EU Geopolitical Risk Update - Key Policy & Regulatory Developments No. 120

On 30 January 2025, the Commission released a Communication on a Competitiveness Compass for the EU, which presents its five-year plan to boost Europe's competitiveness.

This is the Commission's first major initiative of its new mandate, building on the Draghi Report of 9 September 2024 on the future of European competitiveness. The Compass outlines the Commission's workplan to address Europe's vulnerabilities arising from a lack of innovation and lagging productivity growth by comparison to other major economies The Compass states that Europe's freedom, security, and autonomy will depend more than ever on its ability to innovate, compete, and grow.

The Compass focuses on three core action areas:*

(i) Closing the innovation gap by driving productivity through innovation, e.g., by facilitating the establishment of start-ups and conditions for scaling up and investing in state-of-the-art infrastructures.

In this respect, competition policy plays a key role, and to keep pace with the global race to develop cutting edge technologies and innovations, the Compass indicates that competition policy must adapt to evolving markets to better enable companies to grow and compete in global markets. This calls for, in particular, revised Horizontal Merger Control Guidelines such that innovation, resilience, and the investment intensity of competition in certain strategic sectors are given proper consideration in light of the European economy's urgent needs.

(ii) Pursuing a joint roadmap for decarbonization and competitiveness, towards achieving Europe's ambitious goal to reach a decarbonized economy by 2050, by integrating decarbonization policies with industrial, competition, economic and trade policies e.g., by promoting the competitiveness of clean technology manufacturers.

On the role of competition policy, companies (especially energy intensive ones) need a flexible and supportive State aid framework to support their efforts to switch to clean technologies. In the new Clean Industrial Deal, in particular, the Commission seeks to set out how well-targeted, simplified State aid can spur investment for decarbonization, while avoiding market distortions.

(iii) Reducing excessive dependencies and increasing security by better integrating open strategic autonomy and security considerations in EU economic policies, e.g., by introducing a European preference in public procurement for strategic sectors and technologies through revision of directives on Public Procurement.**

These three core areas will be supported by a set of so-called horizontal enablers for competitiveness, such as:

• Simplification, aiming at significantly reducing regulatory and administrative burdens;
• Lowered barriers to the Single Market, in particular through a Horizontal Single Market Strategy to modernize the governance framework, removing intra-EU barriers and preventing the emergence of new ones; and
• Enhanced coordination of policies at EU and national level, including introducing a Competitiveness Coordination Tool, aimed at aligning industrial and research policies and investments at the EU and national levels in selected key areas and projects deemed of strategic importance and of common European interest.

Progress on the Competitiveness Compass will be annually monitored and reported through the Annual Single Market and Competitiveness Report, most lately published on 29 January 2025 (see here).

* Many of the Compass's recommendations are also already reflected in Commission President Ursula von der Leyen's Political Guidelines 2024-2029 and mission letters to members of the new College of Commissioners (see also Jones Day Commentary, "European Commission President Unveils Proposed New Team of EU Commissioners and Political Priorities" of 25 September 2024 (here)).

** For more on the planned revision of the Public Procurement Directives, see also Jones Day EU Geopolitical Risk Update No. 119 of 31 December 2024. 

On 31 January 2025, the Commission approved a €48 million French State aid measure to support Envision AESC France in the first phase of a new factory for producing lithium-ion batteries for electric vehicles in Douai, France.

The Commission assessed the measure under EU State aid rules, in particular Article 107(3)(a) of the TFEU (which allows Member States to promote the economic development of the most disadvantaged areas of the EU) and the 2022 Regional Aid Guidelines (RAG).*

According to the Commission, the measure will contribute to its Political Guidelines 2024-2029, which lay out the Commission's new plan for Europe's sustainable prosperity and competitiveness, including by responding to the dangers of economics dependencies and the crucial need for resilient supply chains.

In particular, the new Douai plant will create jobs and promote both regional development and the green transition of the regional economy. The plant, designed to be carbon neutral, will produce lithium-ion batteries for electric vehicles with an annual capacity of 9 GWh in its first phase.

Looking ahead. The project is expected to create some 1,000 direct jobs in Douai, as well as other indirect jobs in the region. Subsequent phases of the plant may extend to production of stationary electrical storage (combined with solar and wind generation).

The non-confidential version of the decision will be made available under the case number SA.109228 in the State aid register on the Commission's competition website once confidentiality issues are resolved.

* The Commission's 2022 RAG sets out the conditions for considering regional aid as compatible with the internal market and the criteria for identifying the areas fulfilling the conditions of Article 107(3)(a) and (c) of the TFEU. On this basis, Member States notified their regional aid maps to the Commission for approval.

Earlier, in December 2024, the Commission also notably approved €81 million Spanish State aid measure to support production of semiconductor-grade synthetic diamonds under Article 107(3)(a) and the RAG (see Jones Day EU Geopolitical Update No. 119 of 31 December 2024).

On 27 December 2024, the European Court of Auditors (ECA) announced that in 2025-2026, its core auditing work would remain focused on the €800 billion NextGenerationEU (NGEU) package for Europe pandemic recovery, and in particular, its core instrument, the Recovery and Resilience Facility (RRF).

To recall, the RRF was established in February 2021 by RRF Regulation (EU) 2021/241 (running until end-2026) in response to the COVID-19 crisis to support faster and more resilient Member State recovery. It is the EU's largest funding instrument to date, at over €700 billion. EU Member States must allocate a significant part of RRF funding to measures for the twin green and digital transitions.

