EU Still Has Work to Better Manage Tech Transfers, Panelists Say

Although the EU is trying to reform its approach to export controls and other economic security issues, there still are loopholes in the bloc’s rules that allow technology to be illegally exported to China and elsewhere, EU policy experts said this week.

Mathieu Duchâtel, an Asia policy expert with the French think tank Institut Montaigne, said Europe has made “a lot” of progress over the last five years “when it comes to managing technology transfers to China in particular.” But he said the lack of common export control and foreign investment review rules across member states is preventing the EU from aligning its measures with the U.S., and it may be allowing sensitive technology exports to dangerous military end-users.

“We have a toolbox in place, but this toolbox has some loopholes,” Duchâtel said during a March 19 event hosted by the Information Technology & Innovation Foundation. Although the European Commission can issue export control guidance and take other steps to “move the agenda forward,” he stressed that the decision to block an investment or deny an export license still lies with each individual EU member state.

“We have issues" preventing the diversion of export-controlled goods, he said, adding that Europe is trying to better share information and resources to better stop export-controlled technologies from going to military end-users. But Duchâtel said he's hopeful those issues will soon be fixed through regulatory changes.

“There is a new awareness in Europe and there is a new emphasis on using our existing instruments to better enforce controls of technology transfers,” he said.

The EU is hoping to close some of those gaps through proposals it launched in January as part of its economic security strategy (see 2306200052 and 2401240078). One proposal would require every member state to put in place a foreign direct investment screening mechanism, as opposed to the current patchwork of FDI restrictions that aren’t mandatory and are imposed by just over 20 countries (see 2310200038).

Until that proposal and other measures to expand FDI restrictions are put in place, Duchâtel said, the EU will struggle to prevent “technology leakage.” He said each country should have a similar understanding about what investments can be screened.

“Can we have a common scope shared by all 27 member states? And what do we do when one entity in member state A invests in member state B, but is in fact controlled by a third party outside the EU?” he said. “So these are the loopholes that currently exist in the European system.”

Duchâtel also pointed to issues plaguing EU export controls. Even though the bloc puts in place export control updates agreed to at the multilateral Wassenaar Arrangement, it struggles to make progress on new controls that are instead proposed by an individual member state. He pointed to the Netherlands, which has pushed for EU-wide controls for certain advanced semiconductor manufacturing items (see 2303090032).

“It's a complicated process,” Duchâtel said. “How can we ensure that member states of the European Union can do better and faster in updating” export controls?

Reinhard Bütikofer, a member of the European Parliament from Germany, noted that some countries don’t necessarily want the bloc to mandate stronger economic security measures. He said there’s “a political hole at the center of Europe with regard to these economic security conversations.”

He specifically pointed to Germany, which “presently cannot make up its mind whether it wants to go for economic security” or whether it wants to give companies the freedom to choose how they want to do business. Germany’s pro-business Free Democrats have reportedly led an effort to oppose the EU’s proposed Corporate Sustainability Due Diligence Directive, which would set new supply chain due diligence rules for certain companies (see 2402120042).

“I think that's a real issue,” Bütikofer said. “Can we transform the German conversation?”

Tobias Gehrke, a senior policy fellow with the European Council on Foreign Relations, said the EU should focus more energy on trade promotion and partnerships as opposed to trade restrictions. He specifically referenced possible supply chain deals with the U.S. on critical materials and electric vehicle batteries.

But he also said the EU needs to keep pace with the U.S. on certain economic security measures, including the Biden administration’s effort, announced in February, to potentially restrict imports of Chinese-made cars made with technology that can track American drivers and collect their personal information (see 2402290034).

“That's a huge move,” Gehrke said. “I'm a bit worried that our current framework of economic security is not quite set up to deal with these urgent events.”

Duchâtel also suggested the EU should pursue trade partnership opportunities where it can, but he thinks it will be “easier to make faster progress on the defensive agenda,” such as harmonizing trade controls.

“I think that the European approach is really undergoing deep change when it comes to managing technology transfers,” he said. “And in the next two years, Europe hopefully will finalize its toolbox of defensive measures.”