Annexes to COM(2024)24 - WHITE PAPER on Outbound Investments - Main contents
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This page contains a limited version of this dossier in the EU Monitor.
| dossier | COM(2024)24 - WHITE PAPER on Outbound Investments. |
|---|---|
| document | COM(2024)24 |
| date | January 24, 2024 |
Time Period covered and Information to be collected
5. With regard to the time period covered, in order to develop a sufficient basis to identify and assess the level of outbound activity and associated risks within a reasonable period of time, the Commission considers that the monitoring should cover both new and ongoing transactions and certain past transactions. This should involve Member States assessing transactions in the selected technology areas completed since 1 January 2019. Comments are also invited on this suggested time period.
6. With regard to information to be gathered, the proposed monitoring should provide Member States and the Commission with the necessary data and information in order to assess risks linked to outbound investments in the selected technology areas. This data and information should be shared with other Member States and the Commission through the Expert Group. The Commission invites comments on the information to be gathered as set out in the box below.
The monitoring should enable Member States to gather all necessary information for the risk assessment, including as minimum:
- Information on the parties to the investment transaction, including the full place of incorporation of legal persons and (based on the best information available to the Member State) the ultimate owner(s) of any parties involved in the transaction,
- the type and approximate value of the investment,
- the products, services and business operations related to critical technologies concerned by the investment,
- the date on which the investment is planned to be completed or has been completed,
- based on the best information available to the Member State, information about previous and planned or contemplated future transactions entered into by the parties to the investment transaction.
Regarding other related activities, that could be subject to the optional monitoring, this information could at a minimum include:
- information on the persons involved in the activity, including the full name, address and nationality of natural persons or the registered address and place of incorporation of legal persons,
- based on the best information available to the Member State, an exact description of the activity,
- the critical technologies concerned by the activity,
- the date on which the activity has commenced, is foreseen to commence, or has ended,
- based on the best information available to the Member State, information about previous and planned or contemplated future activities undertaken by the same persons involved in a current activity.
Any data collected should be protected appropriately and, where necessary, classified before being shared with other Member States and the Commission.
Other aspects of monitoring: who is responsible at a national level, what tools should be used and how will Member States ensure stakeholder involvement?
7. In order to ensure that monitoring work can be taken forward, the Commission is of the opinion that Member States should designate an authority responsible for the monitoring and should ensure that the competent national authorities, where possible, apply existing instruments, including dual-use export controls, to counter any risks they have identified in the monitoring to be recommended.
8. Monitoring tools and exchange with stakeholders: for the monitoring process to be effective, Member States will need to ensure that they have adequate monitoring tools and sources of information, and if this is not the case, they should consider adapting existing tools or put new ones in place for the purpose of the proposed monitoring activities set out above.
Existing monitoring and other tools that could be used or adapted for this purpose include reporting obligations to central banks or national statistical offices and similar institutions for statistical and balance of payment purposes, notification requirements to national export control authorities for the export, brokering, technical assistance, transit and transfer of dual-use items as well as any investment transactions. Member States should also consider official investment guarantee schemes or official export credits schemes as a source of relevant data. Any data collected should be protected appropriately and, if appropriate, classified before being shared with other Member States and the Commission.
Comments are invited on the tools that might be needed for effective monitoring, their feasibility and the balance to be struck in terms of the burden that such information collection may represent and the need to ensure a sufficient basis to monitor and assess outbound activity and risks in the sectors selected. In addition, the Commission considers it will be important for Member States to consult relevant stakeholders, including business, academia and civil society as part of their monitoring activity.
2. Risk assessment by Member States
Drawing on the results of the proposed monitoring, the Commission considers that Member States should perform the following initial risk assessment to identify either the presence or the absence of risks to security. The assessment should be based on the information gathered by monitoring outbound investments, and possible additional activities that they choose to monitor, as specified above.
To structure the risk assessment, the Commission believes that the following elements could guide the assessment by Member States.
- The assessment should be as comprehensive as possible. Work should give priority to those transactions or activities which would present a risk for the security of the EU as a whole and it should also try to assess the degree of likelihood that any negative impact materialises.
- The assessment should identify elements of risks and potential vulnerabilities such as the main types of threats and threat actors and any relevant geopolitical factors.
- The assessment should take into account, inter alia, the context of the transaction, the value chain and supply chain of the technology involved, the evolution of risks as well as relevant technological developments, and the global interconnectivity of the ecosystem of the critical technology concerned, including research activities.
