EU and US Discuss Aligning Investment Controls With Eye on China

(Bloomberg) -- The European Union and the US are discussing working closely to address risks from investing in sensitive technologies in countries like China as they develop new tools to cope with an increasingly hostile economic environment.

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Both partners will seek to align their approaches for outbound investment screening “to prevent our companies’ capital, expertise, and knowledge from supporting the technological advances of strategic rivals in ways that threaten our national security,” according to the latest draft statement for a high-level meeting next week in Lulea, Sweden.

Senior EU and US officials want to use the May 30-31 Trade and Technology Council meeting to strengthen their cooperation in addressing the assertive rise of China and the challenges posed by Russia’s invasion of Ukraine. The meeting comes as the EU’s executive arm is planning to present next month an economic security strategy for the bloc.

The EU has been trying to sharpen its strategy toward China. European Commission Ursula von der Leyen recently laid out a vision of de-risking, but not decoupling from Beijing — a subtle realignment of Europe’s approach that brings it a bit closer to Washington’s more hawkish stance. The US and the rest of the Group of Seven countries have since adopted the same language.

In the wake of the Ukraine invasion, economic security has become a higher priority for G-7 nations. Officials are discussing how to better coordinate instruments, including investment screening and export controls, while they explore new policy options available to address national security risks posed by some nations in a holistic manner.

Read more: EU Reaches Initial Agreement on Blueprint for China Relations

In particular, the EU and the US, together with like-minded countries, plan to target non-market policies and practices — a reference used to describe China — in fields like legacy chips, and “explore cooperative measures to address those policies and their distortionary effects,” the draft statement said. The text is still subject to changes and needs to be approved by member states before its adoption next week.

Both partners have begun mapping out the network of third-country enterprises benefiting from government-owned or government-controlled investment funds, and the distortions caused by these funds.

Next week’s meeting is the fourth session of the TTC and is being held as both sides are trying to address concerns related to US President Joe Biden’s massive green stimulus law. In spite of the friction on this issue — as well as difficulties in addressing other sticking points like a new arrangement on steel and aluminum to avoid tariffs — the EU believes its relationship with the US is on the right track, a senior bloc official said.

Read more: Italy to Discuss Leaving China’s Investment Pact With G-7 Allies

Both sides are also committed to advancing their collaboration on emerging technologies, including artificial intelligence, quantum computing and the next generation of wireless telecommunications (6G), while they are cooperating to avert a subsidy race in the semiconductor sector.

In this regard, the EU and the US have completed a transparency mechanism to share information about the public support given to the chips industry and a joint early warning mechanism for semiconductor supply chain disruptions.

“The European Union and the United States are committed to avoiding a race to the bottom in semiconductor public support,” the draft text reads. “Increased investment in semiconductors in Europe supports resilience in US supply chains, and increased investment in the semiconductors in the United States similarly supports resilience in EU supply chains.”

The EU and US are also aiming to agree to go further to mitigate the risks from artificial intelligence, specifically mentioning generative AI. Large language models like ChatGPT are now in the spotlight after these tools have been rolled out to the public.

“Recent developments in generative AI highlight the scale of the opportunities and the need to address the associated risks,” the draft said. In an attempt to align the way the EU and the US regulate AI, the two sides are establishing an expert group to set out AI terminology, cooperate on standards and tools, and monitor risks. They also are working out 65 key terms to underscore a risk-based approach to regulating AI.

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