How “Made in Europe” will affect public contracts and State aid
The IAA proposal sets an industrialisation objective requiring manufacturing to account for at least 20% of the EU’s GDP by 2035. To achieve this, the proposal introduces new origin and sustainability requirements for public procurement and public support schemes. Exemptions may apply but only where costs would be disproportionate, no EU suppliers exist or significant delays would ensue.
Under the proposed framework, only undertakings from countries that have concluded an international agreement with the EU granting market access may participate in public procurement procedures involving steel, concrete, certain electric vehicles, or specified net-zero technologies such as wind and solar. Member States must impose minimum thresholds for low-carbon, Union-origin content for procedures. The automotive industry faces stricter requirements, including EU assembly obligations.
The IAA also requires Member States to design public support schemes in accordance with Union-origin requirements, low-carbon content requirements, or both. Such requirements must apply to at least 45% of the national budget allocated to covered schemes for energy-intensive industrial products, and to 100% of the budget for certain net-zero technologies. EU manufacturers may therefore see expanded market opportunities as these requirements channel public procurement contracts and subsidies towards domestically produced goods in covered sectors. However, automotive manufacturers will need to ensure compliance with stringent EU assembly obligations.
Existing and prospective free trade agreements (FTAs) and World Trade Organization (WTO) commitments may allow content originating outside the EU to qualify as “Union origin”. This provision is particularly relevant for trusted EU trade partners, whose suppliers may retain market access through automatic Union-origin equivalence. This provides them a competitive advantage over suppliers from other third countries who risk exclusion from public contracts. The Commission retains the power to exclude third countries that fail to provide national treatment, or where exclusion is necessary to avoid supply dependencies.
Conditioning foreign investments in strategic industrial sectors
The IAA establishes a new framework for conditioning foreign investments (including greenfield investments) in four emerging strategic sectors: battery technologies, electric vehicles, solar PV and critical raw materials. Unlike existing national security-focused FDI screening regimes and the FDI Screening Regulation, this framework aims to ensure that foreign investments deliver specific value to the EU single market. Non-EU investors in these sectors from countries with more than 40% of global manufacturing capacity could face significant deal-planning and structuring considerations.
- Coverage: Except where an existing trade agreement applies containing relevant commitments, the proposed FDI regime covers investments in four strategic sectors listed above, but only where the foreign investor’s home country (or that of its EU subsidiary) holds over 40% of global manufacturing capacity in the relevant sector. The Commission may extend the coverage to certain other emerging strategic sectors, although digital technologies, artificial intelligence, quantum technologies and semiconductors are excluded. Investments targeted at providing services and portfolio investments are excluded.
- Investment and control thresholds: The regime applies to investments exceeding EUR 100 million where the investor acquires control of 30% or more.
- Substantive assessment: Investments must satisfy at least four of the following six conditions:
- a maximum foreign ownership of 49%;
- direct investment through joint venture structures with EU partners;
- IP licensing to the Union target;
- a commitment of at least 1% of gross annual revenue to EU-based R&D;
- employment of at least 50% EU workers across all workforce categories (a mandatory condition); and
- an endeavour to source at least 30% of inputs from the Union.
These conditions may require investors to identify suitable EU joint venture partners early in the transaction process, negotiate IP licensing arrangements upfront and undertake detailed workforce planning.
- Notification and decision-making: investors must notify the Investment Authority (IA), to be designated by each Member State, before acquiring 30% or more control. The Commission may issue a written opinion on any notified investment at any time prior to the IA’s decision. Although advisory, the IA must give the opinion utmost consideration and provide written justification if it diverges from it. The Commission can decide to undertake the assessment itself if the investment significantly impacts value added in the EU market, where the investment value exceeds EUR 1 billion or upon the IA’s request. If it does so, the Commission has final decision-making authority.
- Procedural timelines: the IA must decide on the admissibility of a notification of an investment within 30 days, which can be extended up to 15 days in duly justified circumstances. It must approve or reject the investment within 60 days (or 75 days if the admissibility period is extended by 15 days), when justified by the circumstances this period can be extended with another 30 days.
- Enforcement: IAs must monitor compliance with the aforementioned substantive conditions based on regular reports submitted by the foreign investor. Failure to notify may trigger penalties of at least 5% of average daily aggregate turnover.
Next steps
The Commission has launched an eight-week feedback period. The feedback will be summarised and submitted to the European Parliament and the Council, which will examine and negotiate the proposed IAA. Given its sensitivity and complexity, adoption is expected to take more than a year. Stakeholders should engage early with the European Parliament and the Council to shape the final text, particularly regarding third country equivalence (and its WTO and FTA compatibility), sector coverage, thresholds and exemptions.
We will continue to monitor developments and provide updates through our EU newsletter.