In previous blogs, we have written about the EU-China relationship and how the EU was increasingly focused on delivering its policy of Strategic Autonomy. We are beginning to see the concrete implementation of this strategic intent, with the EU Commission approving a €902 million German State aid measure to support the construction of an electric vehicle battery production plant.  As Margrethe Vestager, EVP for Competition Policy noted, this is the first individual aid to have been approved under the Temporary Crisis and Transition Framework since March 2023 and its approval will keep the battery plant in the EU, rather than it moving to the US.

And the EU is planning to take further measures to enhance and protect its economic security in pursuit of the goal of strategic autonomy. On December 10, the Commission unveiled its Agenda outlining for items to be addressed in early 2024. Of note is the European Economic Security Package (EESP), due for discussion on 24 January.

It had been planned to adopt the EESP by the end of 2023.  However, its adoption faced delays due to Member States’ concerns about ceding authority to Brussels in an area traditionally reserved for national competence. For its part, the Commission argues that a “Europeanization” of the EU trade rules was required to ensure consistency across the bloc following decisions by various Member States to issue their own trade measures (for example, on export controls).

Although full details of the EESP have not yet been released, key components of the EESP will include a revision of the Foreign Direct Investment Screening Regulation and an initiative regulating outbound investments. The Agenda for 24 January also includes a non-binding Communication restricting export of dual-use items.

As noted above, the EESP represents another tool in the EU’s new Strategic Autonomy policy – this one aimed at reducing dependence on products and investments from third countries (with a particular focus on China). The EESP is a core element of the implementation of the EU’s “economic security” strategy set out in Commission President Von der Leyen’s geopolitical blueprint of June 2023 (her speeches of March and April 2023 mark the a notably hardened tone towards investment from China).  The three pillars of the EU’s economic security strategy repose on the promotion of domestic competitiveness; the safeguarding of economic security through innovative trade tools; and the enhancement of cooperation with partner countries.  The strategy explicitly integrates ‘national’ security considerations into EU economic policy – bringing the EU into line with approaches already taken in the US and Japan.

The EESP will enhance the EU’s significant trade protection arsenal and is a further indication of the EU’s determination to seek additional means of protecting EU companies from unfair external competition. A previous example of the Commission’s intent to act in this space is the EU’s Anti-Coercion Instrument (adopted on December 27), which aims to shield the EU and Member States from coercive pressure by third countries by providing a legal basis for an expedited procedure for the EU to take anti-coercion countermeasures (including the ability to impose new customs duties or additional charges on the import or export of goods and services).

The EESP underscores the EU’s commitment to pursuing a new, muscular and transformative approach to trade in a rapidly shifting global landscape marked by the diminishing influence of the WTO; a proliferation of protectionist measures; and the growing utilization of economic policy as a geopolitical instrument. In this evolving scenario, businesses will increasingly need to exercise caution when engaging in global trade, recognizing that strict adherence to WTO rules alone may no longer be sufficient to avoid legal jeopardy in different jurisdictions.

Covington’s unique mix of lawyers, international trade and public policy experts is ideally placed to help clients successfully navigate the complexities of the evolving contemporary international trade environment where the inter-relationship between national security, economic and political policy will be increasingly important to investment decisions.