The Industrial Accelerator Act continues to raise concerns - EU protectionist policies may backfire (in-depth observation)
In March of this year, the European Commission announced the Industrial Accelerator Act, which proposes to introduce requirements such as "Made in the EU" in public procurement and public support programs, set restrictive conditions on foreign investment in strategic industries such as batteries, electric vehicles, photovoltaics, and key raw materials within the EU, and require technology licensing, local procurement, local research and development, and local employment for some foreign investment projects. As of now, the bill is still in the legislative process of the European Union.
Since its inception, the Industrial Accelerator Act has sparked widespread attention and controversy both within and outside the European Union. The relevant measures originally planned to be launched last year have been postponed multiple times due to differing positions among member states. Some international organizations and business people believe that some of its regulations violate the principles of fair competition and market openness, and may constitute new investment barriers and institutional discrimination, not only increasing business costs and weakening EU market competitiveness, but also potentially bringing new impacts to multilateral trade rules.
Weakening the resource allocation capability of European enterprises in the global value chain
The Industrial Accelerator Act proposes to introduce the requirement of "EU origin" in some public procurement and public support projects, and allows third country entities that have not reached relevant international agreements with the EU and cannot guarantee "equal access" for EU enterprises to be excluded from procurement projects. At the same time, the bill also requires member states to include low-carbon and origin standards in a certain proportion of their public support budgets.
Promoting green transformation and enhancing supply chain resilience is not a problem in itself, but the bill does not evaluate solely based on product technology level, carbon emission performance, or market competitiveness. Instead, it includes the origin and production location of enterprises as important considerations. Even if relevant companies can provide more competitive and green transformation products, they may still be excluded from the market due to non-technical factors.
The EU's restrictions on origin and production have raised concerns among many professionals. The Belgian think tank Bruegel Institute believes that if European industrial policy overly emphasizes production locations rather than synergies between European companies, European technology, European rules, and international partners, it is easy to alienate "resilience" into "introversion", "thereby weakening the resource allocation ability of European companies in the global value chain". The European Business Federation also stated that introducing a "European preference" in the areas of public procurement and public support requires "great caution", as localization requirements may raise procurement costs for businesses and weaken their flexibility in the global market.
Global legal services firm Meibo Law Firm believes that there may be inconsistencies between certain EU procurement arrangements and obligations under the World Trade Organization's Government Procurement Agreement. In a recent report by the Bruegel Institute, it is pointed out that the EU should abandon the protectionist approach of simply "Made in Europe" and rely more on open markets, supply chain diversification, and fair competition to enhance industrial competitiveness. Otherwise, relevant policies may not only fail to achieve expected goals, but also weaken the international competitive advantage of European companies. Nick Thomas Simmons, the official in charge of EU affairs in the UK, has warned that overly strict local preference requirements will create unnecessary trade barriers, drive up industry chain costs, and have a negative impact on the supply chains of key industries in the UK and Europe. He emphasized that the UK and Europe share the challenge of enhancing competitiveness and productivity, and should not inflict economic harm on each other.
Will push up costs, weaken competitiveness, and ultimately pass it on to European consumers
In addition to public procurement, the Industrial Accelerator Act also imposes strict restrictions on some major foreign investment projects. The bill stipulates that a special review mechanism will be applied to foreign direct investment worth over 100 million euros and coming from third countries that account for more than 40% of global manufacturing capacity in relevant strategic manufacturing fields. The investor must meet at least 4 out of 6 conditions, including equity structure, local research and development, technology licensing, local procurement, and local employment. This includes requirements such as foreign ownership not exceeding 49%, at least 50% of employees being EU workers, and at least 30% of inputs coming from the EU.
Some industry organizations and research institutions believe that replacing technology risk assessment with origin politicizes business decisions and deviates from the principles of technology neutrality and non discrimination. The European business community is concerned that mandatory localization arrangements may increase compliance costs for businesses, reduce investment efficiency, and diminish the attractiveness of the EU market to international capital. The European Photovoltaic Association stated that while promoting the development of local manufacturing, conflicts with European electrification and energy transition goals should be avoided. If the relevant policies lead to an increase in project costs, it will weaken Europe's electricity competitiveness and affect the speed of renewable energy deployment.
According to research by the Kiel Institute for World Economy in Germany, incorporating multiple goals such as decarbonization, supply chain security, geopolitics, and competitiveness into the industrial policy framework may increase the costs of each link in the value chain and increase the risk of trade frictions. Cornell Ban, Associate Professor at Copenhagen Business School in Denmark, stated that localized procurement and investment requirements alone cannot solve the problem of weak competitiveness in European industries. If there is a lack of supporting measures such as innovation, financing, and unified industrial policies, relevant measures may actually increase market costs and drag down the improvement of European industrial capacity.
The EU China Chamber of Commerce stated that although the bill aims to strengthen the competitiveness of EU industries and accelerate energy transition, its multiple provisions may have counterproductive effects. For example, the fourth chapter of the bill adds new approval levels on top of the existing EU foreign investment review framework, which will significantly increase compliance costs and approval time. The strict investment approval framework and restrictive conditions of the bill may divert investments to other regions with more predictable regulatory environments. The requirement for localization content and exclusivity standards will drive up costs, weaken competitiveness, and ultimately pass on to European consumers, delaying the popularization of green and environmentally friendly technologies, "the agency emphasized.
The EU must truly realize the necessity of changing its economic and governance model
In fact, the challenges facing European industry have long exceeded the scope of industrial protection policies. Many observers believe that the root cause of the decline in European industrial competitiveness lies in its long-standing structural contradictions. Faced with the challenges of deep integration of global industrial chains and green transformation, what Europe truly needs is to reduce energy costs, improve the business environment, enhance innovation capabilities, and improve the efficiency of a unified market, rather than shifting conflicts by setting new market barriers.
The report "The Future of European Competitiveness" written by former European Central Bank Chief Draghi points out that issues such as slowing productivity growth, high energy costs, fragmented capital markets, insufficient transformation of innovative achievements, and demographic changes are continuously weakening the long-term competitiveness of the European economy. Johannes Lindner, co director of the Jacques Delors Institute, a European think tank, believes that the EU faces numerous challenges in maintaining international competitiveness, most of which have been long-standing, such as a lack of skilled labor, low levels of digitization, and outdated infrastructure.
The EU must truly realize the necessity of changing its economic and governance model, "said Draghi. The EU must undertake major reforms, such as accelerating innovation in strategic technology fields and seeking new balances in the decarbonization process.
Open cooperation has always been an important foundation for the development of the European economy. Some European think tanks have expressed that relying on protectionist measures such as the Industrial Accelerator Act to "build walls and limit restrictions" not only fails to solve the problem, but may also weaken the vitality of the European market and international competitiveness. Polish think tank Instrat believes that the EU's attempt to promote industrial transformation in Europe through the addition of new regulatory indicators and complex approval procedures may lead to further administrative burdens. For example, the institution stated that in many parts of Europe where administrative systems are approaching their capacity limits, introducing additional requirements will weaken policy implementation efficiency and make institutional operations more complex. In addition, relevant measures have led to excessive stacking of rules and inconsistent industry standards, relying solely on rule adjustments and procurement preference mechanisms, making it difficult to fill the huge funding gap required for decarbonization of heavy industry in the EU.