The ECA's audits had initially focused on the RRF's design and its weaknesses (e.g., concerns about the traceability and transparency of funds disbursed). In 2025-2026, the ECA will shift its focus to assessing the RRF's actual implementation. The ECA will first review its RRF audit work to date and publish a consolidated report in Spring 2025 to spotlight risks, challenges, and opportunities. The ECA's new audits will then focus on, e.g., digital transformation, reforms in energy efficiency, and Member State control systems for procurement, State aid, and fraud prevention.

Looking ahead. EU policymakers will be discussing the shape of the EU's new long-term budget from 2027 onwards (multi-annual financial framework) and must take into account the ECA's findings on the RRF and NGEU. As ECA President Tony Murphy stated before the European Parliament, the EU must assess current challenges and risks before considering reforms and moving on to future plans, in order to foster a future that promotes solidarity, accountability, and trust among EU citizens.

The EU employs restrictive measures, commonly known as sanctions, as a key instrument to advance its Common Foreign and Security Policy (CFSP) objectives. These objectives include safeguarding the EU's values, fundamental interests, and security; preserving peace; and supporting democracy and the rule of law

Sanctions encompass a range of measures, including travel bans that prohibit entry or transit through EU territories, asset freezes, and restrictions on EU citizens and companies from providing funds and economic resources to listed individuals and entities. Additionally, sanctions may include bans on imports and exports, such as prohibiting the export to Iran of equipment that could be used for internal repression or telecommunications monitoring, as well as sectoral restrictions.

Russia: On 27 January 2025, the Council renewed EU restrictive measures for another 6 months (until 31 July 2025) in view of Russia's continuing actions destabilizing the situation in Ukraine. These measures encompass a wide array of sectoral measures, notably including limitations on trade, finance, energy, technology and dual-use goods, industry, transport, and luxury goods, as well as further enabling the EU to counter the circumvention of sanctions.

Also on 27 January 2025, the Council listed three Russian individuals for targeting Estonia with a series of cyberattacks. Altogether, EU restrictive measures with respect to malicious cyber activities threatening the Union or its Member States now apply to 17 individuals and 4 entities.

The Council provides an overview of EU sanctions against Russia concerning Ukraine (since 2014), available here. To recall, the EU's restrictive measures against Russia, initially introduced in 2014 in response to Russia's destabilizing actions in Ukraine, have significantly expanded following Russia's military aggression against Ukraine, beginning on 23 February 2022, with the adoption of the first package of sanctions. The Council adopted the 15th package of sanctions on 16 December 2024 (see also Jones Day EU Geopolitical Risk Update No. 119 of 31 December 2024) and the 16th package of sanctions on 24 February 2025 (see here).*

* The 16th package of sanctions against Russia will be reported in the forthcoming Jones Day EU Geopolitical Risk Update No. 121, and an in-depth analysis of the 16th package is available from the authors of the EU Geopolitical Risk Update (see contact details below for Nadiya Nychay (Brussels) and Rick van 't Hullenaar (Amsterdam)).

On 15 January 2025, the Commission issued a Recommendation on reviewing outbound investments in technology areas critical for the economic security of the Union.*

Context. The Recommendation is part of the Commission's broader European Economic Security Strategy, introduced in June 2023, which addresses Europe's shortcomings in adequate preparedness for new and emerging risks.** The Recommendation follows the Commission's White Paper on Outbound Investments (January 2024) and related public consultation results (July 2024), which support the Commission's proposed step-by-step approach to monitor and assess these investments.

Objectives. In unveiling the Recommendation, Maroa `efčovič, Commissioner for Trade and Economic Security; Interinstitutional Relations and Transparency, stated:

"[T]he geopolitics of today means that we must have a deeper understanding of the potential risks [that providing and attracting investment] may entail. The assessment of EU outbound investment in key technology areas will allow us to have a clearer picture of potential threats we face. With this knowledge, we will be better equipped to strengthen our economic security and guide future policy choices, while enhancing a robust and open investment environment in the EU."

The Recommendation urges EU Member States to review outbound investments made by EU investors in third countries, in view of ensuring that these investments do not compromise the EU's strategic interests or technological leadership. In this respect, the Commission advocates for enhanced cooperation among national authorities to assess risks and safeguard economic security.

While recommendations are non-binding, they often serve to influence behavior and encourage alignment with EU goals. The Commission's authority and the political significance of its recommendations typically prompt voluntary compliance, such as adjusting national policies.

Scope of monitoring / transactions: The Recommendation identifies three high-risk technology sectors for monitoring of outbound investments: semiconductors; artificial intelligence ("AI"); and quantum technologies.

On the scope of transactions, the Recommendation calls for reviewing five areas: mergers and acquisitions; asset transfers; joint ventures; venture capital; and greenfield investments. Member States are urged to review new, ongoing, and completed transactions since 1 January 2021, with the potential to extend to earlier ones if Member States identify specific concerns.

Monitoring tools and information gathering: The Recommendation encourages Member States to implement voluntary or mandatory filings of transaction information. Member States are also encouraged to gather comprehensive data to assess risks of outbound investment transactions in critical technology areas.

Next steps: Member State assessments of transactions, with the Commission's support, will focus on technology leakage and geopolitical factors, with progress reports due by 15 July 2025 and a final report due by 30 June 2026 that addresses identified risks and implementation progress. Implementing these measures along these timelines is likely to be challenging, given the expected need to enact national legislation. Ultimately, the information collected will form the basis for further discussions on EU-wide screening of outbound investments.

* See also Jones Day Commentary, "The Rise of Outbound Investment Screening: The U.S. and EU Initiate Measures" of 10 February 2025.

** See also Jones Day EU Emergency Response Update No. 103 of 24 June 2023.