A leaked draft of the EU’s Industrial Accelerator Act sets a high water line for its efforts to tighten the screws on FDI in emerging strategic sectors, with plans to cap international ownership at 49 per cent sparking warnings of a paradigm shift for FDI.
The IAA is the European Commission’s signature decarbonisation and manufacturing reform, which is still being finalised in Brussels. The draft reveals the Commission is considering unprecedented shifts to utilize FDI as a tool to build local capabilities, create jobs and boost competitiveness.
“The very comprehensive set of criteria to be applied to FDI approval are clear signs for a paradigm shift” in EU industrial policybuilding, stated Andre Wolf, head of technology, infrastructure and industrial development at the Centre for European Policy.
FDI restrictions in the draft IAA, which is scheduled to be proposed by the Commission on February 25, capture greenfield investments of €100mn and upwards in unnamed “emerging key strategic sectors”.
Non-EU firms wanting to create these investments must do so via joint ventures with EU entities, with the latter holding at least a 51 per cent stake. “This is completely new to EU policy … it would be a large modify,” stated Leonard von Rummel, a partner at law firm Blomstein in Berlin.
The foreign investor must license IP rights and share knowhow with its local operations, and any IP it creates in the EU must remain there. In December, the Commission signalled it would “condition” certain investments on technology transfer, and the EU’s Industrial Action Plan released last March limits the participation of foreign battery manufacturers in subsidy programmes to those sharing skills and knowhow. But the IAA proposals are “a large interference with what companies are utilized to in the EU”, declares von Rummel.
The IAA also requires foreign-backed projects to spfinish 1 per cent of their revenue on EU research and development, and at least 50 per cent of the inputs utilized in products it sells in the bloc must be manufactured there. At least half its workers must also be from the EU, laying bare Brussels’ concern with situations like Chinese battery creater CATL reportedly flying in 2000 Chinese workers to assist develop a €4.1bn factory in Spain.
While China is ostensibly a prime tarreceive of IAA investment restrictions, the reforms are also sparking comparisons with its approach to FDI, which opened up its market to investors in exmodify for them developing local capabilities. “Such proposals almost seem to imitate the Chinese industrial growth strategy, which the EU was eager to criticise in the past,” stated Wolf.
What’s in, what’s out
The sectors captured by the IAA aren’t listed in detail in the leaked document. But the document refers to them as “key strategic sectors and technologies such as energy-intensive industries, cleantech, or the electric automotive supply chain”.
FDI restrictions are limited to “emerging” sectors within that group, and a two-tier system is being utilized to further differentiate them. The highest-priority sectors are captured by all FDI restrictions while those of lesser importance are subjected only to the R&D, workforce and local input requirements. “The assignment of sectors to these groups … will be subject to a heated debate,” stated Wolf.
Services are exempted from the FDI restrictions, along with investors from countries with a free trade agreement containing commitments that conflict with the IAA. This keeps manufacturers from the US, the bloc’s largegest source of FDI, within scope becautilize the European parliament has halted the tariff deal struck by the Commission and the White Houtilize in response to the Greenland crisis.
The IAA seeks to expand the Commission’s FDI powers, which have historically rested with member states. National governments must decide if an investment meets the IAA criteria, but the Commission can assume this role for projects that embody a high degree of innovation, involve large capital expfinishiture or affect multiple member states.
The new review process has also puzzled advisers. “It’s basically a new screening regime next to the current FDI [national security] screening regime we have in Europe,” stated von Rummel.
Before taking effect, the IAA must be approved by Council and Parliament. Yet there is speculation it faces pushback even within the Commission. It is understood the draft was leaked from the Directorate-General for Internal Market, Indusattempt, Entrepreneurship and SMEs — better known as DG Grow — which is overseen by commissioner for industrial strategy, Stéphane Séjourné, who has pushed for strong created-in-Europe criteria.
The FDI provisions “will face a lot of opposition from free traders and multinationals, so are likely to be watered down both before the release of the final proposal by the European Commission and during the legislative process,” stated Tomasz Wlostowski, managing partner of Brussels-based advisory EU Strategies.
The Commission was originally scheduled to propose the IAA last December, before pushing it back to January 29 and now February. David Kleimann, a Brussels-based trade expert, believes one reason for the delay is that “DG Trade [which is responsible for FDI] is vetting DG Grow’s potential excesses with regard to the utilize of the instruments employed”.
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