- Member States could consider following similar methodologies to those used in reviewing dual-use export licence applications and for screening foreign direct investment transactions.
This risk assessment should enable each Member State to identify and analyse vulnerabilities that may have a potential impact on the security of the EU as a whole or on Member States’ security, and the likelihood of a related adverse impact materialising. The elements above to frame the risk assessment will be further developed in the future Commission Recommendation taking into account the ongoing work in the Expert Group with Member States, the results of the public consultation and the reactions to this White Paper, with a view to develop a common methodology. This will ensure a consistent and EU-wide risk assessment from all the Member States. Where possible, Member States and the Commission should look for synergies between different assessments of security risks under the framework of the Joint Communication.
3. Reporting to the Commission and other Member States
Time will be needed for Member States to establish monitoring of new and on-going transactions and to assess on the basis of available information what has happened since 2019. The Commission therefore proposes that Member States conduct this monitoring within a 12 month-period from the adoption of a Commission Recommendation. This period, combined with the initial consultation stage up to summer 2024, should allow them to put such a monitoring system in place and carry out their initial assessment. During this time, Member States and the Commission would continue exchanging information and views in the framework of the Expert Group to ensure that, to the extent feasible, the monitoring and risk assessment follow a common methodology.
Member States should report to the Commission and other Member States on the outcome of the monitoring and the outcome of their analysis and risk assessment. If risks related to a combination of certain factors or patterns that characterise any types of outbound investments likely to affect EU or Member States’ security are identified, Member States should provide the Commission with the combinations of risk factors and describe these patterns.
4. Joint assessment and debate
The Commission proposes that the outcome of the monitoring and risk assessment to be undertaken by Member States is to be shared with the Commission and the other Member States, in accordance with the appropriate classification level. Based on the shared input, the Expert Group would discuss the outcome of the monitoring and risk assessment with a view to consolidate the overall results and help the Commission prepare a final comprehensive risk assessment and ensure a shared understanding of risks. Other stakeholdrs may be also consulted at this stage, as appropriate.
This will be a useful reference point for any debate on further policy choices and the possible need for mitigating measures or other policy responses.
5. Review of dual-use export license applications in the context of outbound investments, consultation among Member States and information to the Commission
In parallel to the proposed monitoring and review, in light of the close links explained in Section 1 above between dual-use export controls and outbound investments, the Commission is of the opinion that Member States, when reviewing licence applications for exports of dual-use items, should pay particular attention where such applications are linked to outbound investments, and any risks these may present. This could offer useful insights for the monitoring work.
Since priority should be given to the use of existing instruments, the Commission considers that Member States should in such cases give particular consideration to applying existing instruments to address potential concerns when relevant, including “catch-all”11 export controls, to mitigate the risks of such technology contributing to destabilising military application, proliferation of chemical, biological or nuclear weapons, or human rights violation, that could create a threat to international and regional peace and security.
To the extent legally possible, the Commission invites Member States’ export control authorities to consider consulting with other Member States and informing the Commission, when reviewing dual-use export licence applications in the context of outbound investments in the four critical technology areas, which are likely to have an impact on the security of other Member States. This consultation could be done informally and modelled on the cooperation mechanism established for foreign direct investment screening under Regulation (EU) 2019/452.
Within the same deadline as the monitoring exercise, the Commission proposes that Member States report to the Commission and to other Member States on the implementation of export controls in this context, including on the number and content of licence applications received for exports taking place specifically in the context of an outbound investment. During this period, Member States and the Commission will continue exchanging information and views on these matters in the framework of the Expert Group.
4. CONCLUSION
This White Paper maps out the first policy initiative, which the Commission takes in the field of outbound investments. Recognising its complex and sensitive nature, the Commission proposes a gradual approach, working closely with the Member States’ authorities through the Expert Group on Outbound Investment
In order to structure responses to the ideas set out in this White Paper, the Commission is launching a public consultation based on a detailed questionnaire that stakeholders, including business, academia and civil society are invited to fill out.
It will only be possible to design adequate responses to protect the security of the EU and its Member States on the basis of comprehensive assessments. In shaping such responses, priority should be given to making full use of existing instruments rather than establishing new ones. Any responses should be proportionate, precisely targeted and enforceable to address the risks identified for each type of outbound investment or activity and critical technology area.
Work in the Expert Group on Outbound investment will continue in 2024 together with the consultation of stakeholders. The Commission will also seek the views of the European Parliament and like-minded partner countries.
