Policy Watch | Major Shift in EU Industrial Strategy: In-Depth Interpretation of the Industrial Acceleration Act and Analysis of "Made in Europe" Rules
“This article analyzes the European Commission's newly proposed Industrial Acceleration Act (IAA) and its "Made in Europe" initiative, which introduces a "Europe First" principle for public funding in strategic industries. The legislation aims to revitalize the EU's industrial base, establish localization requirements for key sectors, and marks a fundamental shift from pure free trade toward an industrial policy centered on strategic sovereignty and supply chain security.”
The European Commission has recently unveiled its highly anticipated proposal for the Industrial Acceleration Act (IAA) , marking a historic turning point in European industrial policy. This draft legislation, designed to address global competition and revitalize domestic industries, centers on introducing a "Europe First" principle aimed at guiding critical industrial chains back to or establishing them within Europe through public funding. This development will have profound implications for global trading partners, particularly those maintaining close economic and trade ties with the EU.
I. Policy Background: From Ideological Taboo to Strategic Consensus
For a long time, within Europe's economic governance discourse, policies tinged with "protectionism" were often regarded as taboo. However, facing sustained deindustrialization pressures, high energy costs, and dramatic shifts in the global geopolitical landscape, voices within the EU are changing. Particularly after the United States and China strengthened their domestic competitiveness through the Inflation Reduction Act and industrial policies respectively, the EU realized the need to adjust its strategy.
Originally scheduled for release at the end of 2025, the Industrial Acceleration Act has emerged after months of intense debate among EU member states and the European Commission regarding the measure's effectiveness, scope of application, and potential impact. The core initiative of this act is called "Made in Europe," aiming to increase the industrial sector's share of EU GDP from the current 14% to 20% by 2035, returning to levels seen in the early 1990s. EU leaders are expected to endorse the plan at a mid-March summit, granting it political legitimacy.
II. Core Mechanism: The "Europe First" Principle for Public Funds
The essence of the Industrial Acceleration Act is the introduction of a "Europe First" mechanism for public funds applied to strategic industries. This means that when member states award public procurement contracts, grant state subsidies, or provide other forms of financial assistance, they can prioritize companies that locate key production processes and supply chains within the European continent.
The European Commission Vice-President responsible for Prosperity and Industrial Strategy explicitly stated at a press conference that the core message of the Act is: "European taxpayers' money must first benefit European production and employment." He described this as a "shift in mindset that would have been unimaginable just months ago."
At the operational level, the Act sets clear localization thresholds for accessing public support. Examples include:
•Automotive Industry: For companies to benefit from state subsidies when procuring electric or hybrid vehicle fleets, 70% of components excluding batteries, at least three key battery components (including cells), and 25% of aluminum must be sourced from Europe. By 2030, localization requirements for batteries will be further tightened.
•Nuclear Energy Sector: To qualify for state aid in reactor manufacturing, the two most critical types of key components must be produced in Europe.
•Clean Technology and Heavy Industry: Production processes for sectors such as wind energy, heat pumps, electrolyzers, photovoltaics, energy storage systems, as well as hard-to-abate industries like steel, aluminum, and cement, must be located in Europe to receive public financial support.
III. Scope of Application: Stringent Exceptions and Impact on China
Although the Act champions "Made in Europe," it reserves exceptional space for some "trusted partners." According to the draft, approximately forty countries, including the UK, Canada, and Japan, may be granted treatment equivalent to member states, subject to meeting strict conditions.
However, for countries not covered by relevant agreements with the EU and viewed as strategic competitors, such as China, the intent of the new rules is clear. The Act aims to close loopholes preventing foreign investors from accessing subsidies by establishing factories in Europe without delivering tangible value. For example, in sensitive areas like batteries, electric vehicles, and photovoltaics, companies receiving EU public funds must commit to locating at least 50% of their employees in Europe, ensuring that economic benefits and technological accumulation genuinely take root locally.
Analysts suggest China may become the primary focus of this Act. It is anticipated that Beijing will attempt, through diplomatic and economic channels, to persuade the EU to adjust or relax restrictions. However, given the basic consensus formed within Europe, the negotiation process will be challenging. Regarding the United States, although the previous Trump administration explicitly opposed similar initiatives, the Act's substantive impact on the US is relatively limited, with focus remaining on the internal market and nearshoring.
IV. Deeper Significance: Settling Accounts with Globalization and the Arrival of the "Sovereignty" Era
The launch of the "Made in Europe" initiative represents not just a set of industrial policy tools, but a profound reflection by Europe on over three decades of excessive reliance on global supply chains and neglect of its industrial base. Member states like Germany, once staunch defenders of free trade, reversed their stance after experiencing monthly losses of tens of thousands of industrial jobs and the shock of key raw material supply disruptions last autumn, ceasing public opposition to this concept tinged with "preference."
The European Commission Vice-President concluded: "Without a strong industrial base, there is no European social model, no climate transition, and no strategic autonomy." This statement succinctly captures the ultimate goal of the Act: reshaping Europe's dominant position in global industrial chains while safeguarding employment and security.
Summary:
The introduction of the EU's Industrial Acceleration Act signals the advent of a stark reality: the era of idealistic "pure free trade" is gradually giving way to a pragmatist era centered on "security and sovereignty." For all international enterprises seeking to enter the European market, understanding and adapting to this new "Europe First" rulebook will be crucial for survival and development in Europe in the coming years. In the future, the EU will introduce more legislation aimed at strengthening "Made in Europe" in fields such as artificial intelligence, cloud computing, biotechnology, and defense procurement, forming a comprehensive legal framework for industrial sovereignty.
