24. 06. 2025
AUTHOR: Neil Makaroff and Tristan Beucler
Strategic Perspectives published an analysis of how the European Union could implement a European preference to support and secure its strategic industries, based on a legal assessment by Baldon Avocats.
European preference is necessary to support the EU’s strategic industries
European manufacturers of strategic technologies are struggling to consolidate their business case to produce in the EU. They face high energy prices, slow demand, complex value chains, and unfair international competition, especially from China, which exports its overcapacity to the Single Market and increases pressure on European manufacturers. The Clean Industrial Deal aims to address these challenges by establishing lead markets that increase the demand for EU-made net-zero technologies and products.
In a recent report, Strategic Perspectives analysed that lead markets need to rely on the combination of sustainability and European preference criteria. The latter could take the form of a minimum share of added value made in Europe for products receiving public support through consumer bonuses, auctions, or public procurement. Without European preference, lead markets run the risk of subsidising cheaper imports, failing to reinforce the EU’s economic security. The European Commission affirmed its willingness to introduce European preference in the form of local content criteria in the Clean Industrial Deal, and it is expected to feature in the Industrial Decarbonisation Accelerator Act.
Local content policies: debated at the WTO but already widely applied
However, there is an ongoing debate regarding these measures’ compatibility with World Trade Organisation (WTO) rules, even as the EU’s competitors are widely applying similar policies. While local content policies are generally not supported by the WTO, there are exceptions that can support their implementation for strategic industries, including:
- Specific rules for public procurement;
- Subsidies paid exclusively to domestic producers;
- “Public interest exceptions” under the GATT;
- And safeguard measures in case of a surge of imports from one external producer.
The data used for this map and subsequent analysis is from the GlobalTradeAlert database, accessed in June 2025. It lists the amount of local content policies implemented by the highlighted countries in relevant sectors, including production subsidies and public procurement access, from 2015 to 2025.
Among major economies, the EU has consistently led in respecting WTO rules and limiting the use of local content policies to support its strategic industries [1]. Indeed, other major economies are implementing local content policies more systematically, such as the United States (983 policies), India (315 policies), Brazil (131 policies), and Russia (112 policies). For instance, Indonesia offers a VAT reduction on EVs with a minimum local content of 40%, and India has announced a reduction in duties on EVs conditional on investments into the manufacturing process in the country. Similarly, the U.S., with its Inflation Reduction Act, implemented domestic content bonus credits for energy projects and tax credits for American-made EVs and other net-zero technologies. China is running local content policies which can be harder to identify: it discreetly set “buy Chinese” targets for its State companies, and launched the “Made in China 2025” strategy in 2015, focusing public support on local manufacturing for strategic technologies.
For an ambitious Industrial Decarbonisation Accelerator Act
The recent geopolitical shifts and the war in Ukraine raised awareness about the economic security concern of dependence on third countries for the manufacturing of strategic technologies and products. The Net Zero Industry Act and the Critical Raw Materials Act, with measures meant to increase resilience and limit dependence on a single country for strategic inputs, were a first step in securing European industry by introducing resilience criteria and objectives. With its Clean Industrial Deal, and more specifically the upcoming Industrial Decarbonisation Accelerator Act, the EU has the opportunity to extend its renewed focus on resilience and economic security by supporting its strategic net-zero industries with a significant increase in demand. European preference for lead markets can give more predictability and security to manufacturers and investors by creating lasting demand that scales up over time, reinforcing the business case to produce in the EU.
[1] A sector can be defined as strategic if it is key to Europe’s economic, energy, and military security and/or can be turned into a global competitive advantage.
