Home » What the EU List of Critical Technologies Tells Us About Its De-Risking Plans
European Union Global News News Technology

What the EU List of Critical Technologies Tells Us About Its De-Risking Plans

The recently unveiled EU list of critical technologies highlights the difficulties of de-risking for the bloc. To avoid seeing the process stall, the EU must get the private sector on board, admit that European tech supply chains are still distant, and acknowledge that de-risking is all about China

On 3 October the European Commission published its long-awaited list of critical technologies. The list provides concrete insights into the European Union’s thinking around what the risk of doing business with China really is – a key question for the bloc to answer before initiating any de-risking efforts. It also paves the way for the adoption of EU export controls or screening tools for outbound foreign direct investment (FDI); both instruments would likely cover the technologies that the EU considers critical. But the list leaves a couple of key points conspicuously absent, including clean technology – a sector typically considered a priority for de-risking efforts and one where China has a global edge. EU communications on de-risking never mention China or acknowledge the challenges that Europe faces to develop its own tech supply chains. To advance the de-risking process, the EU must acknowledge these challenges and get the private sector on board.

The scope: a (very) narrow list

The EU list of critical technologies is surprisingly short: it focuses on semiconductors, artificial intelligence (AI), quantum computing and biotech. This suggests that de-risking remains a divisive topic within the union, for lack of a European consensus on China. These diverging views across EU capitals likely led to such a diluted list: The document only includes technologies that pose clear threats to human rights (AI can use facial recognition to track dissidents and biotech may help to engineer bio-weapons, for instance) or that could boost the Chinese military (such as semiconductors, which are key components for military gear, and quantum computers which can break encryption protocols). In other words, the list is not controversial – even for capitals more sympathetic to China, like Berlin, it is hard to argue against including any of the items that made it into the final document.

Rather than suggesting to comprehensively reduce ties to China in the technology sector, the EU’s decision to include only a few technologies in its list underscores the bloc’s willingness to reiterate that its goal is to de-risk, not decouple, from China. This is because many European policymakers remain worried about China’s potential retaliation against EU de-risking plans, for instance through informal boycotts of European consumer brands.

Aside from concerns over China’s reaction, Brussels is also worried about spooking the private sector. Even if the EU comes up with the best de-risking plans, it will always be up to European firms to implement them and bear the brunt of the higher costs that curbing ties to China will entail. Against this backdrop, adopting a surgical approach to de-risking is probably the safest bet for the EU: It is easier to tell private companies that their dealings with China will be restricted only in a few sectors that have clear security implications, than to impose rafts of extensive restrictions that would greatly increase production costs and compliance burdens.

The surprise: clean tech did not make it to the list

Perhaps the most intriguing aspect of the EU list lies in the fact it did not include clean technology. Usually, the de-risking debate revolves around reducing EU import reliance on China for critical raw materials and technologies that are crucial for the energy transition. By contrast, the EU list focuses on outbound trade and technology transfers – a remarkable shift from the traditional debate on making supply chains more resilient.

This has an important implication: Brussels’s de-risking plans are not about preserving Europe’s competitiveness in the clean tech sector, let alone making it a key player in the field. To put it differently, Brussels is not trying to prevent China from flooding Europe with cheap solar panels – the commission knows that this is probably going to happen anyway, and that there is not much it can realistically do about it without slowing down the energy transition.

The omission of clean tech also illustrates the fact that the US approach to de-risking is broader than that of the EU: The Biden administration, has made clean tech a de-risking priority to avoid seeing green energy supply chains weaponised like oil was in the 1970s – and China is currently the world’s leading player in the field of clean tech. America’s focus on the energy transition also shows how the Biden administration seeks to present de-risking as an opportunity for the US economy, thanks to the relocation of clean tech supply chains to US soil. By contrast, it is hard to find such a positive message in the EU de-risking plans.

Next steps: three thoughts on the way forward

The EU’s refusal to acknowledge the Chinese elephant in the room is slowing down the European debate: China is the only country that is relevant to EU de-risking plans.

As a first step, the EU needs to acknowledge that de-risking is about China. Reading EU communications on de-risking is a dystopian experience: The word ‘China’ never appears and European officials insist that Europe’s de-risking efforts have nothing to do with China. The EU’s refusal to acknowledge the Chinese elephant in the room is slowing down the European debate, especially as China is the only country that is relevant to EU de-risking plans (Russia cannot be part of the equation: the country is not a technology power and it is already facing sweeping export controls following the invasion of Ukraine). Acknowledging that China is the main target would also help to get the private sector on board by reassuring firms that the EU does not intend to broaden the de-risking process to other countries.

Second, the commission should recognise that European tech supply chains are a distant prospect. The US and China are the only global powers in the fields of semiconductors, AI, quantum computing and biotech. As a result, the creation of European supply chains for critical technologies remains unlikely; the EU does not have the know-how, manpower, and financing to compete with the US and China. If European tech supply chains remain unrealistic, and the export controls that really matter originate from the US, the scope of Europe’s de-risking plans in the technology field will always remain narrow.

Finally, getting private firms on board must be a priority for the EU. Despite the de-risking hype, two-thirds of EU firms have no plans to shift away from China – a key consumer market that has a huge footprint in global supply chains. The main tools that the EU will have to de-risk in the tech sector will also prove unpopular among private firms; both export controls and an outbound FDI screening tool will entail limiting the revenues of European tech firms in China. As a result, the EU will have few options to get the private sector on board. Focusing on this issue should be top of Europe’s to-do list for de-risking. 

Source : ecfr.eu

Translate