The EU’s Industrial Accelerator Act Puts Pedal to the Metal

The draft EU Industrial Accelerator Act (IAA) is the EU’s main proposed legislative vehicle for strengthening the bloc’s industrial capacity in line with the 2025 Clean Industrial Deal. Presented by the European Commission on March 4, 2026, it introduces four key measures: streamlined and faster permitting; “Made in EU” procurement preferences; new foreign direct investment (FDI) conditions for strategic sectors; and member-state designated fast-tracked “Industrial Acceleration Areas”. The Act targets energy-intensive industries, electric vehicles, and net-zero technologies, and carries direct implications for US firms and transatlantic relations.

The IAA marks a clear shift in the bloc’s industrial policy from decades of open, nondiscriminatory procurement toward a more strategic use of demand to support EU innovation, production, and jobs. The proposal does not break with the EU’s open‑economy model, but it does recast it around resilience and security, foreshadowing harder choices ahead as Europe seeks to reconcile industrial autonomy, climate goals, and competitiveness with its international partnerships. 

The proposal is now entering a period of intense negotiation. Both the Council of the EU (the grouping of the 27 EU governments) and the European Parliament are expected to put forward several amendments. The Act will have significant consequences for certain industrial imported goods and FDI, including from the United States.

What does the IAA propose, and what gap or challenge do the measures address?

What rules apply for public procurement, government support schemes, and auctions? 

Why is the EU proposing the IAA now?  

The IAA responds to three converging structural pressures on the EU’s industrial base.

Energy costs 

Energy-intensive industries such as steel, cement, and aluminum face persistently higher energy costs in Europe than competitors in the United States and Asia. EU wholesale gas and electricity prices spiked following Russia’s invasion of Ukraine in 2022 and, despite having eased since, have settled structurally above pre-crisis averages. They are now subject to renewed volatility in 2026. This squeezes margins, discourages investment, and weighs on employment and competitiveness.

Chinese industrial overcapacity 

Chinese firms, supported by long-running state industrial programs, have built production capacity far exceeding what China’s domestic market can absorb. Surplus steel, electric vehicles, batteries, and solar panels are increasingly exported at very low prices, making it harder for EU producers to compete. This deepens EU exposure to new dependencies at a strategically sensitive moment.

The shift towards more assertive industrial policy elsewhere 

The broader context is a global turn towards using tariffs and procurement rules as tools of economic growth. The Biden administration’s Inflation Reduction Act tied eligibility for clean-energy tax credits to domestic content requirements, raising European concerns that European manufacturing could be diverted to the United States to benefit from US-local incentives. For example, the Build America, Buy America act, strengthened by US President Joe Biden through executive order, will increase US-made content requirements to 75% by 2029 for federally funded infrastructure. The second Trump administration has maintained this orientation, reinforcing tariffs and trade defensiveness without reversing its predecessor’s procurement rules. 

Taken together, these developments have reinforced a perception in Brussels that the EU can no longer rely solely on open markets to secure growth and competition, especially while other major economies deploy increasingly aggressive industrial policy tools. These global trends have strengthened the political case for deploying similar instruments at EU level to support European industrial production. 

Why is the IAA contested?

The proposal has exposed political fault lines within the EU between those member states that have large industrial bases and those that are primarily end consumers of these products and now face higher costs. 

Public procurement in the EU has been open to foreign products and firms. Specifically, it has been anchored in WTO Government Procurement Agreement (GPA) commitments and the world's largest network of trade agreements covering 38 countries. This openness was deliberate: Internal procurement rules were kept nondiscriminatory to protect the integrity of the Single Market across 27 member states (even if, in practice, public procurement still shows home-country and geographical bias). This approach also reflected the belief that open procurement would allow governments to access lower prices and superior innovation from across the Union.

Now, the IAA’s simultaneous origin and low-carbon preferences for procurement and other rules for strategic sectors have opened a sharp political divide: 

• France and Commissioner Stéphane Séjourné argue that the EU must actively prioritize EU-based production, mirroring US and Chinese industrial policy. 
• Trade-liberal member states (including the Nordics and Central European countries) favor a “Made with EU” approach, warning that strict local content rules will raise costs, deter investment, add bureaucracy and invite retaliation—and that they undermine the open multilateral trading system the EU has long championed. 

After significant internal debate, the Commission's proposal treats products from countries with EU trade agreements—including Japan, South Korea, Türkiye, and the United Kingdom—as eligible for public contracts and subsidies, provided their home countries offer EU origin products equivalent access in return. The Act also allows the Commission to exclude third countries when reliance on them could create strategic dependencies or threaten the EU’s security of supply. It does not explicitly address transshipment, raising questions about this and other potential technical vulnerabilities or loopholes. 

This outcome disappointed France, which had pushed for a strict EU-only definition. But extending eligibility to FTA and GPA partners may serve the IAA's primary competitive objective: concentrating pressure on Chinese suppliers rather than allies. The Commission also retains the power to narrow third-country access by delegated act if reciprocity conditions are not met.

Complex implementation: Even those member states that are broadly supportive of the IAA’s objectives have raised implementation concerns. Contracting authorities, particularly at the municipal level, may struggle to absorb higher tender prices and new compliance obligations, especially in member states with more constrained fiscal space. There is also a distributional concern: local content rules tend to favor already-industrialized member states and dominant incumbents over smaller economies and faster-transitioning regions.

The proposed text reflects these pressures and the limits of what was politically achievable. It shows notable concessions, including dropping EU-origin requirements for steel entirely (the United States, by contrast, requires 100% American-made steel for federal projects); lowering the cost-gap exemption from 30% to 25%; and excluding some high-tech sectors (AI, semiconductors, quantum) from scope.

