What does the 'Made-in-EU' law say and why should Britain be concerned?

British Prime Minister Andy Burnham announced on Tuesday that he will make a case for Britain being considered a "trusted" partner under the proposed "Made in EU "rules of the European Union. He warned that excluding Britain could harm the British "car industry."

The European Commission's Industrial Accelerator Act was unveiled by the European Commission in March.

RATIONALE

The Industrial Accelerator Act is part of the EU's broader efforts to help local industries compete against producers overseas who are not subjected to Europe's strict regulation and higher energy costs.

The goal is to reduce reliance on China which dominates the production of green technologies including solar panel components.

The EU law is designed to use the massive financial power of public procurement in its member countries - more than EUR2 trillion ($2.29 billion) or 14% EU economic output – to support struggling domestic industries.

What will the law do?

The proposal includes local-content requirements and low-carbon standards for products purchased through public procurements, public auctions, or subsidy schemes.

The report covers the?strategic industries including electric vehicles, batteries and solar and wind energy, as well as nuclear and hydrogen technology.

It specifies a requirement for each technology depending on whether the goal is to maintain a current industry, like that of hydrogen electrolysers where EU manufacturers are currently leading local market, or to bring back to Europe a tiny share of an industry, which China dominates.

Solar panels must be made in Europe within three years, including the inverter and the cells.

Aluminium purchased through public procurement must be made in the EU to a minimum of 25% and low carbon. Steel will not be subject to EU-made requirements but must meet 25% of low-carbon standards.

Six months after the law comes into effect, electric vehicle manufacturers who are procured through public tenders will have to make sure that their vehicles are assembled in the EU and 70% of the components, excluding the batteries, are made in the EU.

What is 'Made in EU'?

The definition of "Made in EU" is a key issue.

The proposal includes automatically all goods produced by the 27 EU members states plus Iceland, Liechtenstein and Norway, which are also part of the single European market.

Some non-EU nations could be included as well if they offer reciprocal access to public procurement and subsidy programs. The eligibility would be restricted to those countries that are covered by WTO rules on procurement or have trade agreements with the EU.

This could be a problem for countries like Canada, whose "buy Canadian" policies give preference to local companies over foreign firms.

The Commission is yet to release a list with qualifying countries. The British association of carmakers, SMMT, said that excluding Britain could put shared investments and a EUR80-billion trading relationship in danger.

This proposal contains exemptions for products that are not available in Europe, or where switching suppliers will increase costs.

Foreign Investors Rules

The law would also impose conditions for foreign investments exceeding 100 million euros, in sectors where the home country of the investor accounts for at minimum 40% of global manufacturing capability. This provision is widely perceived as a target against China.

Criteria include that the foreign investor must not hold a majority of shares in an EU-based company and must hire primarily Europeans.

Next Steps

The EU government and the European parliament must agree on a final text. Approval is expected to take place next year.

France wants stricter rules on which non EU countries are allowed to enter the EU, whereas Sweden and the Czech Republic have warned that strict rules could discourage investment and increase prices. Germany has also taken a cautious stance, with Friedrich Merz saying previously that the sole European preference rule should only be used as a last resort.

The industries are also urging for change. Steel manufacturers and other sectors who have been excluded from the "Made in EU rules" want to be included.

The carmakers are less excited, as they worry that their global supply chains may be disrupted.

(source: Reuters)