In recent years, the European Union has shifted its posture in global trade—from an open-market advocate to a more assertive regulator determined to protect its economic interests. 

The shift is evident in recent regulations: the 2020 Foreign Direct Investment (FDI) Screening Regulation^[1] enables the assessment of foreign investments for potential security and public order risks; the 2022 International Procurement Instrument (IPI) Regulation^[2] addresses unequal access to procurement markets; and the 2023 Foreign Subsidies Regulation (FSR)^[3] enables the EU to tackle market distortions from foreign subsidies.

Complementing this regulatory framework are broader industrial and strategic initiatives adopted at the EU level, aimed at reinforcing the Union’s economic security and resilience. The EU Competitiveness Compass,^[4] published in January 2025, outlines three core areas for action to boost competitiveness – innovation, decarbonization, and security. Shortly after, the Clean Industrial Deal^[5] laid out a comprehensive vision for decarbonizing European industry, accelerating the green transition, and enhancing long-term economic resilience. More recently, the AI Continent Action Plan,^[6] published in April 2025, charts a course for Europe’s technological sovereignty in artificial intelligence.

Meanwhile, the judiciary is playing a pivotal role in shaping the legal boundaries of this evolving regime. Recent judgments from the Court of Justice of the European Union—such as Kolin^[7] and Qingdao.^[8]

Overview of Key Regulatory Instruments

In this section, we will explore three crucial regulatory instruments that form the foundation of the EU's protectionist strategy: the Foreign Direct Investment (FDI) Screening Regulation, the International Procurement Instrument (IPI), and the Foreign Subsidies Regulation (FSR).

Foreign Direct Investment (FDI) Screening Regulation (2020)

The FDI Screening Regulation set up a framework for the screening of foreign direct investments Regulation (EU) 2019/452, applicable since 11 October 2020, was introduced to address growing concerns over foreign investors targeting EU companies involved in critical technologies, infrastructure, or sensitive data. These investments may pose risks to security or public order, particularly given the EU’s integrated internal market. The Regulation enables Member States to assess such FDIs, share information with the European Commission and each other, and take measures to mitigate risks. It also established a cooperation mechanism that allows joint scrutiny of investments, especially those affecting multiple Member States or key EU programmes. Overall, the Regulation supports the EU’s strategic autonomy and protection of vital economic and security interests.

International Procurement Instrument (IPI) Regulation (2022)

The IPI Regulation entered into force on 1 July 2022. It was designed to address the asymmetry in global procurement markets. Many non-EU countries maintain barriers to EU companies in public procurement, while European markets remain largely open to foreign competitors. The IPI seeks to correct this imbalance by allowing the EU to impose restrictions (IPI measures) on public procurement bids from countries that do not provide fair access to their markets.^[9]

Under the IPI, the European Commission can introduce measures, such as: (i) imposing a score adjustment on tenders submitted by economic operators originating in a third country where a measure or practice exists; or (b) excluding tenders submitted by economic operators originating in that third country. While aimed at promoting fairness and opening foreign procurement markets, the IPI also acts as a protectionist tool to prevent non-EU suppliers from gaining unfair access to EU public contracts without offering similar opportunities for European companies abroad and has the potential to create a more fragmented global procurement landscape.

On 24 April 2024, the European Commission, launched an investigation into alleged measures and practices by the People’s Republic of China (PRC) that are causing serious and recurrent impediments to the access of Union economic operators, goods, and services to the PRC’s public procurement market for medical devices. The Report presents clear evidence of China limiting the access of EU medical devices producers to its government contracts in an unfair and discriminatory way.^[10] On 30 June 2025 the first IPI measure entered into force which, among other things, excludes ‘economic operators’ from China from participating in EU public procurement procedures for (certain) medical devices with an estimated value equal to or above EUR 5 million.

Foreign Subsidies Regulation (FSR) (2023)

The Foreign Subsidies Regulation (FSR), which came into force on 12 July 2023, marks another significant evolution in the EU’s ability to regulate foreign influence in its internal market. The FSR targets foreign subsidies granted to companies from third countries that distort competition within the EU.

