What's in the EU Buy-European Law?

On Wednesday, the European Commission proposed new rules that require a minimum percentage of public funds to be spent in Europe on electric cars, windmills, and other "key technologies" when they are purchased or manufactured.

What you should know

Why do it?

The "Industrial Accelerator Act" is part of the EU's efforts to help local industry compete with foreign producers who are not subjected to Europe's strict regulations and higher prices for energy.

It aims to avoid losing green tech industries, such as solar panels, to China. China already dominates the manufacturing of many of these products.

The EU law is designed to use the massive financial power of public procurement in its member countries - more than 2 trillion euro ($2.37 trillion), or 14% of EU output, to support struggling domestic industries.

What will the law do?

The Commission published a legal proposal on Wednesday that would require EU-made products and low-carbon standards for all products purchased through public procurements or manufacturing subsidies.

The regulations cover "strategic industries", such as batteries, solar, wind, hydrogen production, and nuclear power stations.

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

In the case of solar panels, for example, the inverter and the cells, or equivalent parts, would have to be made in Europe within three years.

Six months after the new law comes into effect, electric vehicle manufacturers will have to make sure that their vehicles, excluding their battery, are assembled in Europe and 70% of the components are made there.

Aluminum purchased through public procurement will need to be made in Europe and contain less carbon. Steel will not be subject to Europe-made requirements but must still meet 25% low-carbon. The law originally included a label on steel that would have made it easier to see the lower carbon products. However, this was removed after last-minute discussions.

What is a "European"?

As EU officials and governments fought over the finer details, the fiercely debated legislation was delayed for months. The key issue was the definition of made in Europe.

The proposal automatically counts goods that come from all 27 EU members states plus Iceland, Liechtenstein and Norway, which are also part of the Single Market.

Moreover, certain foreign countries will be offered the same treatment by the EU, but only under certain conditions.

A country can be considered for EU public contracts if it is one of the 21 non EU signatories of the Government Procurement Agreement, which was drafted by the World Trade Organization. A trade agreement must be in place between the EU and the foreign country for other public expenditures.

The EU plans to publish a new law to exclude countries from the list if they do not provide equal access to EU companies for their domestic procurement or subsidies.

This could be a problem for countries such as Canada, which has a policy of "buy Canadian", where local companies are given priority over foreign firms.

There are a few?potential exceptions. For example, switching to a European-made product would increase the cost by 25% for?public procurement, or by 20% in government auctions.

CONDITIONS ON INVESTMENTS

The proposal also sets conditions for foreign investment in strategic sectors of more than 100 millions euros, if the investor comes from a country which controls at least 40 percent of global manufacturing capacity. This threshold is aimed at China.

Criteria include that the foreign investor must not hold a majority share in an EU-based company and must hire primarily European workers.

Next Steps

The EU and European Parliament will now have to negotiate and finalise this law, meaning that there are more changes likely due to the differing views of governments.

France has backed the plans, which was seeking stricter restrictions on non-EU countries that are allowed to enter.

Sweden and the Czech Republic are against strict rules. They warn that they could discourage investment and increase prices. Germany also has a cautious approach, with Chancellor Friedrich Merz stating last month that European preferences should only be used as a "last option" and to include other trading partners.

The industries will also lobby for change. Steel manufacturers and other sectors who have been excluded from the reforms want to be included.

Other people want to leave. The carmakers are against being included because they fear that their global supply chains may be disrupted.

(source: Reuters)