March 4. 2024. 8:48

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The ‘Buy European’ clauses in the Net-Zero Industry Act

According to a leaked draft proposal seen by EURACTIV, the European Commission’s Net-Zero Industry Act may include measures to deter foreign clean tech products, similar to the domestic content requirements of the US Inflation Reduction Act (IRA).

The Net-Zero Industry Act (NZIA) is expected to be presented next Tuesday (14 March) by the Commission. Its goal is to boost European production capacities for renewable energy technologies in response to the US IRA that subsidises the production and sale of US-produced electric vehicles and other technologies.

The European Commission and member state governments repeatedly called the US out for its use of domestic content requirements in the IRA as they are discriminatory and therefore incompatible with World Trade Organisation (WTO) trade law.

In the leaked draft proposal, however, the Commission seems to introduce clauses that have a similar effect – possibly calling into question the EU’s own commitment to WTO rules.

‘Buy European’ clauses in disguise

For public procurement, for example, the draft proposal states that a “tender’s contribution to the security of supply” had to be taken into account. And what does that mean?

Among other conditions, security of supply depends on “the proportion of the products originating in third countries”, according to the draft proposal.

This would mean that public authorities would have to take into consideration whether the net-zero technology they buy is produced in the EU or not, although they would still have quite some leeway in determining how much they want to weigh this criterion.

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“This clause looks like a convoluted way of doing a domestic content requirement,” Ignacio Arroniz, trade & climate researcher at the climate thinktank E3G, told EURACTIV.

In contrast with an outright domestic content requirement like the US version, Arroniz said, “we could call it a ‘not too foreign’ content requirement”.

WTO compatibility

David Kleimann, trade expert at the Brussels-based economics thinktank Bruegel agrees that “this would be a dangerous inroad into the land of domestic content requirements”.

“Although the provision states that it must be applied ‘in compliance with international law’, it does prescribe an EU content bias, to give preference to EU suppliers for supply security purposes.”

And this might put the Commission’s proposal in conflict with the WTO’s Government Procurement Agreement. While the agreement allows for technical specifications for environmental purposes, the notion of ‘security of supply’ is not protected by it, according to Kleimann.

“Introducing the ‘security of supply’ consideration in tender procedures may well result in discriminatory award of contracts,” Kleimann told EURACTIV.

Protectionism or diversification of suppliers?

According to Arroniz, “the political message is that our energy transition should not depend on third countries”.

“But this misses the point,” he added, arguing that a transition that is resilient against external shocks was not the same as being independent of others.

“On the contrary, the EU needs reliable partners more than ever,” he said.

The security of supply notion does not only appear in the draft proposal’s articles concerning public procurement and auctions, but also in the one related to member states’ subsidy schemes.

Subsidy schemes

It says that if member states or other public authorities want to set up subsidy schemes “that require the purchase of net-zero products”, they “shall aim” at reaching the same security of supply conditions as for public procurements.

This can be seen as a direct response to the US subsidy scheme to subsidise electric vehicles that were manufactured in the US.

However, Bruegel’s Kleimann notes that the article “includes much more aspirational soft legal language” and that it would “not translate into an enforceable legal obligation”.

“Whether enforceable or not, this is a very worrisome proposal from the Commission – if it forms part of the final proposal, that is,” he said.

Whether the disguised ‘Buy European’ clauses will be part of the proposal will become clear on 14 March when the European Commission will officially present it.

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