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15th Nov 2018

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EU 'in search of lost time' on trade defence

  • The Piraeus port in Athens. Would the EU let China buy it again? (Photo: European Parliament)

MEPs aim to add a new element to the EU's trade defences on Monday evening (28 May) by endorsing a screening mechanism for foreign direct investment (FDI).

The move is designed to protect EU interests as well as free trade, amid the rise of China and the threat of a trade war with the US over steel tariffs and Iran sanctions.

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  • Proust: "All the big powers have a mechanism, we are the last ones not having one" (Photo: European Parliament)

The European Parliament's (EP) international trade committee is expected to bless the plan and to broaden its original scope.

The EU mechanism was proposed last year by the European Commission, under pressure from France, Germany, and Italy.

"We're a bit in 'in search of lost time'," said Franck Proust, the EP rapporteur on the file, referring to a book by his illustrious homonym, French writer Marcel Proust (no relation).

"All the big powers have a mechanism, we are the last ones not having one," he told EUobserver in an interview.

"We're not against globalisation, but Europe must use the same tools as the other main powers," he said, calling on the EU to leave behind its "timorous attitude".

"We are the main commercial power in the world, let's assume this status once and for all," he said.

Proust, a French MEP from the centre-right EPP group, should get the backing of most of the committee, after the EPP, the centre-left S&D, the liberal Alde, the Greens, and the conservative ECR groups supported most of the amendments to his text.

The commission originally proposed a new mechanism under which an EU country that benefitted from FDI would inform the commission and other member states, who would issue an opinion if they had concerns.

The EU executive also proposed to screen FDI that would have a direct impact on EU programmes, for instance, in research, transport, or energy.

In his report, Proust proposed to add what he called a "third scenario".

This would arise when at least a third of EU states thought that a foreign investment could threaten their national security or public order.

The FDI-recipient country would then have to take "utmost account" of their concerns.

"When we told the Greeks: 'To save your financial situation, you have to sell your assets', was it prudent to leave Piraeus in China's hands? Today, we would say No," Proust said.

The MEP was referring to a Chinese state-owned cargo port in Piraeus, Greece, which China snapped up in 2009 at the height of the financial crisis, and which it aims to use as an entry point for cheap exports to Europe in its One Belt One Road project.

Proust said that, under his proposed plan, "there would be a discussion around the table" on sensitive FDI schemes, like the Piraeus one.

"Member states are interdependent. A country cannot act alone, despite all the others," he said.

The MEP said the plan posed no threat to EU countries' sovereignty.

"The final decision [on any FDI project] remains with the member states," he said.

He said the mechanism should be based on "a viable system of information-gathering" designed to stimulate joint solutions.

The approach was "consensual," the French MEP said, "to avoid member states getting afraid."

"It's based on dialogue and exchange of information, but the information gathered must be of quality," Proust said.

EU 'efficiency'

Thirteen out of 28 EU states already have national FDI screening mechanisms, while some countries that rely on Chinese and Russian largesse, such as Greece, Hungary, and Romania, have been wary of letting the EU play a role in their decisions.

But EU-level monitoring was "the only credible" way forward amid "increasingly aggressive" global competition, the MEP said.

"The European dimension creates pragmatism and efficiency," he said.

FDI screening, as proved by the EU group of 13, does nothing to reduce foreign investment, he added. "It's not because you have a screening mechanism that you say no to investment," he said.

Proust propose to extend EU monitoring to other sectors, such as the media, aerospace, election infrastructure, artificial intelligence, and rare-earth minerals, which are used in high-tech products, on top of the usual areas of FDI concern - energy, water, and transport infrastructure.

Farming should also be added, Proust said, referring to foreign purchases of farm land and food production facilities in France and further afield in the EU, which posed a threat to food autonomy.

"You have sectors that were sensitive four or five years ago, and others that will be the day after tomorrow," he said.

"The list will be as large as possible and it will not be closed. At any time we will be able to introduce a new sector," he added.

Losing control

"Through control of an industry [by foreign companies], you lose your ability to decide on your commercial policy," Proust said.

He gave the example of Canada, which was forbidden to export rare-earth minerals to Japan after a Chinese take-over.

The US and Switzerland remain the top foreign investors in the EU, but many in the bloc are concerned about the increase in and nature of China's FDI.



The proposed EU screening mechanism is widely seen as being aimed at preventing Chinese take-overs, and China is said to have lobbied against the plan.



Chinese FDI in the EU amounted to €30bn in 2017 - 17 percent less than in 2016, but the second highest level ever recorded, according to the Mercator Institute for China Studies (Merics), a Berlin-based think tank.

Since 2008, China has mainly invested in chemicals, energy, property, mining, and internet assets, according to the Bloomberg press agency.

"We cannot reproach them with moving with a hidden agenda. They tell us: in this and this area, we want to be masters of the world," Proust said, referring to another Chinese scheme, the Made in China 2025 project, which is designed to boost Chinese industry.

Russia active too

The FDI screening was the third part of an EU upgrade in trade resilience, the MEP said.

"First we bypassed the decision on market economy status for China, second we improved our trade defence instruments," he told EUobserver.

The market economy move saw the EU wriggle out of World Trade Organisation obligations to give China greater access to its markets.

But EU firms who tried to invest in China were still getting a hard ride, the MEP said. "We have to react," he said.

He said that while China was the main concern, "many countries, in the north and east [of the EU], are very sensitive to the impact of Russia."

"Little by little, directly or indirectly, they [the Russians] are getting involved in areas such as media, infrastructures, energy - sensitive sectors that can be matters of internal security," Proust said.

He urged EU states to take a decision that can be applied by the end of the year.

"We have to be quick," he said, noting that the file was a priority for the incoming Austrian EU presidency

The report was adopted by the international trade committee on Monday evening (28 May), by 30 votes to seven. The European Parliament will vote on the text during the June plenary session, before talks can start with the EU Council representing member states.

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