Over the last year, there has been a noticeable shift in the way European policy makers discuss and talk publicly about economic security and geoeconomic risks. Threats are clearly spelled out, such as China’s pernicious weaponisation of the rare earths value chain, and in general there is a new sense of urgency in tackling some key EU weaknesses.
Talk is cheap, however, and we are still not where we need to be on many of these issues. Rare earth dependency on China has been a topic of debate since restrictions imposed on Japan in 2010. Nonetheless, there was few signs that enough had been done over the 15 years since, when China weaponised the same dependence against the US and Europe earlier this year.
Similarly, EU officials like to mention the potential for punishment in the Anti-Coercion Instrument, but have yet to use it, even after a series of coercive events.
With its new Communication “Strengthening EU economic security” – formerly known as the Economic Security Doctrine – the European Commission in its own words tries to shift into a proactive stance on economic security. While there is much to be lauded in the new plan, much is also left to be desired.
The Commission plan spells out six areas particularly vulnerable to coercive acts or shocks, such as vital value chains and critical infrastructure. Furthermore, the EU executive proposes to create an Economic Security Hub and for all member states to appoint a high-level National Economic Security Adviser. These should cooperate closely through the Commission’s Economic Security Network, as well as seek closer collaboration with businesses important to EU economic security.
The proposed advisers are sorely needed, both to solidify an economic security mindset in the member states but also to foster greater alignment on the issue among the EU27. However, there is still a clear need for a high-level forum with greater executive competencies to take decisive action in economic security matters – such as an Economic Security Council, as the EPC has argued for previously. Lower-level meetings of officials can only go so far.
On how it will respond to specific instances of coercion or how it will safeguard the Single Market, the Commission is mostly vague or sparse on details. There is mention of a possible tool to tackle overcapacities, which has been floated before, and a greater use of tools like the Foreign Subsidies Regulation (FSR). Using tools more proactively would entail more resources to enable such an increase in activity. For both the FSR and the other trade defence tools, personnel limitations are a well-known problem and surely a roadblock to wider use.
Ahead of the new Communication, there was an expectation that the Commission would spell out how the current tool set would be used more actively and how the different tools would complement each other, but this is largely missing. There is also a lack of detail on certain intriguing proposals, such as using a revised Cybersecurity Act to foreclose critical infrastructure for unreliable suppliers, a greater use of joint ventures to develop key EU industries and imposing conditionalities on foreign investments. The latter is pushed for by the European Parliament but still up for debate in the ongoing revision of the bloc’s Foreign Direct Investment Screening Mechanism.
The lack of granularity in the Communication is compensated for in the detailed “RESourceEU Action Plan” published at the same time as the former. The rare earths crunch is the most pressing economic security issue facing the EU, and the action plan is a comprehensive attempt at a remedy to the situation.
A range of measures are proposed to unlock funding for European CRM projects, as well as demand-side measures like off-take guarantees and the like. The EU will establish a European Critical Raw Materials Centre and promises to mobilise 3€ billion within the next 12 months for the CRM value chain.
All of this sounds good, but now the EU must act fast. The Critical Raw Materials Act funnelled funds to designated strategic projects, but many of these are mired in local conflict and will only start producing in years or decades, if at all. Until these projects, hopefully, come to fruition, state capacity must be used to ensure viability for projects through stable prices and to create a market for European CRMs.
The EU does not only have to take on China here but also an offensive US. The Americans are mopping up as many rare earths projects as possible not already taken by the Chinese, leaving Europe with scraps. Important work is being done in the G7 to create a secondary CRM market based on strict standards, but it’s unsure how cooperative the US will be in this work. Will such a G7 led market include the unilateral deals struck by the US, such as with Japan, or are these left out?
The Commission proposals keep up the momentum on economic security created by the succession of crises over the last year, but more is needed. Europe is lacking credibility in the spiralling international geoeconomic contest between the US and China. While clarifying concepts and risks is good, the moment has come to act. The Commission is silent on the possible use of the untested Anti-Coercion Instrument and in what situation it would do so. It could be a case of strategic silence, but it also speaks volumes. The tools are there, now they must be used.
