The European Commission's Recommendation on outbound investment in technology areas: what does it cover, and how does it differ from the US approach?

As foreign investment regimes have proliferated globally in recent years, there has been growing concern on both sides of the Atlantic regarding the potential parallel national security risk that could be created by outbound investments in the field of critical technologies. 

In the US, these concerns manifested as a set of outbound foreign investment rules in October last year (see our earlier post). Following this direction of travel, the European Commission has this week put forward its own Recommendation on reviewing outbound investments in technology areas critical for the economic security of the Union. 

The road to EU outbound investment screening

The EC first suggested outbound investment measures in June 2023 when it published its European Economic Strategy identifying a range of complex challenges for the economic security of the EU and its Member States. The EC particularly noted the risk of technology leakage and weaponisation of economic dependencies in relation to technological advances that could enhance military and intelligence capabilities. 

Following this, the EC established a dedicated Expert Group on Outbound Investments, which concluded that there was a significant knowledge gap, since data on outbound investments is not routinely collected and what is available had “significant limitations”. To address this knowledge gap, in January 2024 the EC published a White Paper and held a consultation inviting comments from interested stakeholders and those with EU outbound investment experience.

The Recommendation just published is the next step in the EC’s information-gathering process.

Key highlights of the Recommendation

The Recommendation proposes the monitoring and review of outbound investments by Member States over the next 15 months, with the aim of enabling the EC to assess the risks related to these investments and informing its future policy response. 

Scope of the information-gathering: what Member States will look at

To help with the EC’s data-gathering endeavour, Member States have been asked to look at several factors – some of which differ from the factors considered under the US outbound investment rules.

• Investments that could facilitate the transfer of critical technology or know-how. The recommendation urges Member States to review a broad scope of outbound investment transactions by domestic entities (or EU residents) into third countries. The investments captured include mergers and acquisitions, joint ventures, as well as greenfield and venture capital investments. Member States are also encouraged to look at outbound IP licensing transactions – something that is notably outside the scope of the US outbound investment rules.
  
  However, mere financial investments, or “passive” investments, are excluded as they are unlikely to facilitate the development or transfer of critical technologies or know-how. This is different from the US approach to outbound FI, where non-controlling investments limited to seeking a return on investment capital may be in-scope. 

• Focus on key technology. The review is narrowly targeted at three technology areas which are more prone to technology leakage: advanced semiconductors, artificial intelligence and quantum technologies. It is worth noting that while these sectors are, broadly speaking, the same as those considered under the US outbound investment rules, the technologies described in the Recommendation are narrower in some instances (for example, in relation to transactions involving specific generative AI systems).
• Focus on risk profiles, not geography. The EC emphasises that the review should be “country-neutral” and not exclude specific destinations – rather, it should be based on the risk profiles of individual countries. Interestingly, this approach means that the US – which has been encouraging the EU to implement outbound investment controls – will not be excluded from Member States’ review.
• Transactions from 4 years ago (or longer). The EC asks that Member States consider transactions going back to 2021 or even further back where they are of “particular concern”. This request is likely to be received with some criticism, given the potential difficulty for Member States in carrying out a case-by-case risk analysis of what may be a significant number of transactions within the EC’s 15-month timeframe.

Risk assessment: a focus on economic security

Once Member States have gathered their data on outbound investment, they will need to work with the EC to perform an assessment of the transactions’ potential risks to “economic security”. Broadly speaking, economic security “is about using economic measures and tools for security purposes”.

This focus requires Member States to consider (among other things): 

• the availability of the technology in the country targeted by the investment; 
• the value and supply chain of the technology; 
• the evolution of risks as well as relevant technological developments and use cases; and
• the global interconnectivity of the ecosystem of the critical technology concerned, including research activities. 

The focus on “economic security” is notably different to - and potentially broader than - US outbound investment rules, which focus on “national security”. 

What comes next

Member States will now coordinate with the EC and each other on the progress of the review, including through designating a single contact point for ongoing communications. They are also encouraged to create reporting systems for relevant transactions as early as possible. 

Member States must provide a progress update on their review by 15 July 2025 and submit a report of their findings by 30 June 2026. 

While the Recommendation is primarily a monitoring mechanism, it is envisaged that the learnings arising from the review will allow the EC to achieve a shared understanding of the risks related to outbound investment in critical technologies and provide a basis for future policy in outbound investments in the sensitive technologies space. 

This is the first concrete step towards a potential outbound investment control programme – and the outcomes of these reviews will contribute to the ultimate shape of that programme.