A new course for the EU: Key takeaways on the implications of the Competitiveness Compass Agenda on antitrust, internal market and trade defence

Main strategic lines of the new Competitiveness Compass for the EU

The European Commission (“EC”) has published on the 29th January the “Competitiveness Compass for the EU”¹ (the “Compass Strategy”), an ambitious framework comprising initiatives aimed at strengthening and protecting the EU’s position on global markets. As a response to the deficiencies identified in the Mario Draghi Report² and Enrico Letta's Report,³ and in line with the priorities of the new EC,⁴ the Compass Strategy sets political and economic priorities for the EU, focusing on innovation, competitiveness and sustainable prosperity. 

The Compass Strategy is launched in the wake of current geopolitical tensions which affect both the world and the EU trading system, and in preparation of the policies that the new US administration plans to implement with regard to trade,⁵ security and other key strategic priorities, such as the efforts towards meeting decarbonization goals.⁶

Although the Compass Strategy is a non-legally binding communication, it outlines the direction for the revision of existing EU legal instruments and sets the stage for the various new pieces of legislation expected to be adopted by 2026. It builds on, and in some ways departs, from major strategy documents such as the European Green Deal (2019) and the Digital Compass for 2030 (2021). The Compass Strategy lays out a timeline and specific milestones for each proposal, underscoring the urgency and the need for swift action. At a first glance the timelines might appear overly ambitious (initiatives are planned to land in 2025 or 2026), but some of the proposals or strategies are already in progress, such as the quantum technologies policy,⁷ while others, (e.g. the funding granted through the Important Projects of Common European Interest⁸ (“IPCEI”) are already operational. 

The cardinal points of the Compass Strategy that will guide EU and influence national policies are:

1. Sustainable prosperity and competitiveness: the EU will focus on two basic requirements for policies to support competitiveness that are simplifying and reducing regulatory burdens, while ensuring better coordination and harmonization among Member States.
2. Reducing the innovation gap with the US and China especially in advanced technologies: The EU plans to reinforce its efforts to remove the barriers within the internal market that hinder companies from scaling up in Europe, with the ultimate goal of encouraging companies to direct their investments and innovative efforts towards the European market. 
3. A joint roadmap for decarbonization and competitiveness: The EU will continue its plans for green energy and encourage clean production investments with tools ranging from preferences for European companies in public procurement to financial incentives.
4. Increasing security and reducing dependencies: The EU aims to decrease its dependence on imports, in particular in critical areas such as raw materials and advanced technology, plans to develop a more robust “foreign economic policy” and ensure the resilience of its supply chains. 

To achieve these objectives, the Compass Strategy outlines initiatives in two directions: (i) inward actions supporting EU companies, strengthening internal cooperation between Member States and removing barriers within the internal market; and (ii) outward actions to tackle the challenges posed by allegedly unfair competition from third countries via the large arsenal of legal tools at the EU’s disposal (see below). 

In this article we will focus on the key impacts of the plans outlined in the Compass Strategy for the future of EU antitrust, State aid and trade defence rules and policies. 

Inward actions to strengthen the Internal market: towards greater coordination between EU and Member States unite to counter unfair trade from Third countries

From the perspective of trade and competition within the EU internal market, the Compass Strategy appears to crystallize a shift in focus which took place over the past few years, from the traditional paradigm of preserving “free competition” between undertakings on the EU market to protecting the “competitiveness” of the EU against Third countries. This change has significant repercussions on the way antitrust, State aid, trade and internal market rules and policies will be applied going forward. 

• Towards a greater focus on “European” competitiveness in merger control review

The Compass Strategy identifies the review of EU merger control rules as a priority. This reflects the EU’s announced willingness to rethink antitrust enforcement, and the need for a “fresh approach” identified by the EC. The newly elected Commissioner for Clean, Just and Competitive Transition, Teresa Ribera highlighted that a “new approach to competition policy – one that is more supportive of companies scaling up in global markets” is necessary.⁹ In particular, according to Ribera, merger control screening should be adapted to reflect “overall policy objectives and market realities, including possible efficiencies”.¹⁰ Contributions to innovation and resilience will likely play a prominent role in the assessments of concentrations.¹¹ In the mission letter to the new Vice-President for a Clean, Just and Competitive Transition, Ursula von de Leyen likewise emphasized the need to accelerate the merger control procedures, stating that Teresa Ribera’s mission would be to “accelerate authorisation of [...] transactions in strategic fields”.¹²

To achieve these goals, the Compass Strategy announced the much-anticipated revision of the EU merger control rules.¹³ While at this stage it is unclear how the EU merger control rules will be revised, the Compass Strategy seems to suggest that changes will lead to greater “flexibility” when reviewing concentrations in the EU, enabling the EC to formally take into account demonstrable benefits on innovation and EU resilience in strategic fields, such as AI, clean tech, critical raw materials, energy storage, quantum computing, semiconductors, life sciences and neurotechnology. 