Through the FSR, the EU can investigate foreign subsidies and take corrective action, including blocking mergers, acquisitions, or public procurement bids by foreign companies receiving such subsidies. By addressing subsidies granted by foreign governments, particularly those from non-market economies, the FSR serves as a protectionist measure designed to ensure that EU businesses do not face unfair competition due to state-backed advantages enjoyed by foreign competitors.

A specific notification threshold has been established for the public procurement procedures. Foreign financial contributions must be declared if the following conditions are met:

• The estimated value of the public contract or framework agreement (excluding VAT), or of a specific contract under a dynamic purchasing system, is at least EUR 250 million; and
• The economic operator—including its subsidiaries lacking commercial autonomy, affiliated entities, and key subcontractors or suppliers participating in the same tender—has received financial contributions within the preceding three years, the total value of which is EUR 4 million or more per third country.

Broader Industrial & Strategic Initiatives

In addition to its regulatory tools, the EU has introduced several broader industrial and strategic initiatives aimed at enhancing its global competitiveness and reducing external dependencies.

The EU Competitiveness Compass, launched in January 2025, provides a long-term framework for assessing Europe’s progress in areas such as productivity, innovation, and resilience. This initiative helps guide policy decisions to strengthen the internal market and foster economic growth. The Commission adds that it will propose the introduction of a European preference in public procurement for strategic sectors and technologies.

Soon after, the Clean Industrial Deal was introduced in early 2025. This initiative focuses on decarbonizing European industries, accelerating the green transition, and ensuring long-term economic resilience through the promotion of sustainable technologies and industrial practices. Here too, the Commission notes that it will propose a revision of the Public Procurement Framework in 2026 adding that “This will allow for sustainability, resilience and European preference criteria in EU public procurement for strategic sectors.”

In April 2025, the AI Continent Action Plan was unveiled to position Europe as a global leader in artificial intelligence. This plan includes substantial investments to strengthen AI infrastructure, promote data access, and enhance Europe’s technological sovereignty in the AI sector. A reference is made to the Competitiveness Compass adding that “procurement should promote European preference for critical sectors and technologies.”

Legal Challenges and Court Rulings

The European Union's approach to public procurement involving third-country economic operators has been the focus of evolving Court of Justice of the European Union (CJEU) jurisprudence. Recent decisions have been pivotal in clarifying the legal boundaries of such participation and the interpretation of relevant directives. Notably, cases such as Kolin, where the Court of Justice ruled that economic operators from countries outside of the EU that have not concluded an international agreement with the European Union guaranteeing on the basis of reciprocity and equality access to public procurement for contractors (including signatories to the World Trade Organization Agreement on Government Procurement, GPA), cannot effectively invoke the provisions of the Directive and thus demand equal treatment of their bids with those submitted by other bidders.

In Qingdao, the CJEU refers to Kolin adding that access of the economic operators of third countries that are not bound by an international agreement with the EU or the GPA to public procurement procedures in the European Union is not guaranteed. That means that those operators may either be excluded from those procedures or be admitted to them whilst not being able to rely on that directive and to require that their tender be treated equally to those submitted by tenderers from Member States.

In light of these two CJEU judgments and the queries received from different stakeholders, the Commission services prepared a non-paper regarding “the participation in the EU procurement market of bidders from non-covered third countries in view of the recent court of justice case-law.”^[11] Among other related considerations, this Q&A-type document addresses questions about the interpretation of the CJEU and explores how contracting authorities should understand references to non-covered countries, handle situations lacking reciprocity despite agreements, apply the judgment to goods and services from non-covered countries, and interpret the judgment regarding consortia members, etc.

Implications for Global Trade Partners – and How We Can Help

The EU’s shift toward strategic regulation is reshaping access to its market. Increasingly, participation hinges not just on competitiveness, but on alignment with EU rules, reciprocity, and broader strategic priorities. For global trade partners, this creates uncertainty—but also opportunities for those prepared to navigate the legal and institutional terrain.

As KPMG Law, we are available to answer any questions and help you interpret and anticipate new regulatory developments and assess exposure under instruments like the FDI, IPI and FSR.