Written by 8:50 pm EU Investment

EU officials flag vulnerabilities to foreign control in defense sector

WASHINGTON — Not all European Union members have enacted national policies for screening foreign direct investments in their critical industries, hobbling attempts at fostering an integrated defense supply chain for the bloc, according to a European Defence Agency official.

Agency officials diagnosed the problem during a study of defense-industrial strategies published by members countries that concluded over the summer.

Pieter Taal, the head of the EDA’s industry strategy and EU policies unit, said the lack of control policies when it comes to non-EU companies buying stakes in potentially crucial suppliers remains a “complicating factor.”

Depending on the foreign investor, external control of key companies could directly challenge the vision of Europe’s strategic autonomy, he told reporters in an Oct. 26 video call from Brussels.

Roughly half of the 27 EU members lack requisite screening policies, Taal said. That is because setting up control mechanisms is each nation’s prerogative, he added. Some may find them needless, others have yet to enact them, Taal explained.

Vulnerabilities in critical supply chains are a major concern on both sides of the Atlantic. Pentagon officials have long worried about Chinese access, in particular, to critical nodes in the defense-industrial base that contribute to advanced weapon systems. The fear is that malicious actors could introduce manipulated parts into the supply chain, or steal trade secrets.

But simply discovering foreign-controlled lurkers in the multilayered web of the defense industry has turned out to be thorny task in its own right.

The European Commission flagged Russian and Belarusian foreign direct investment in Europe’s industry landscape in the spring following Moscow’s attack on Ukraine.

“In the current circumstances, there is a significantly heightened risk that FDI by Russian and Belarusian investors may pose a threat to security and public order,” commission officials wrote in a note to member states. “These risks may be exacerbated by the amount of Russian investments in the EU and the intensity of prior business relations between EU and Russian companies.”

Of the 27 member states, 18 have registered with the commission their existence of a national policy regime covering the screening of foreign direct investments, according to a list published by the EU.

Those without such policies should “urgently” create them and, in the meantime, use other legal avenues to ward off malicious foreign investments that could leave the bloc as a whole vulnerable, according to the commission document.

“It’s a complex issue,” said Taal, arguing that suitable screening criteria take time to develop. “It’s not something you can do overnight.”

The EDA and other defense-minded institutions have their own checks in place to ensure companies vying to be part of EU initiatives aren’t controlled by entities working against EU objectives, Taal said.

That definition is crucial. According to Taal, while companies from the United States, Canada or the U.K. would typically be considered trustworthy enough for cooperation — as opposed to Chinese or Russian firms, for example — their support for the bloc’s quest toward strategic autonomy may be unknown.

Sebastian Sprenger is associate editor for Europe at Defense News, reporting on the state of the defense market in the region, and on U.S.-Europe cooperation and multi-national investments in defense and global security. Previously he served as managing editor for Defense News. He is based in Cologne, Germany.

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