The changed rules might also make more space for the much debated “European Champions” policy, which was strongly supported by Member States such as France and Germany.¹⁴ The previous Competition Commissioner, Margrethe Vestager, was a strong critic of this approach, and, most notably, the EU prohibited the Siemens/Alstom merger in 2019, which was supposedly intended to create a European railroad Champion to compete against the expansion of Asian players into the EU market. However, times are changing and perhaps the Competitive Compass may provide more room for European companies to argue that consolidation is necessary to protect the EU’s competitiveness against third countries.

• Adapting the competition policy framework to evolving markets and tech innovation

The Compass Strategy confirms the need to rethink antitrust enforcement in light of the broader EU’s agenda. The EC reconfirmed its plans to review the Technology Transfer framework,¹⁵ which is set to expire in April 2026, with a view to strengthening the role of technology licensing agreements in promoting innovation by facilitating technology dissemination and incentivizing initial R&D. This is also consistent with the EU’s recent positioning regarding cooperation between competitors in the field of sustainability.¹⁶ The revised Horizontal Guidelines¹⁷ indicate that the EC will take into account efficiencies that could result from sustainability agreements, such as enabling the development of new products or markets, increasing the quality of the existing products, creating less polluting production or distribution technologies or more resilient infrastructure. In light of these developments and the Compass Strategy priorities, we can expect that the EC will in the future carefully consider whether agreements between competitors align with the EU’s overall priorities beyond antitrust, in particular with regard to resilience and innovation in critical sectors, when assessing their pro-competitive effects.

• Boosting funding opportunities via State aid and EU funding in key sectors

The Compass Strategy recognizes that access to funding is currently a key obstacle to developing the EU’s internal market and fostering the EU’s competitiveness against third countries. In this spirit, the Compass Strategy envisages unblocking additional funding from EU Member States and the EU budget, and identifies various initiatives to do this.

a) Revision of State aid rules as part of the Clean Industrial Deal

The Compass Strategy announces a New State Aid Framework by Q2 2025 as part of the Clean Industrial Deal,¹⁸ which is expected to set out how well targeted, simplified State aid can be adopted by Member States to further encourage investment for decarbonization, while avoiding market distortions. Undertakings can therefore expect more State aid opportunities for renewable energy and for the deployment of industrial decarbonization, as well as funding for increasing their manufacturing capacity in clean tech. 

The EC also plans on proposing a “Competitiveness Coordination Tool” to foster coordination between EU member States and set common competitiveness priorities in key areas (including energy infrastructure, digital infrastructure, AI, and other critical manufacturing capacities), and outline a common EU governance mechanism for industrial and investment policies. The central elements of this coordination tool would include identifying joint competitiveness priorities and working on action plans with Member States and other key stakeholders. The new coordination tool will be designed in conjunction with a streamlining of the European Semester, to align national plans and EU targets. The EC’s plan is that the Competitiveness Coordination Tool would apply to State aid granted by Member States but also EU funding and private capital.

b) Promoting a wider use of EU funds for strategic sectors

Again focusing on swifter EU processes, the Compass Strategy sets out plans to facilitate a simpler, faster and cheaper access to EU funds, which are currently considered to be “fragmented over too many EU programs”. The underlying objective is to attract more undertakings to invest in the EU in key sectors, by expanding and simplifying its existing – or planned – tools, such as the Net Zero Industry Act, the planned Decarbonization Accelerator Act, or the IPCEI procedure. 

In addition, the Compass Strategy reaffirms the launch of the European Competitiveness Fund, which will be part of the next Multiannual Financial Framework. The goal of this fund will be to enable companies to access additional financing investments and R&D in strategic sectors, such as AI, space, clean tech or bio-tech. 

c) Existing and new financing frameworks

The Compass Strategy also encourages companies to access the existing financing frameworks, such as the European Tech Champions Initiative of the EIB Group, started in 2023 to promote the growth of tech start-ups and the upcoming European Research Area Act, which will support R&D investments. 

• Stronger enforcement of the Single Market

The Compass Strategy highlights the importance of removing any remaining intra-EU trade barriers, in order to improve and expand the Single Market. This will be achieved by implementing a new Horizontal Single Market Strategy,¹⁹ which should modernize the Single Market governance framework and prevent the creation of new barriers between Member States.

These initiatives will likely translate into a revamped focus on monitoring and tackling barriers to trade between Member States, and an increased enforcement of the single market rules by the EC through infringement procedures against Member States. Emerging sectors such as AI, green energy and mobility, will require strict coordination between Member States and the EU to avoid barriers that would disrupt the EU internal market, by hampering the free movement of goods and services. In particular, the Compass Strategy places AI at the forefront of innovation and technologies in which European companies are encouraged to invest in. AI is one of the areas in which the EU already intervened, in order to ensure coordinated action and prevent the risk of fragmentation of the Single Market by contradictory national frameworks.²⁰ The EU seeks to ensure an even greater alignment of policies in this field, to limit potential barriers between Member States to the circulation of AI goods and services by implementing the Apply AI Strategy and Data Union Strategies in Q3 2025, timelines that were announced under the Compass Strategy.

