March 5. 2024. 2:20

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Buy European Act: An effective response to the US Inflation Reduction Act?

The latest EU Council meeting saw the first steps taken towards a European Green Deal Industrial Plan, and discussions are underway on an as-yet-loosely-defined “Buy European Act”. However, not all are welcoming of this new form of green protectionism.

Months before the European Commission conceived of the new Green Deal Industrial Plan, Emmanuel Macron had voiced support for a “Buy European Act”, which would, in its purest form, create a preference for European companies when bidding for public tenders.

“Europe cannot be the only place where there is no ‘Buy European Act’,” he said at the time – in reference to the “Buy American Act”, which has been in place in the US since 1933.

Conversations over a “Buy European Act” are not new, but the current context gives it renewed visibility, with increasing attention on what the contours of such an act would look like.

On 1 February, European Commission President Ursula von der Leyen launched a European Green Industrial Plan meant to mitigate the most harmful effects of the Inflation Reduction Act (IRA) – a $430 billion US investment plan providing subsidies to green industries such as manufacturers of batteries for electric cars and solar panels.

The IRA also contains new “local content” rules, which in practice make the granting of US state aid and tax credits conditional on an obligation to relocate part of the production on American soil. Such stipulations are ultimately a breach of World Trade Organisation (WTO) rules – a matter only partly addressed by the Commission.

The Brief — Buy European!

Europe is discussing green industrial policy – and once more, new subsidies and new EU debt are on the agenda. But EU countries already heavily subsidise wind parks, solar panels and electric cars with billions – so what is going wrong?

The need for a “European preference”

While the Green Deal Industrial Plan was broadly endorsed by EU leaders at the European Council on 9-10 February, some argue that the Commission must take it a step further, and develop a “European preference” agenda – “green protectionism”, as Jacques Fernique, a green senator from France, dubbed it.

Must Europe review its public procurement rules in an effort to favour European firms explicitly? Or, shall the Commission respond to the US’s “local content” rules with its own, even if it would ultimately distance itself from the WTO?

Today, public tenders in Europe are open to all companies, be they European or third-country. The tender then goes to the best bidder – that is, the one that costs the least, all the while meeting a certain number of environmental and social criteria, defined in relevant EU legislation.

“Environmental and social criteria for public tendering ought to be made more stringent, and public bodies across the EU should be able to set a preference for European firms whenever possible,” Fernique told EURACTIV.

The view is shared by Stéphanie Yon-Courtin, a leading EU lawmaker on the matter for the centrist Renew group, who said that “when European funds are invested, we should ‘buy European’ as a priority” in response to questions from EURACTIV.

Meanwhile, a motion for a resolution in the European Parliament, to be discussed by the members of Parliament on Wednesday (15 February), backs a “Made in Europe” strategy, from which all member states would benefit equally.

While the details are not fleshed out, the intention is to support efforts to prioritise European firms, in a way that does not lead to competition distortions among member states.

“The Union’s response to innovation support schemes put in place by third countries should be effective, proportionate, targeted […] and protect the foundations of the Union’s internal market,” the resolution reads.

LEAK: Commission details subsidy-matching scheme for green industry

Just days after the Commission presented its new Green Deal Industrial Plan to counter foreign subsidies for clean industry, a leaked communication details the full extent of the temporary bending of state aid rules across the bloc, including a rule to prevent a German go-alone.

‘Against the Commission’s DNA’

However, a dedicated ‘European preference’ strategy is not to everyone’s taste.

“It goes against the Commission’s DNA,” Michel Petite, an associate at Clifford Chance law firm and former director-general of the European Commission’s legal service, told EURACTIV.

According to him, Europe already has an adequate legal toolbox to deal with distortions of competition with third countries, notably the United States and China.

The International Procurement Instrument (IPI), for example, aims to restrict access to European public procurement markets for third-country companies when European companies do not benefit from the same level of access in these third countries. France welcomed the adoption of this reciprocity clause in 2022.

A new foreign subsidies regulation (FSR) was also introduced on 12 January, setting an obligation for companies to notify any financial contribution from a third country’s state actor from which they might benefit, provided that the contribution is at least €50 million, or that the company’s turnover is €500 million.

The adoption of more intense protectionist measures, either through public procurement or through local content provisions, would thus send a “signal that goes against the balanced approach of the Commission and the fight against regional isolationism”, Petite said.

A similar view was expressed by Sébastien Jean, professor of industrial economics at the Conservatoire national des arts et métiers (CNAM), who believes the issue of public procurement and “local content” clauses is irrelevant.

“The Commission will not go down that road because it is in clear breach of its WTO commitments,” he said.

Instead, he suggested making greater use of existing tools, such as ‘countervailing measures’, which apply to any product from a third country that has benefited from an unfair subsidy. The countervailing duty aims to correct the effects of such artificial imbalance.

Even the French Secretary of State for Europe, Laurence Boone, refuses to talk of protectionism, preferring instead a “Made in Europe strategy” and “mirror clauses” designed to “protect the health and environment” of Europeans.

The debate is therefore open, and EU leaders plan to revisit it at a meeting of the European Council in late March. The aim is to strengthen Europe’s strategic autonomy and achieve net zero emissions by 2050 while avoiding distortion of competition between member states.

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