Export and FDI controls playing ‘critical role’ in European security

The European Union has published a report on the implementation and application of export controls and foreign direct investment (‘FDI’) screening in the European Union, explicitly twinning the two as playing ‘a critical role in safeguarding European security and public order’.

The report provides information on the implementation of EU export controls for dual-use items in 2021 along with aggregated export control data for 2020. It gives a useful overview of measures that the EU and its Member States have taken in recent years to promote trade security. It notes for example that:

• Amendments were last made to the EU control list in 2021, and that the amendments related ‘in particular to the control of biocontainment chambers, isolators, or biological safety cabinets …in order to include any isolator meeting all of the characteristics mentioned in the description of the item, regardless of its intended use and its designation,’ whilst also introducing ‘a change to the definition of “superalloys”, in order to specify the ultimate tensile strength of such materials.’
• As regards Northern Ireland, following the UK’s departure from the European Union on 1 January 2021, ‘[T]he Commission developed a dedicated secure electronic tool to support the exchange of information with the UK competent authority in charge of applying the [EU Dual-Use] Regulation in and from Northern Ireland. This enables this authority to access information on denials for essentially identical transactions issued by the EU Member State, and have bilateral consultation with issuing Member State, as foreseen by the Regulation.’
• The Commission has ‘continued to develop the Dual-Use e-System (DUeS) as the IT backbone of the EU export control network.’ 2021 ‘marked the first year of operation of the dual-use eLicensing system, with its introduction in two Member States – Latvia and Romania. eLicensing allows competent authorities and exporters to administer controls on-line more efficiently and reduce the administrative burden associated with controls.’
• As regards implementation and enforcement, it found that ‘the EU export control network – comprising staff in Member States’ licensing competent authorities and the Commission – consisted of over 345 staff,’ and that, with ‘respect to enforcement at a national level, 78 breaches of export control regulations were recorded in 2020, while eight 8 administrative penalties and seven criminal penalties were applied by national law enforcement authorities.’

As regards FDI screening, key findings from the report (the second since the promulgation of the EU’s FDI Regulation) are that:

• The vast majority of FDI ‘poses no problem from a security/public order perspective and is approved swiftly (both at Member State level and under the Regulation).’
• The Commission ‘completed the assessment of FDI transactions notified by Member States very quickly: 86% were assessed in just 15 calendar days.’
• The ‘EU mechanism does not hold back the EU’s openness to FDI. With less than 3% of transactions resulting in a Commission opinion, the focus remains on security and public order.’
• ‘The top five countries for the ultimate investor notified in 2021 were the US, the UK, China, the Cayman Islands and Canada.’
• ‘Most cases notified concerned manufacturing (44%) – covering a diverse set of industries including defence, aerospace, energy, health and semiconductor equipment, and Information and Communications Technologies (32%).’

https://ec.europa.eu/commission/presscorner/detail/en/ip_22_5286