The Compass Strategy also outlines the proposal to introduce an EU-wide “28th legal regime” to tackle the issues met by innovative companies facing 27 distinct legal company regimes, and simplify applicable rules and reduce the cost of failure, by harmonizing aspects of insolvency, labour law, and tax law.

Outward actions: Leverage existing tools to protect the EU economy and secure a level playing field with global trade partners

Complementary to promoting production and innovation by European companies, the EU also intends to focus on protecting the EU’s interests. Particularly, by reducing external dependencies to become less vulnerable to threats arising from supply chain disruptions and reliance on certain imports, as well as responding to harm to EU industry as a result of unfair competition by third countries. 

The Compass Strategy preserves the EU’s aim for mutually beneficial trade and its trade openness. However, it also marks a decisive shift in the openness towards third countries, when such trade relation or investments do not align with the EU competitiveness goals.

The Compass Strategy envisages that the EU will rely on its various legal instruments to protect itself against threats to its competitiveness and prosperity. 

• Stronger screening of investments from Third countries based on the Foreign direct investment (“FDI”) and Foreign Subsidies Regulation (“FSR”) frameworks

The EU aims to build stronger walls against unfair competition against the Single Market. A recent tool that has been set up in order to screen and redress potential distortions caused by investments from companies that received subsidies from third countries is the FSR. The EC has already demonstrated a strong commitment to enforcing the FSR, in particular in strategic areas such as green energy²¹ and national security.²²  Vice President Ribera, responsible for the Clean, Just and Competitive Transition confirmed that the FSR will be one of the top priorities on the agenda of the EC.²³ The FSR enforcement will target in particular subsidies by third countries leading to structural overcapacity such as Chinese investments in renewable energy.

FDI is another important instrument mentioned by Compass Strategy, that is undergoing a significant reform. The EC proposed a new EU legislation setting out a new, stricter FDI framework, by providing a minimum screening scope covering sectors that the EU deems as significant, and also by making such a regime mandatory for all Member States.²⁴ The Compass Strategy confirmed its commitment to ensure that critical technologies investments made by foreign companies are screened – which mirrors the aim of the EU to encourage such investments by European companies.

• Using trade defence tools to strengthen the EU’s economic security

The Compass Strategy identifies export controls and outward investment monitoring as protective tools that can be used to safeguard the EU’s competitiveness as a technological leader and prevent leakage of EU technology. 

The Compass Strategy builds upon the 2023 Commission European Economic Strategy and the 2024 Commission White Paper²⁵ which outlined Europe’s need for a new instrument to screen outbound EU investments. In its Recommendation of 15 January 2025, the EC asked Member States to conduct a risk assessment of outbound investments in critical technology sectors relevant to EU economic security and to report by June 2026.

The EU would be following international trends in this regard. The US Outbound Investment Program, which came into effect in early 2025, already imposes restrictions and requires notification for certain transactions involving specific countries, with China being the primary focus.

• Revision of European public procurement rules to introduce Europe-first requirements

The Compass Strategy announces a revision to the EU Procurement Directive by 2026, including the introduction of a Europe-first requirement. 

The proposal for a revision of the EU Procurement Directive reflects the trend towards greater protectionism in public procurement in the EU and worldwide. In the recent Kolin judgement, the Court of Justice of the EU²⁶ confirmed that economic operators from countries that are not signatories to an international agreement on public procurement with the EU (such as the World Trade Organisation Agreement on Government Procurement)²⁷ cannot invoke the EU Public Procurement Directive to access and participate in tender procedures on equal terms with EU operators. 

In January 2025, the EC published a report that highlighted the disadvantages that EU operators face in China’s public procurement market for medical devices.²⁸ In that regard, the planned revision of the EU Procurement Directive announced by the Compass Strategy will complement the EU’s International Procurement Instrument, which together respond to the disadvantages faced by EU exporters due to policies such China’s “Buy China” strategy, and potentially the US “America First Trade policy”,²⁹ which promote the use of domestic products through mandatory procurement targets. 

The EU’s International Procurement Instrument (“IPI”) Regulation has been in place since 2024 and aims to ensure reciprocity in access to international public procurement markets to protect the ability of EU operators. The IPI Regulation established a process for the EC to investigate measures or practices in third country procurement markets that disadvantage EU operators. If the investigation confirms the existence of such barriers, the EC has the authority to restrict access to EU public procurement procedures. The IPI will therefore complement the revision of the EU Procurement Directive announced in the Compass Strategy.

One concern of the planned revision of the EU Procurement Directive will be its compatibility with the EU’s international obligations to maintain a certain level of openness in public procurements towards economic operators from third countries. The EU will need to make sure that its revision respects international trade rules as well as the EU’s own rules, with key factors being which countries and sectors will be affected by the new rules, and the justifications for the changes.

Authored Francesco Pili, Veronica Bulmez, Hélène de Cazotte, Lourdes Catrain, and Nina Spieler.