economic security of the European Union”, aimed at reducing risks in supply chains and supporting the technological development of the EU. The EC justifies the need for new protective measures with the risks of “overdependence on countries with different values, models and interests” with reference to the consequences of the conflict in Ukraine, as well as the costs of “economic blackmail”, including boycotts of European brands in order to force manufacturers to comply with political priorities importing country.

The commission admits that the EU was not prepared for the consequences of the complicated geopolitical situation and risks “that did not exist even a few years ago”, while many countries began to actively apply protective measures “to ensure economic security”. Note that there are no legal restrictions on their use, despite the emergence of precedents within the WTO court – due to the blocking of the appellate instance (the United States prevents the appointment of new judges due to China’s refusal to revise the practice of subsidizing companies and informing about it) not a single such decision does not have full force, in fact, the ability of the country to introduce protective measures is limited only by the risks of a response from trading partners.

The strategy prepared by the EC is to be discussed both at the level of individual countries and in the European Parliament, but the commission has already named several specific measures for its implementation: for example, the EC will conduct a “stress test” of supply chains to identify links, the threat of breaking which can be used third countries to put pressure on the EU. The commission also intends to prepare its own list of critical technologies that will fall under additional control (its approval is scheduled for September 2023, and then protective measures will be developed, including from technology leakage).

Also, the EC promises to strengthen the “screening” of investments – since October 2020, the commission and the governments of the EU member states have considered more than a thousand transactions. The document also allows the introduction of control over outgoing investments – for this a “confidential” mechanism will be created between countries. It should be noted that the deterioration of the situation in the economy and the risks of the negative impact of the conflict in Ukraine have already caused a reduction in the volume of both incoming and outgoing direct investments from the EU.

There are almost no new measures in the block related to increasing the competitiveness of the EU – it lists already approved or discussed programs to support high technologies and the “green transition”. The EC proposes to use protective measures, including trade ones, more actively – in particular, by strengthening the analysis of the use of foreign subsidies and export controls, checking the security of supply chains of 5G and 6G technologies. Particular attention will also be paid to exports and investments in quantum technologies, advanced chips, and AI. In addition, the EC proposes to develop friendly ties with countries that “share the concerns and interests of the EU in terms of ensuring economic security” (primarily the G7 countries) and use a mechanism to protect against economic coercion (anti-coercion instrument). ) in relation to those countries that resort to trade protection measures in relation to European companies.

Formally, China is not mentioned in the text of the concept, however, fears of technological competition, as well as the need to apply trade restrictions in the current environment, are probably associated primarily with the risks of expansion of Chinese companies. Thus, the approval of the mechanism against economic coercion, which caused a mixed reaction among WTO members (see “Kommersant” dated June 14), is intended to allow the EC to adopt unilateral trade restrictions in cases of pressure on European business, while Lithuania previously faced restrictions on trade with China after the opening of Taiwan representative office store in the country. Restrictions were imposed on EU representatives and in connection with criticism of the situation in Xinjiang.

Trade disputes, meanwhile, could further dampen external demand for Chinese exports. According to the country’s customs, China’s external trade turnover in January-May decreased in annual terms by 2.8%, to $2.44 trillion, including imports decreased by 6.7%, to $1.04 trillion, while exports grew by only 0.3%, to $1.4 trillion, despite the “opening up” of the economy after the removal of covid restrictions. Other indicators also point to a slower economic recovery. Against this background, the People’s Bank of China yesterday for the first time in eight months lowered interest rates on one- and five-year loans: the first was reduced from 3.65% to 3.55%, the second – from 4.3% to 4.2%, the stimulating effect of these measures, however, will be limited: the growth of lending will be hampered by weak demand for borrowed funds, indicate in Capital Economics.

Tatyana Edovina, Kristina Borovikova