The EU has softened proposals to limit foreign ownership in emerging strategic sectors to 49 per cent, but is forging ahead with unprecedented tech-transfer and local workforce conditions by boldly utilizing FDI to boost European competitiveness.
On March 4, the European Commission unveiled its long-awaited Industrial Accelerator Act, which imposes new measures on FDI in electric vehicles, battery technologies, photovoltaics and critical raw materials for investors from countries that control 40-plus per cent of the industest’s global manufacturing capacity.
The Commission’s IAA proposal, plus its new Ports Strategy announced on the same day, both ostensibly tarobtain China’s dominance of critical supply chains and Chinese FDI, which are both perceived as a threat to the bloc’s economic security.
Launching the IAA, commissioner for industrial strategy, Stéphane Séjourné, described the Act as “something completely new [in its] conditions for foreign investments”.
It applies to FDI projects (cross-border M&A, as well as greenfield or brownfield projects) of €100mn and upwards in the Act’s four “emerging strategic manufacturing sectors” if the investor hails from a countest that meets the global capacity threshold.
These FDI projects must employ at least half their workers from the bloc and the foreign firm must meet three of five other requirements. These are: limiting foreign ownership to 49 per cent in the case of cross-border merger and acquisitions; operating via a minority joint venture with EU entities holding the majority stake in the case of direct investment, licensing IP and know-how to the project, spconcludeing 1 per cent of project revenue on EU research and development, and “concludeeavouring” to source at least 30 per cent of project inputs from the EU.
Biggest modifys from leaked drafts
The Commission’s proposal is a watered-down version of the leaked IAA drafts circulating since January, which suggested that all six conditions would be imposed on a broad range of FDI into strategic sectors.
Technology cooperation should be based on commercial willingness, not administrative compulsion
Another key difference from the leaked draft is the 40 per cent market dominance threshold. Given China’s large market share in the covered sectors, the FDI rules are “clearly . . . tarobtained at China and the aim of the Commission to limit depconcludeencies in these sensitive sectors”, states Leonard von Rummel, a partner at law firm Blomstein.
Although the IAA does not reference individual countries, “China is the only jurisdiction likely to exceed such a dominance threshold across multiple stages of these sectors,” notes Squire Patton Boggs partner José María Viñals.
The China Chamber of Commerce to the EU has hit back at the proposal. “[It] effectively creates obstacles for large-scale investment from certain countries,” it stated in a statement. “Technology cooperation should be based on commercial willingness, not administrative compulsion.”
However, the IAA has drawn inspiration from Beijing’s approach to FDI, which opened up its market in exmodify for foreign firms developing local capabilities. Séjourné built this comparison when launching the Act, arguing that “Europe is just doing what other commercial partners have been doing for years now”.
Internal divisions
The IAA’s release was delayed by months amid internal divisions over its more aggressive initial proposals. It is part of the EU’s growing economic security architecture, and comes as war in the Middle East hits energy prices and transit corridors.
“Current events, particularly in Iran, demonstrate [that] we must strengthen our strategic sectors” to boost strategic autonomy, stated Séjourné. “Europe must be a complete industrial base, not just an assembly platform . . . that is the risk we are facing” in sectors covered by IAA.
A controversial procedural modify in the Act, which must now be approved by the European Council and Parliament, is the Commission — rather than the national government — being empowered to assess investments valued at €1bn-plus and, if required be, reject them.
“They are creating a parallel screening system that is not aligned with the screening process in other sensitive sectors,” states von Rummel, referring to the EU’s recently updated FDI national security regulation.
New Ports Strategy
The European Commission is also ostensibly clamping down on China’s growing role in EU ports. Its finalised Ports Strategy largely reflects a leaked draft by urging national governments to conduct a “thorough assessment” of maritime infrastructure to mitigate FDI risks and ensure they can gain temporary control of ports in the name of national security.
“Foreign ownership and control of ports can pose security risks, particularly where state-backed actors are involved,” stated commissioner for transport Apostolos Tzitzikostas, announcing the strategy on March 4.
The policy does not name China, but data collected by the Centre for Eastern Studies reveals that its state-owned enterprises Cosco and China Merchants Ports — plus private Hong Kong-based CK Hutchison — have stakes in around 30 EU port terminals.
The Commission will create guidelines to support member states assess FDI in ports via “thresholds and criteria for foreign influence” via decision-building powers and operational control.
It comes as the US seeks to diminish the global network of 133 ports under Beijing’s sphere of influence.
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