Report: EU pushes for "70% European-made" standard for key goods, companies' annual costs could increase by more than 10 billion euros

The European Union is brewing an ambitious industrial policy, planning to set a "European-made" local content standard as high as 70% for key products such as automobiles, aiming to prioritize procurement of domestic goods and reduce external dependence.

On December 3, according to the latest media reports, the policy will be implemented through government subsidies and public procurement incentives. For example, only vehicles meeting the local content benchmark will be eligible for government subsidies, and batteries must also reach a certain proportion of European manufacturing. This proposal, known as the "Industrial Acceleration Act," is expected to be announced on December 10.

The proposal is led by EU commissioner Stéphane Séjourné from France, marking a new high in France’s years-long efforts to promote domestic production. European manufacturing is struggling to cope with competition from cheap Asian imports, especially facing pressure in clean technology and some heavy industries.

Countries such as Germany, previously skeptical about a "Buy European" policy, have expressed support due to changes in the economic situation. However, there are still divisions within the European Commission, with the powerful Directorate-General for Trade holding a skeptical view of the local content threshold.

Some officials worry that the price of European-made products may be significantly higher than Asian imports, further increasing corporate costs and potentially causing some products to lose market competitiveness. Reports suggest this policy may add more than 10 billion euros in annual costs to EU companies.

Local content threshold could reach as high as 70%

The report pointed out that the scope of this legislation design was modeled after significant industrial policy frameworks. An EU official stated: "We are trying to find a delicate balance between urgently needed industrial protection and openness cherished as part of the European DNA."

Three EU officials revealed that, as part of the industrial policy plan, the local content threshold could be as high as 70%, but specific targets will differ depending on an industry’s importance and dependency. The measure will only apply to the use of public funds, including procurement contracts and state-backed loans and subsidies.

The automotive industry will be a key focus. Government incentives will only be granted to vehicles meeting the benchmark. An official said batteries will also need to reach a certain proportion of European content. Another official mentioned the policy will also analyze the EU’s production capacity for each component.

Solar panel inverters, because their shutdown mechanism could pose a safety risk, may be required to be essentially manufactured in Europe. One EU official stated: "This is when more local content is needed."

The policy will also include clauses requiring public institutions to purchase European products, and will strive to use incentives to drive the market for clean technologies. Officials are discussing a voluntary "green steel" label as encouragement for manufacturers to buy more EU-produced, low-carbon but higher-cost steel products.

The report noted that although Germany and other countries have expressed support due to economic changes, the proposal faces clear disagreements within the European Commission.

Officials involved in negotiations said the law may be revised or even postponed. The Commission’s powerful Directorate-General for Trade is skeptical of the local content threshold, while this threshold is being promoted by the industry policy department led by Séjourné.

One official revealed that Séjourné ideally wants to restrict the definition of "Europe" to only the EU. Another EU official said the 70% figure may be lowered, and negotiations over local content rules are very difficult.

May add over 10 billion euros in costs per year for EU companies

Meanwhile, some officials are concerned the policy might bring significant financial burdens to companies.

According to officials familiar with the draft law, by encouraging companies to purchase more expensive European components, the policy may increase annual costs for EU firms by more than 10 billion euros.

Some officials worry that the price of European-made products may be much higher than those imported from Asia, raising business costs. Since many imported products are used in the manufacture of finished products like cars in the EU, this could also make some products too expensive to remain competitive.

Europe’s heavy industries, including the steel sector, have long struggled to maintain profitability in the face of cheap Asian imports. High energy prices and pressure from Trump-era tariff policies have made EU companies increasingly reliant on cheaply produced imports.

In 2024, external sources have become the largest exporters to the EU for technologies such as solar panels and biofuels, and the second largest for wind turbines.

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