The Industrial Accelerator Act – Opportunities or Challenges?

The European Commission’s proposed Industrial Accelerator Act (the “IAA”) aims to promote the transition to a low-carbon economy, while strengthening the EU’s industrial base. If adopted in its current form, however, the IAA would mark a decisive change from industrial policy being a national matter. At the same time, it would add yet another regulatory layer for public procurements and transactions. Below is our commentary on what the proposal could mean for future deal planning and investments in emerging strategic sectors.

The Backdrop

Geopolitical tensions and the weaponisation of the EU’s dependencies by third countries threaten the EU’s security, competitiveness, and economic resilience. That is one of the conclusions from Mario Draghi’s report on European Competitiveness. The transition to a clean and digital economy presents both major challenges and opportunities.

The Commission’s goal is to focus on the latter, and namely to strengthen the EU’s industrial base while reducing strategic dependencies. Accelerating the necessary investment and production in key sectors is an essential part of this strategy, and the Commission aims to safeguard technological leadership and industrial capacity while creating long-term economic stability.

The Proposal

The Commission’s goal with the IAA is to facilitate industrial investments in strategic sectors and accelerate decarbonisation. The benchmark is simple – increase the EU’s GDP share from manufacturing to 20% by 2035. Currently standing at 14.3%, this is a high bar.

To achieve this goal, the IAA seeks to stimulate demand for European low-carbon industrial products and clean technologies. One way the IAA aims to do this is by requiring certain public procurements to include a proportion of low-carbon and/or “Made in EU” products. Further, minimum thresholds for low-carbon and/or “Made in EU” products are set as a condition for eligibility for certain types of public support schemes. As a result, the Commission hopes to create lead markets for products such as green steel, low-carbon cement, aluminium, automotive components, batteries, solar photovoltaics, and wind technologies.

The IAA also seeks to streamline permitting procedures for industrial manufacturing and decarbonisation projects. Key measures include the establishment of single access points for project developers, digitalised “one-project-one-submission” procedures, and clearer decision-making timelines.

Moreover, the IAA proposes introducing a sector-specific Foreign Direct Investment (“FDI”) regime for certain emerging strategic sectors. The new FDI regime is envisioned to operate in parallel to the existing EU FDI Regulation, focusing on economic impact from major investments on the Single Market, rather than on addressing national security risks.

The regime is proposed to apply to FDI exceeding EUR 100 million in the sectors batteries, electric vehicles, solar photovoltaics and critical raw materials, where more than 40% of the global manufacturing capacity in the relevant sector is held by the third country of which the foreign investor is a national or undertaking. Such investments would need to be notified on national level to the appropriate supervisory authority.

For approval, investments would be required to meet a “value added” criterion, meaning that they must fulfil at least four of six conditions set out in the IAA, including a mandatory condition that at least 50% of the employed workforce consists of EU workers. The remaining conditions are a 49% cap on foreign ownership, the investment is to be carried out through joint ventures with Union entities, intellectual property rights and know-how are transferred into the EU, the allocation of at least 1% of gross annual revenue to research and development activities in the Union, and the foreign investor will prioritise sourcing from within the Union, including an endeavour to source at least 30% of inputs used in manufacturing from the EU.

The aim of the FDI regime is to ensure that investments in these sectors, which are particularly strategic for the EU, strengthen the EU’s industrial competitiveness and strategic autonomy. It should be noted that the new FDI regime expressly excludes certain investments from its scope, including those targeted at providing services and investments covered by economic partnerships and free trade agreements.

The Concerns

The Commission expects the IAA to create “substantial value” and “tens of thousands” of “high-quality jobs”, while safeguarding existing jobs within the steel, aluminium and cement industries as the sectors transition to cleaner production. While the ambitions are honourable, the IAA risks imposing a clear cost for dealmakers. It is no overstatement to conclude that deal planning in the EU is already complex.

As regards public procurements, the IAA would entail new obligations that require action both from the national authorities and the involved parties. To avoid challenges to tenders and the risk of awards being set aside, a strong understanding of the applicable regulatory framework will be required. For bidders, the IAA may result in more complex tender procedures, introducing additional documentation and verification requirements.

With regard to the additional FDI framework, investors in multi-jurisdictional transactions involving the EU must already navigate a multitude of legal frameworks, including e.g., national FDI regimes, national and/or EU merger control regimes, as well as the EU Foreign Subsidies Regulation. The IAA would add a further regulatory dimension for FDI in certain strategic sectors, requiring such investments to contribute to the Commission’s goals on industrialisation and competitiveness.

If adopted in its current form, the IAA would mark a decisive change from the fundamental distribution of powers in the EU when it comes to industrial policy, which has historically always been a national matter. (One cannot help but wonder if the discussion on creating European Champions will re-emerge.)

The Takeaways

On the one hand, the IAA could stimulate investments in the “key European industries” as appointed by the Commission’s and increase demand for low-carbon and “Made in EU” products. This could showcase the EU as a more attractive market for industrial and green projects.

On the other hand, the IAA proposes introducing additional regulatory requirements that will undoubtedly make deal-planning involving EU jurisdictions more complex and time-consuming. Public procurements would see heightened requirements on origin, supply chains, and low-carbon thresholds, whereas FDI into the emerging strategic sectors would face an additional screening mechanism. The IAA would thereby add to the already substantial list of mandatory and suspensory legal hoops for investors to navigate and require additional planning to ensure full compliance.

The proposal will now pass through the legislative process with the European Parliament and the Council of the European Union. Further discussions and potential modifications can be expected.

Setterwalls’ experts are closely monitoring the developments and would be happy to advise on how the IAA proposal may come to affect your business.