Protecting the strategic industrial sectors most vulnerable to international competition in order to maintain and boost production in the EU while remaining open to trading partners.
This is the delicate balance struck by the European Commission in its proposal for an ‘Industrial Accelerator Act’ (IAA).
Presented on Wednesday 4 March by the Executive Vice-President for Prosperity and Industrial Strategy, Stéphane Séjourné, this regulation, which has been postponed several times and has given rise to real differences of opinion within the College of Commissioners, establishes a European preference - or ‘Made in Europe’ criteria - applicable to all types of public funding by Member States (public contracts, calls for tender, State aid and direct subsidies) in three specific sectors: - the automotive industry, including electric and plug-in hybrid vehicles, and their components; - energy-intensive industries such as paper, cement, aluminium and, later, the chemical sector; - the clean technology sector (solar panels, heat pumps, wind turbines, nuclear power, etc.).
Foreign direct investment of more than €100 million will also be affected.
“’Made in Europe’ is making its big entrance into European legislation”, said Stéphane Séjourné with satisfaction. And this “is not just a change in operating mode, but a change in doctrine”, added the official, who nevertheless had to agree to reduce the scope, as the early working versions included sectors such as robotics, digital technologies and quantum technologies (EUROPE 13818/6).
In any case, the IAA has set itself the target of restoring industry’s share of European GDP to 20% by 2035, compared with 14.3% at present. It is expected to help to keep investment in the EU in these ‘clean’ sectors linked to decarbonisation in order to maintain factories and maintain a workforce. It aims to create 85,000 new jobs in battery projects and 58,000 in solar panel manufacturing, while preserving existing jobs in steel, aluminium and cement as these sectors make the transition to cleaner production.
“Without a strong industrial base, there can be no European social model, no climate transition and no strategic autonomy”, summarised the Vice-President, who estimated that 600,000 jobs would be at risk if the EU did not react.
While the regulation, as its name suggests, is also intended to shorten the permitting processes for building new plants, with tacit approval at intermediate stages and a single access point for submitting a single permit application for a single project, all the attention and tension in recent months has been focused on the arrangements for this European preference.
Some saw this as protectionism, in violation of trade agreements. Others feared that this exercise would run counter to the trend towards simplification.
Practicalities. In the final analysis, the text attempts to accommodate different sensitivities and will not add any “red tape”, the Vice-President assured. The approach will be sector by sector or component by component, and it is on this basis that public authorities will decide whether or not to exclude foreign service providers.
For electric vehicles, Member States will be able to encourage companies to acquire a fleet of electric or hybrid vehicles if 70% of components (other than batteries) are produced in the EU, while at least three battery components (including cells) and 25% of the aluminium used must originate in the EU.
After three years, vehicles will have to be assembled in the EU and at least five battery components will have to originate from the EU.
For wind power, one component produced in the EU will be required in the first year, then three after three years.
For solar power, the EU also wants to relocate a small proportion of production, which is entirely dominated by China, by requiring that the inverter be built in the EU within three years.
With regard to heavy industry, the text also stipulates that when public authorities finance works or construction or infrastructure projects, they will be required to include at least 25% low-carbon steel, 5% low-carbon cement from the EU and 55% low-carbon aluminium produced in the EU.
Foreign direct investment (FDI) or the anti-China weapon. “Europe is sometimes transformed into an assembly line for certain companies, particularly Chinese ones. We have seen on several occasions that these companies set up in Europe, build a factory there, bring in thousands of Chinese workers and run it alone, with very little local added value”, said a source on 3 March.
For FDIs over €100 million, conditions have been introduced for four ‘clean’ sectors: batteries, electric vehicles, solar panels and critical raw materials.
A company from a third country with a 40% share of the world market - this is most often “the case for Chinese companies”, acknowledged Stéphane Séjourné - will have to meet four out of six conditions: - its foreign share ownership must be less than 49%; - there will have to be technology transfers; - at least 50% of employees must be based in the EU (this condition will be mandatory); - it must have a partnership with a European entity; - it will have to direct 1% of worldwide sales to research and innovation in the EU; - and 30% of the inputs of the finished product must come from the European value chain.
Who can be considered ‘equivalent to an EU state’? This has been the most debated point. While the countries of the European Economic Area and Switzerland, which are highly integrated into the single market, run no risk of being excluded, a preliminary examination will have to be carried out for others by virtue of the existence or otherwise of trade agreements with provisions on public procurement (the EU has provisions of this type with 40 countries) or their participation in the WTO’s Government Procurement Agreement (GPA), a plurilateral treaty aimed at mutually opening up public procurement markets.
Reciprocity will also be scrutinised, as these partners may have restrictive practices. This would be the case for half of these 40 countries. Thus, since the UK does not reserve its support for the purchase of electric vehicles exclusively for British manufacturers or for cars produced on British soil, the EU will not exclude the country in return; but the country does have ‘local’ restrictions on certain public procurement.
As far as Canada is concerned, while the two parties have an agreement on public procurement, sectoral ‘Buy Canadian’ provisions exist, for example in public purchases of steel, aluminium and wood, particularly for the defence sector. The EU will therefore be able to do the same.
The same goes for ‘Buy American’. In the United States, for example, subsidies are available for the purchase of clean vehicles only if they have been built on US soil. This country is therefore expected to be reciprocally excluded from similar EU provisions.
The recent agreement with India also contains no provisions on public procurement. “As a result, neither European nor Indian companies have access to the public procurement market”, explained this source.
But the Commission has introduced an exception for cars used by professional fleets and direct State aid for nuclear power and electrolysers. Here, aid will be reserved entirely for production in the EU and EEA, with no derogations possible.
Link to the proposal: https://aeur.eu/f/l04 (Original version in French by Solenn Paulic)