Explainer-What is in the EU's buy-European law?

Explaining the EU’s Buy-European Law and Its Impact on Key Industries

By Kate Abnett and Philip Blenkinsop

Overview of the EU’s Buy-European Law Proposal

BRUSSELS, March 4 (Reuters) - The European Commission proposed rules on Wednesday requiring that when public money is spent on manufacturing or buying electric cars, wind turbines and other key technologies, a minimum share must be made in Europe.

Here is what you need to know.

Why Do It?

The law, called the "Industrial Accelerator Act", is part of broader EU efforts to help local industries compete with producers abroad who do not face Europe's strict regulations and higher energy prices.

In particular, it aims to avoid losing new green tech industries to China, which already dominates manufacturing of many such products, including producing more than 80% of solar panel parts worldwide.

The EU law aims to use the huge financial firepower of its member countries' public procurement - worth more than 2 trillion euros ($2.37 trillion) or 14% of EU economic output - to shore up struggling domestic industries.

What Will the Law Do?

The legal proposal, published by the Commission on Wednesday, would set EU-made content and low-carbon requirements for products bought through public procurement or receiving manufacturing subsidies.

The rules cover "strategic sectors", including batteries, solar and wind energy, hydrogen manufacturing, and nuclear power plants.

Requirements by Technology

It sets a specific requirement per technology, depending on whether the aim is to maintain an existing industry - like hydrogen electrolysers, where EU manufacturers currently lead the local market - or to pull back to Europe a small share of an industry which China dominates.

Solar Panels and Electric Vehicles

For example, for solar panels, the inverter plus the cells - or equivalent parts - would need to be Europe-made within three years. 

Makers of electric vehicles bought through public procurement would have to ensure their vehicles are assembled in the union, and that 70% of their components - excluding the battery - are Europe-made, six months after the law takes effect.

Aluminium and Steel

Aluminium bought through public procurement would need to be 25% Europe-made and low-carbon. Steel would not face Europe-made requirements, but would need to be 25% low-carbon.

Earlier drafts of the law, previously reported by Reuters, included an emissions label for steel to make lower-carbon products more visible - but that was scrapped after last-minute negotiations.

What is 'Europe'?

The fiercely debated law was delayed by months, as EU governments and officials wrangled over the details. A key point of contention was how to define made in Europe.

Under the proposal, goods from the 27 EU member states, plus Iceland, Liechtenstein, and Norway - which are part of the single market - are automatically counted.

On top of this, the EU will offer some foreign countries the same treatment, subject to certain conditions.

Eligibility for Foreign Countries

To be in with a chance of being included for EU public procurement, a country must be among the 21 non-EU signatories to the World Trade Organization's Government Procurement Agreement. For other types of public spending, the foreign country must have a trade agreement with the bloc.

The EU then plans to publish another law, to exclude any countries on this list that do not also guarantee equivalent access to EU companies in their domestic public procurement or relevant subsidies.

That could pose problems for countries like Canada, where a "buy Canadian" policy prioritises local firms over foreign ones.

Potential Exceptions

There are some potential exceptions, for example, if a product is only made by one company worldwide, or if switching to Europe-made would increase costs by 25% in public procurement or 20% in government auctions.

Conditions on Investments

The draft proposal would also set conditions for foreign investments in strategic sectors worth more than 100 million euros, where the investor is from a country that controls at least 40% of that sector's global manufacturing capacity - a threshold aimed squarely at China.

The criteria include the requirement that the foreign investor cannot hold a majority stake in an EU company, must employ mostly European workers, and must license its intellectual property to benefit the EU investment.

Next Steps

EU countries and the European Parliament must now negotiate and finalise the law - meaning further changes are likely, given the opposing views among governments.

Political and Industry Reactions

The plans have strong backing from France, which had sought stricter limits on which non-EU countries the law lets in.

Sweden and the Czech Republic have opposed strict rules, warning they could deter investment and raise prices. Germany has also struck a cautious tone, with Chancellor Friedrich Merz saying last month that European preference rules should be a "last resort" and include other trade partners.

Industries will also be lobbying hard for changes.

Industry Stakeholders

Some sectors that have been left out, including steel manufacturers, want in.

Others want out. Carmakers have opposed being included, concerned that their sprawling global supply chains could be upended. 

($1 = 0.8442 euros)

(Reporting by Kate Abnett; Editing by Kirsten Donovan)