The EU has long championed progressive liberalization through the multilateral system established around the WTO, positioning itself as a “liberal multilateralist”. Traditionally, this meant that trade policy was closely linked to the regulatory framework of the European Single Market, perceived as non-tariff barriers to trade. However, it has increasingly become an essential tool of geopolitics as external pressures - such as the crisis of multilateralism and the China-US rivalry - act as drivers shaping the EU’s geoeconomic turn.
The European Commission’s Trade Policy Review (2021) asserts that trade policy is instrumental in advancing the EU’s “open strategic autonomy,” now a leitmotiv of its trade agenda. This approach aims to maintain an open market while preserving sufficient policy autonomy to act when necessary. It seeks to reduce the EU’s dependence on external actors for critical goods by strengthening economic self-reliance while remaining open to global trade. In 2023, the European Commission published its European Economic Security Strategy (EESS), a multifaceted initiative addressing risks arising from economic interdependence based on three pillars: promoting EU’s competitiveness and growth, protecting EU’s economic security, and partnering with countries sharing the same concerns. This strategy shifts the focus from liberal institutionalism toward the mitigation of security risks embedded in global markets. The EU’s commitment to strengthening competitiveness and autonomy in strategic sectors is closely connected to the second priority of the EESS: safeguarding economic security. This objective is pursued through three main lines of action: addressing economic coercion by third countries, reinforcing the resilience of supply chains, and enhancing technological security while preventing the leakage of critical technologies.
In recent years, countries have increasingly leveraged the EU’s economic dependencies as a tool of political and economic pressure on its institutions. For instance, the Chinese foreign direct investment (FDI) transactions in the EU quadrupled between 2011 and 2016, with half of these acquisitions executed by State-Owned Enterprises (SOEs), often heavily subsidized to acquire European companies. At the same time, there is concern that the EU is more open to foreign firms while enforcing competition more strictly for its own companies, since state aid rules only govern subsidies granted by Member States. This creates a “regulatory gap”, which has become increasingly salient as advanced economies - such as China and the U.S - intensify industrial policy interventions in strategic sectors such as green energy. Furthermore, WTO law, particularly the Agreement on Subsidies and Countervailing Measures, focuses on goods and does not address distortions arising from services, investments, or acquisitions; generally, foreign subsidies are not covered by WTO law. Together, these factors make WTO law on subsidies inadequate for addressing the current global subsidy race.
In response, the EU has sought to close this “regulatory gap” by adopting Regulation (EU) 2022/2560 (FSR) to prevent distortions in the internal market caused by foreign subsidies. The Regulation establishes a framework of rules and procedures to investigate foreign subsidies that distort competition and to remedy their effects. The FSR is integrated into the EESS, which identifies economic dependencies and foreign subsidies as potential threats, and emphasizes the need to use the regulation to prevent the weaponization of interdependence. The FSR is a regulation move beyond classical competition policy, acting as a tool of “hard geoeconomics” that securitizes trade and protects strategic industries, complementing EU State aid rules.
However, these instruments raise questions in terms of compatibility with WTO law and eventual counter-measures from trade partners. The EU assumes that the FSR complies with WTO law, however it can contravene core principles and create regulatory overlaps that undermine the supremacy of WTO law. It has also attracted criticism from China and the US, which consider it a measure capable of distorting competition and creating non-tariff barriers to trade. These concerns reflect a broader perception that the EU is moving away from its traditional commitment to multilateral trade governance.
From a policy perspective, the FSR can be read as an instance of “deconstructive unilateralism”. By allowing the EU to restrict market access and block foreign subsidised investments on strategic grounds, it departs from rules-based governance and moves toward self-preferential regulation. This approach sits uneasily with the EU’s commitment to cooperative economic security. By contrast, the EESS acknowledges that, in an interdependent global economy, the EU cannot act alone and therefore promotes trade diversification, resilient supply chains, and structured cooperation with like-minded partners, while reaffirming the importance of multilateralism. The result is a structural tension in EU geoeconomic strategy: unilateral regulatory tools pursuing strategic autonomy coexist with a continuing institutional commitment to multilateral cooperation. Reconciling these dimensions remains a central challenge for EU trade and economic security policy.
