European Commission urges member states to review outbound investments in three key technology areas

Background

The EC has said that the Recommendation is intended to safeguard the EU's economic security by protecting critical technologies and expertise. It is part of the broader EU Economic Security Strategy that was announced in a Joint Communication in the Summer of 2023. In January 2024, the EC also adopted a White Paper on outbound investments, followed by a public consultation, the results of which were published in July 2024.

These steps laid the groundwork for the Recommendation, as a result of which Member States are expected to conduct a thorough review of relevant investments and provide a comprehensive report by mid-2026.

Scope and purpose of the Recommendation

The Recommendation specifically addresses the scope of technologies for review, the tools for conducting these reviews and exchanging information with stakeholders, and the information that should be gathered (including details on the parties involved in the transactions, the nature of the investments, and any associated risks). The Recommendation also provides Member States with guidance on how to analyze these risks and their reporting obligations, ensuring a comprehensive approach to safeguarding the EU's economic security. The Recommendation states that Member States’ reviews should cover ongoing transactions as well as those completed since January 1, 2021 (and even deals completed prior to that date where Member States identify particular concerns), but exclude non-controlling investments limited to seeking a return on invested capital. As part of the Recommendation, Member States are also encouraged to consult relevant stakeholders, including businesses.

The sectors under review are currently limited to semiconductors, quantum technologies, and artificial intelligence. Each sector has its own definitions and lists of relevant products. In October 2023, the EC published a recommendation on critical technology areas, which included biotechnologies. However, biotechnologies do not appear in the Recommendation, apparently mirroring the applicable scope of the US Outbound Investment Screening Program.

The EC’s rationale includes concerns over technology leakage and the potential for outbound investments to undermine international peace and security. However, an in-depth review of outbound investments is considered crucial to understand the scope of the risks involved and the ways in which outbound investments may undermine the EU’s economic security. Member States are asked to submit a comprehensive report to the EC - and other Member States - on the implementation of the Recommendation by July 15, 2025, including details of any specific investments identified as given rise to potential risks to economic security. The EC has said that these reports will allow the EC to close the “knowledge gap” on EU outbound investments, accurately map the security risks that these investments potentially raise and assess whether further action is required to mitigate these risks.

Implications

Although the Recommendation does not prejudge the outcome of the Member State reviews and the EC’s own response, it is arguably no coincidence that it follows the entry into force of the US Outbound Investment Screening Program on January 2, 2025.

It is now up to the Member States to establish mechanisms to collect relevant information and assess the risks of outbound investments. As the Recommendation gains traction and is implemented by Member States, we expect that companies will most likely need to comply with additional reporting requirements at national level.