Timewise, the next steps are therefore the following:
- January 2024: adoption of the White Paper on outbound investments;
- January – April 2024: public consultation on the proposed monitoring and review of certain existing outbound investments and related activities;
- Summer 2024: assessment of the results of the consultation and adoption of a Commission Recommendation to Member States to launch the proposed monitoring and review;
- Summer 2025: conclusion of the proposed monitoring and review by Member States and risk assessments of outbound investment transactions;
- Autumn 2025: Assessment by the Commission of the need and possible content of policy responses in this field.
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1 Joint Communication to the European Parliament, the European Council and the Council an “European Economic Security Strategy”, Brussels, 20.6.2023, JOIN(2023) 20 final.
2 Pursuant to certain conditions established by the “Foreign Exchange and Foreign Trade Act (Act No. 228 of 1949)”. The Japanese outbound investment controls apply to investments in very few sectors: fisheries, leather and leather products, weapons and weapons equipment manufacturing, and narcotic drugs.
3 In China, existing legislation includes the “Administrative Measures for Overseas Investment by Enterprises, by the National Development and Reform Commission (2017, No. 11)”, the “State Council Guidance on Overseas Investments (2017, No. 74)”, which identifies encouraged, restricted and prohibited outbound investments, and the “Catalogue of Sensitive Industries for Overseas Investments, by the National Development and Reform Commission (2018, No. 251)” which lays out the sensitive industry sectors for overseas investments. These include weapons and related equipment, water resources, news media, real estate, hotel, cinema, entertainment industry, sports clubs and certain equity investment funds. We understand that the various Chinese licensing and registration requirements related to outbound investments not only serve the interests of national security and foreign trade control, but also the broader “national interest”. China also restricts foreign currency exports under the State Administration of Foreign Exchange. Thus, it appears that the Chinese outbound investment controls cover a wide set of economic sectors and a substantive test that goes potentially beyond a pure security assessment.
4Executive Order 14105 of August 9, 2023, Advance notice of proposed rulemaking of 14 August 2023.
5 Including the separate, but to some extent related, risk assessment on the four prioritised critical technologies following the Commission Recommendation C(2023) 6689 final of 3 October 2023 on critical technology areas for the EU's economic security for further risk assessment with Member States.
6 Source: Pitchbook data extracted in July 2023. Notes: (1) the data cover only M&A deals and VC investments, as greenfield investments are not included in the consulted commercial database(s); (2) the monteray amount for M&A deals is incomplete as values were only available for half of the deals; and (3) VC transactions are counted where at least one EU investor was involved, but it could be part of a group of non-EU investors and the total amount invested is the one reported, without further identification of the amount(s) of the relevant EU investments.
7 Register of Commission expert groups and other similar entities (europa.eu).
8 Some legislation allows Member States to (partially) monitor outbound investment transactions, like balance of payment statistics gathered by Central Banks, national registries aimed at monitoring outbound investments for statistical purposes and similar legislation, e.g., Spain’s national regime established by Royal Decree 1265/1986 of 27 June 1986, Chapter VI, updated with Royal Decree 664/1999 of 23 April 1999 and with Royal Decree 571/2023 of 4 July 2023. Further information may be gathered through official investment guarantee schemes, e.g., the investment guarantee schemes of Germany and Austria. In Germany this is managed by PwC on behalf of the Federal Ministry for Economic Affairs and Climate Action, while in Austria it is managed by a bank (OeKB) on behalf of the Federal Ministry of Finance. Some national mechanisms enable Member States to control very specific instances of outbound investments for security purposes (e.g., Italy’s Golden Power regime, pursuant to Law Decree No. 21/2012, which contains some provisions allowing the screening of limited types of outbound investments).
9 Proposal for a Council Recommendation on enhancing research security COM(2024) 26 of 24.1.2024.
10 C(2023) 6689 final.
11 “Catch-all” controls are generally understood to be controls that are applied by Member States to items that are not listed in Annex I to Regulation (EU) 2021/821 (the “Dual-Use Regulation”), the so called ‘EU control list’, so the controls apply to items that have not yet been agreed under the multilateral control regimes. Most notably, Article 4 of the Dual-Use Regulation requires exporters to seek an export authorisation if they are informed by the competent Member State authority that an item that they export may be intended for one of certain sensitive end-uses detailed in Article 4. Such information generally takes the form of a non-public individual notification to the relevant exporter.
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