On 15 January 2025, the European Commission recommended that EU Member States review outbound investment in three critical technologies—semiconductors, AI, and quantum—with the aim of potentially creating an EU–wide regime to regulate such investment. EU Member States should report to the Commission on their findings and risk assessment within 18 months. These findings would inform a future policy proposal, so any introduction of outbound investment rules in the EU is likely to be several years away.
How did we get here?
Outbound investment mechanisms aim to regulate domestic companies making outward investments of capital, expertise, and knowledge that could contribute to the ‘leakage’ of critical and sensitive technologies to third countries. Outbound investments typically take the form of EU firms purchasing equity in non-EU entities (e.g. through joint ventures, greenfield investments), but can also take place through less structured arrangements such as R&D cooperation or transfer of employees.
The focus on outbound investment screening has its roots in transatlantic cooperation on China policy, and specifically the desire to minimize Western technology leakage to China. In particular, the U.S. Treasury Department issued new regulation prohibiting or otherwise requiring disclosure of outbound investment—in semiconductors, AI, and quantum—in Chinese entities as well as entities in other jurisdictions that hold certain interests in Chinese companies. The regulations entered into force on 2 January 2025.
Within the EU, outbound investment control was put on agenda with the European Economic Security Strategy and a subsequent white paper on outbound investment. Before then, only a few EU countries, such as Austria and Spain would screen outbound investment, and there had been no EU-wide approach on this topic.
What does it mean?
EU Member States are requested to monitor outbound investments in three critical technologies: semiconductors, AI, and quantum. The original white paper proposal also named biotechnologies amongst suggested critical technologies to be covered by the review, but this has been dropped in the new recommendation. The recommended scope of the monitoring exercise is as follows:
- Wide range of transactions monitored. Both direct investments resulting in economic activity conducted outside the EU (e.g., mergers, acquisitions, asset transfers, joint ventures, or venture capital transactions), as well as indirect investments made by EU firms (e.g., when conducted through a third-country investment vehicle should be monitored.
- No monitoring of cooperation, R&D, and recruitment activities. In contrast to the white paper, the Commission no longer recommends monitoring other types of activities, such as R&D cooperation (including with academic institutions) or recruitment activities. This reflects the consultation feedback, which viewed such measures as impractical and unnecessary.
- Country agnostic coverage. The review is global and ostensibly “country-neutral.” The Commission will establish a common methodology for identifying any prioritization of the risk assessment, which Member States will be expected to follow. Such methodology would focus on transaction parameters (e.g. involvement with Union programs, historical patterns of technology acquisitions) rather than country-specific parameters (as suggested by the white paper). However, Member States will still be able to prioritize their risk assessment of outbound investment based on the risk profiles of destination countries (such as past behavior and violations of the UN Charter).
- Review period. The monitoring is set to cover deals from January 2021 (a narrower range from the initial proposal of 2019). The Commissions leaves open for EU Member States to consider older outbound investment of particular concern .
- Information to be gathered. For each investment, the monitoring should identify the transaction parties and their ultimate owners, the type and value of the investment, the products, services, and business operations involved that relate to critical technologies, the date of planned or actual completion of the investment, and information about previous or contemplated future transactions.
- Monitoring tools and exchange with stakeholders. EU Member States are requested to have adequate tools to monitor data on outbound investment, e.g., through reporting obligations to central banks. The monitoring exercise should also involve relevant stakeholders, including business, academia, and civil society.
What is going to happen next? EU Member States are requested to submit interim reports by July 2025, followed by final reports in June 2026. The Commission will thereafter discuss potential next steps within the Expert Group on Outbound Investment (formed of the Commission and relevant authorities of the 27 Member States). However, depending on evolving U.S. policy on China and coordination with Europe, it is possible that this process might be accelerated or that specific national measures may be established within Europe.