What does the IAA intend for US-EU economic relations and for US firms?

There are several moving parts in play. 

US products do not necessarily meet the “Union origin” equivalence test. As a WTO GPA signatory, the United States retains baseline eligibility for accessing certain procurement procedures under the IAA. But in its current form, the IAA grants such advantages only to countries offering EU companies comparable market access, a reciprocity test that current US law makes difficult to satisfy. The Commission can also designate third countries as equivalent to EU origin through delegated acts based on a reciprocity test, but that status is conditional and revocable.

Like many major economies, the US market has high local-content thresholds for certain industrial goods. (China similarly gives preference to domestic suppliers.) In the United States, domestic content thresholds for federal procurement will rise from 60% in 2022 to 75% by 2029. Both the Biden and Trump administrations reinforced these rules. Trump's January 2025 executive memorandum instructed the US Trade Representative to review all trade agreements, including the GPA, to ensure that they favor US manufacturers. 

FDI from the United States faces new constraints. US companies are Europe's largest foreign direct investor (€4 trillion), and the transatlantic economic relationship is more deeply anchored in investment than trade. The IAA’s provisions on FDI primarily target Chinese investors, but it applies on a sectoral rather than on a country basis. 

Under the proposal, non-EU investments of at least €100 million in strategic sectors would be subject to review requirements and potentially binding conditions, including joint venture mandates, technology and IP sharing obligations, and minimum EU workforce thresholds. The European Commission also retains the power to expand the list of strategic sectors covered by FDI screening requirements over time.

The Commission’s ability to assess the ultimate beneficial owner of an investing company has raised concern within the US business community—not on principle, but because added discretion and ownership scrutiny could be a source of uncertainty for investment decisions. Firms are also questioning whether the IAA’s investment provisions duplicate the European Commission’s new FDI screening regime announced in December 2025, as well as existing national frameworks, given that investment policy remains largely a member‑state competence. 

US companies have cautioned that, without greater clarity on scope and interaction with existing EU instruments, new investment screening and local content requirements could together chill investment by firms with global supply chains that are otherwise deeply embedded in the Single Market.

In parallel, the new FDI rules are generating friction between the Commission’s Directorate–General for Trade (DG TRADE), which is responsible for FDI, and the Directorate-General for Internal Market, Industry, Entrepreneurship and SMEs (DG GROW), over the extent to which industrial policy instruments should be used to shape foreign investment outcomes. The FDI provisions are also likely to prove contentious among member states that rely heavily on foreign inbound investment.

How is the IAA linked to the wider “Buy American” vs “Made in EU” debate? 

The IAA does not apply directly to defense procurement and weapons systems. However, it sits within a broader shift in EU policy toward strengthening domestic industrial capacity—an approach particularly evident in the defense sector as Europe responds to a more contested security environment. 

Forthcoming initiatives, including the next Defense Procurement Directive, alongside instruments such as Security Action for Europe (SAFE) and the European Defense Investment Program (EDIP), reflect a growing European effort to ensure that increased defense spending also reinforces Europe’s own industrial base. From an American perspective, however, elements of this agenda—such as caps on third-country participation, tighter intellectual property and design control requirements, and conditions attached to financing and support programs—directly threaten US commercial and strategic interests in Europe. 

US officials have warned that overly restrictive procurement rules could undermine NATO cohesion by weakening longstanding transatlantic industrial integration. They argue that US defense companies are not external suppliers but deeply embedded contributors to European security, operating within a framework of existing reciprocal defense procurement agreements with 19 EU member states. While Washington broadly supports higher European defense spending and greater burden-sharing, it maintains that procurement decisions should remain capability-driven rather than nationality-based. The implicit threat is that exclusionary EU policies could erode US political will to underwrite European security.

From the EU’s perspective, these measures are about resilience rather than exclusion. European officials further point out that the United States has long used domestic-preference tools in defense and industrial policy. Against that backdrop, Brussels argues that anchoring rearmament spending in Europe’s own industrial base is a logical response to heightened geopolitical risk after decades of underinvestment, not a rejection of transatlantic cooperation. The objective, in this telling, is to secure supply and sustain production capacity in crisis conditions while remaining open to cooperation with trusted partners where this strengthens European security.

The tension is structural: The EU aims to use the rearmament moment to build strategic industrial autonomy, and the United States wants to remain an indispensable and commercially competitive partner in that process. The IAA is not a defense instrument, but it reflects the same underlying political logic now shaping debates over defense procurement and economic security.

How does the IAA fit into existing EU policy architecture? 

The IAA attempts to more coherently and deeply reconcile the bloc’s climate targets and its competitiveness strategy, with a stated goal of ensuring that manufacturing accounts for at least 20% of EU’s GDP by 2035. The proposal, which was originally titled the “Industrial Decarbonization Accelerator Act”, is intended to cap the European Commission’s current industrial policy framework, consolidating and, in some cases, extending existing initiatives. 

What’s next? 

The IAA must be jointly agreed by the Council of the EU and the European Parliament before entering into force, a process that typically takes many months and during which key provisions may shift as amendments are tabled. Once enacted, the regulation applies automatically across all EU member states. The following dates are current targets.

• Mid–2027: EV local content rules take effect, with stricter criteria from ~2030.
• January 1, 2029: Low-carbon procurement and funding quotas for steel, cement, and aluminum begin.
• Upon enactment: FDI conditions and permitting reforms apply immediately.

The views expressed herein are those solely of the author(s). GMF as an institution does not take positions.