The European Commission (Commission) has published a recommendation to Member States to monitor and review outbound investments from the EU to any non-EU country involving transfers of semiconductor, artificial intelligence (AI), or quantum technologies (together, SAIQ technologies). This information-gathering exercise will help the Commission assess whether it should propose EU outbound investment screening rules in sectors perceived to be at risk of technology leakage. The initial monitoring period is for 18 months and should cover investments dating back to January 2021. EU investors and companies dealing in SAIQ technology may thus be asked to share information about their past and future investments outside the EU.
Assessing the Need for EU Outbound Investment Screening Is Part of EU Economic Security Strategy
The recommendation has been issued in the context of the EU Economic Security Strategy of June 2023 and five related initiatives published in January 2024: (1) strengthening inbound investment screening (FDI) rules, (2) enhancing EU export control rules, (3) assessing the need for EU outbound investment screening rules, (4) scaling up dual-use and advanced technology research, and (5) protecting research and innovation from various security threats.
The recommendation thus aims to assess the need for EU outbound investment screening rules, which could subject certain investments from the EU to third countries to a mandatory approval process similar to the existing screening processes for investments into the EU.
The Recommendation Is Limited to Semiconductor, AI, and Quantum Technologies
The EU asks Member States to gather information, monitor, and review outbound investments in three sectors:
- Semiconductor technologies: any technology or know-how related to, for instance, the design of integrated circuits and other semiconductors (including intellectual property); electronic design automation software; assembly, testing, and packaging; manufacturing equipment (including core components or software); and other materials used in fabrication.
- AI technologies: any technology or know-how related to a machine-based system designed to operate with varying levels of autonomy and that may exhibit adaptiveness after deployment. This includes technologies that, for explicit or implicit objectives, infer general outputs from the input received and used for generative AI systems.
- Quantum technologies including quantum computing, quantum communications, and quantum sensing.
Notably, the recommendation does not extend to other strategic areas initially identified in the EU Economic Security Strategy as being at risk of leakage, in particular biotechnologies.
The Recommendation Covers a Wide Range of Investments but Excludes Noncontrolling Financial Investments
The monitoring and review activities of Member States should cover a broad range of investments, including acquisitions, mergers, asset transfers, licensing agreements, greenfield investments, joint ventures, and the provision of capital. These investments are covered even where the EU investor acts indirectly, through a third-country entity used as investment vehicle. In contrast, noncontrolling investments that are purely limited to seeking a return on invested capital are excluded at this stage.
The Recommendation Encourages Reviews of Transactions Going Back to 2021 or Earlier
The review is both prospective and retroactive. In addition to reviewing any ongoing and newly covered investments, it encourages Member States to review transactions completed since January 1, 2021, or prior to that date if they raised particular economic security concerns. The recommendation does not specify whether the review and related risk assessment should occur prior to the completion of covered investments or afterwards.
The Recommendation Is Different in Scope to the U.S. Outbound Investment Screening
The United States recently restricted outbound investments into certain China-affiliated companies active in semiconductors, microelectronics, quantum information technology, and AI (see our Sidley December 2024 Update here). Whereas U.S. outbound investment screening focuses only on investments into certain Chinese companies, the recommendation takes a country-neutral approach.
Next Steps
Member States will be required to monitor and review outbound investments involving SAIQ technologies. They must provide the Commission with a progress report on the review by July 15, 2025, and a comprehensive report on the outcome of the review and risks identified by June 30, 2026.
To comply with the recommendation, Member States are expected to set up a voluntary or mandatory mechanism to collect information about relevant investments (such as identity of the parties to the investment transaction; type and value of the investment; products, services, and technology concerned by the investment) and consult stakeholders (including business, academia, and civil society) as part of the review. As most Member States lack a mechanism to systematically collect information on outbound investments, it is still unclear how the monitoring and review mechanism will apply in practice.
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