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The Industrial Accelerator Act (IAA) by the European Commission aims to strengthen the resilience and competitiveness of European industry and lower emissions. That is basically the right approach. However, the IAA falls short of its own expectations because the draft pursues multiple objectives and contains imprecise instruments. The Kiel Institute for the World Economy shows that some of these instruments could also reduce Europe's competitiveness.
The European Commission introduced the Industrial Accelerator Act (IAA) in early March. It aims to strengthen European industry and introduces an ambitious goal: By 2035, the share of manufacturing of the European Union’s (EU) economic output (GDP) should rise to 20 percent. To achieve this, the European Commission wants to introduce new requirements for foreign direct investment in strategically important sectors. Companies in public procurement and financial support schemes will be required to use more materials sourced from within the EU.
An analysis by the Industrial Policy Lab (IP Lab) (https://www.kielinstitut.de/publications/ambition-without-precision-why-the-indu...) at the Kiel Institute for the World Economy finds that the IAA draft is ambitious but has weaknesses. “What’s missing is a consistently future-oriented perspective,” says Finn Ole Semrau (https://www.kielinstitut.de/experts/finn-ole-semrau/) from the study’s author team. “If Europe wants to strengthen competitiveness and geopolitical agency, strategic industrial policy must focus on those technologies critical for future productivity growth, technological sovereignty, and new value creation. Which areas should be prioritized must be decided on the basis of clear and transparent criteria.”
One key point of criticism concerns industries that are considered strategically important. These sectors include energy-intensive industries, the automotive sector, and net-zero technologies, among others. However, operational measures also target products such as steel, aluminum, cement, mortar, vehicles, and battery components.
Target for 2035 is not economically meaningful
The study’s authors are particularly critical of the 20 percent GDP target for manufacturing. They argue that other sectors, such as high-value services, could just as easily create new jobs and boost competitiveness. The authors therefore doubt that the target is economically meaningful and recommend scrapping it. “This would also allow politicians to prevent a loss of trust among voters if it turns out in a few years that the target has not been met”, says Semrau.
The IAA is intended to achieve several objectives simultaneously, including greater competitiveness, reduced geopolitical vulnerability, and lower CO2 emissions. However, these objectives are in part at odds with one another. “The core problem is not that the instruments are not tailored to specific objectives and sometimes contradict one another,” explains Semrau. If industrial policy relies too heavily on localization, it can increase costs, fragment value chains, and hinder access to international markets. While this would strengthen Europe’s geopolitical independence, it would harm competitiveness.
“Made in Europe” with side effects
The IAA also includes Local Content Requirements (LCRs), tying public procurement and funding to specific conditions. Depending on the product and instrument, there are requirements for low-emission production or for EU origin or origin from equivalent partner countries. The LCRs intend to keep value creation within the EU, but it can also increase costs, hinder innovation, create bureaucratic hurdles, and upset trade partners.
“The stricter such localization requirements are, the greater the risk of retaliatory measures and legal conflicts in international trade,” says Semrau. The Kiel Institute therefore recommends pursuing a pragmatic understanding of “Made in Europe.” The EU should include reliable third countries with established trade agreements and push for the ratification of such agreements.
China’s response will be decisive
For investments in batteries, electric vehicles, solar technologies, and critical raw materials, the European Commission plans to introduce stricter rules for foreign direct investments exceeding 100 million euros. Companies from countries that control more than 40 percent of global production capacity in the respective sector would only be allowed to invest with government approval. They would also have to meet additional requirements designed to encourage technology transfer.
“This regulation is clearly aimed at China,” says Semrau. The researchers fear that the rules could simply redirect Chinese investment, without achieving the desired technology transfer or reducing dependencies. The researchers therefore call for the development of clear criteria to determine when investment restrictions are truly required for geopolitical reasons—and when they do more harm than good to European competitiveness.
More on the Industrial Accelerator Act:
At the upcoming Global China Conversations on March 26, online from 11 a.m. to 12 p.m., study author Finn Ole Semrau will discuss with Alexander Hoeckle, Head of the Foreign Trade & Customs Division at the BGA, how the EU can reshape its economic relations with China in strategic sectors. Register now for the discussion (in German) (https://www.kielinstitut.de/events/global-china-conversations/registration-for-g...).
The Industrial Policy Lab (IP Lab) at the Kiel Institute for the World Economy conducts research on industrial policy and provides policy advice. The IP Lab currently develops a model to assess the costs, benefits, and trade-offs of industrial policy and is monitoring ongoing measures. In this way, the center contributes to a science-based debate on the role of industrial policy.
Read IP Lab Policy Brief now: Ambition without precision why the industrial accelerator act falls short/https://www.kielinstitut.de/publications/ambition-without-precision-why-the-indu...
Media Contact:
Elisabeth Radke
Head of Outreach
T +49 431 8814-598
elisabeth.radke@kielinstitut.de
Kiel Institute for the World Economy
Kiel Office
Kiellinie 66
24105 Kiel
Germany
Berlin Office
Chausseestraße 111
10115 Berlin
Germany
Contact
+49 431 8814-1
www.kielinstitut.de
Dr. Finn Ole Semrau
Industrial Policy Lab (IP Lab)
T +49 431 8814-646
finnole.semrau@kielinstitut.de
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