EU directive opens the door for China to steal the West’s technological secrets

The new legislation will jeopardize the West’s competitiveness in critical sectors.

Stuart Eizenstat is Senior Counsel at Covington & Burling LLP. He served as U.S. Ambassador to the European Union and Under Secretary of State for International Trade. Under Secretary of Commerce, Economic and Agricultural Affairs; and Deputy Secretary of the Treasury in the Clinton Administration. He has written an opinion piece for Politico newspaper in which he talks about the dangers that a political agreement with China could bring.

In the final days of 2023, lawmakers in the European Union unnecessarily rushed to reach a little-noticed political agreement on a legislative proposal called the Product Liability Directive (PLD). Yet this new legislation should give safety-conscious policymakers in Brussels and Washington considerable cause for concern.

This directive has already been adopted by the Council of the EU and is expected to be adopted by the European Parliament. It will be transposed into national law over the next two years.

However, PLD is not only poised to blow a hole in Europe’s current economic security strategy, but also threatens Europe’s economic security, intellectual property and economic growth – while risking new transatlantic tensions.

Typically, certain safeguards are put in place during litigation to prevent the disclosure of sensitive corporate information to interested parties and to ensure that the litigation process is not used as a backdoor to steal trade secrets, intellectual property or gain strategic advantage. And judges in the United States rely on such protective orders to ensure that “discovery” – the sharing of information between adversaries – can occur without jeopardizing a company’s ability to compete.

In contrast, the new law would allow unlimited disclosure without sufficient safeguards to ensure that confidential information remains within the confines of litigation. And the practical implications are obvious: foreign companies or governments can fund lawsuits to uncover trade secrets such as manufacturing processes, computer programs or pharmaceutical test data, regardless of the merits.

All of this represents a new frontier in global geo-economic law. China has already tried to use patent disputes to drive economic espionage in the US, jeopardizing the West’s competitive advantage in high-end technologies. And the new PLD would lessen the burden by exposing Europe – as well as all other non-European companies doing business there – to the same tactics, but without the court protections developed in the US.

As a result, this directive risks altering the hard-won transatlantic approach to China and driving a wedge into the effective partnership that has been built to address new threats.

Moreover, the goal of Europe’s economic security strategy is to minimize economic risks due to geopolitical tensions and technological changes – a strategy that emerged as part of a coordinated effort with the US and other like-minded partners to reduce engagement with China. And the opportunities created by the new PLD would not only make these defenses less effective, but potentially undermine the overall strategy itself.

First, the strategy currently outlines the European Commission’s proposal to identify and assess “risks to the EU’s economic security that threaten its core interests”, such as risks related to “technology security and technology leaks”. But now China and other nations can simply use court cases to force the disclosure of these sensitive technologies.

The strategy also argues that the EU has an interest in preventing the use of European financial resources or intellectual property to develop military or intelligence technologies that could be used against it. But then why would Europe let the fox in and expose itself to a Chinese-funded legal battle under the PLD that would reveal details about high-end technologies?

Finally, the EU is actively working to improve the effectiveness and efficiency of the current export control framework, which is largely in the hands of the Member States. But even this laudable move to support Europe’s long-term technological lead could be undone by the new directive’s self-inflicted loopholes.

As the West “disappears” from an increasingly provocative China, Europe should not “risk again” its exposure through the new PLD. The bloc can achieve its underlying policy goals – reconciling consumer protection and growing businesses in Europe – without inviting China or other adversaries into the courtroom. And with the new directive likely to come into force and be transposed into national law in the next two years, the European Commission and EU members must ensure adequate protection for the ingenuity and inventiveness that characterize leading companies.

And most importantly, in implementing this new directive, the EU must develop further guidance so that the text can be meaningfully applied to ensure safety.

*Covington represents companies likely to be affected by the Product Liability Directive

/TheGepost