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Europe’s Strategic Sectors: Open for Business — Terms and Conditions Apply
Europe’s Strategic Sectors: Open for Business — Terms and Conditions Apply
4 March 2026
Series
Blogs
4 March 2026
Authors: Christoph Barth, Elisha Kemp, Stephanie Coleman
The EU’s draft Industrial Accelerator Act marks a fundamental shift in how Europe will manage foreign investment in its most critical industries. Targeting investors from countries that control more than 40% of global manufacturing capacity in strategic sectors, the Act would impose stringent conditions and limits on large-scale investments in batteries, solar, electric vehicles, and other net-zero technologies—accounting for around 15% of EU Manufacturing production. The Act sets an ambitious industrialisation target: that EU manufacturing should account for at least 20% of GDP by 2035, reversing a two-decade decline.
This proposal comes off the back of increased concerns about the EU’s dependency on the US and China following what Mario Draghi and some EU leaders have described as a breakdown of the global order. The Act attempts to address this dependency by ensuring that an influx of foreign capital also comes with technology transfer, local R&D, EU jobs, and domestic supply chains.
Beyond FDI restrictions (which we cover in the remainder of this post), the Act introduces a broader “Made with Europe” framework that conditions access to EU public procurement and public support on reciprocity. Around 40 countries with free trade agreements or WTO Government Procurement Agreement membership are treated as European by default for procurement purposes. However, the Commission retains the power to exclude countries from this list if they do not reciprocate by treating European products and services equivalently. In practice, both the US and China would currently be excluded given their respective limits on EU content. This reciprocity mechanism effectively uses access to the Single Market—covering around 7-8% of EU GDP—as leverage in trade disputes, signalling that EU protectionism is being deployed not to advantage EU companies per se, but to enforce free trade and globalisation. For an overview of the other aspects of the Act, see our blog post here.
The EU faces what the Draghi report describes as an “existential threat” to its competitiveness and economic security. According to the EC, the EU’s share of manufacturing in total GDP has declined from 17.4% in 2000 to 14.3% in 2024, while critical dependencies have deepened—particularly on China, which controls over 80% of battery and solar manufacturing capacity. Key sectors are in crisis: automotive profitability has fallen from 7.4% in 2017 to 5% in 2023, energy-intensive industries face unsustainably low-capacity utilisation, and according to the Draghi report, over 10% of local automotive production may disappear in the next five years.
The EC has taken some steps to implement Draghi’s recommendations, announcing its ambitions in the Competitiveness Compass, introducing the Clean Industrial Deal, and proposing a range of reforms to EU competition law. However, only 10% of Draghi’s recommendations have been implemented over a year after the report was published, giving rise to criticisms. Concerns about Europe’s strategic vulnerability have since escalated amid increased geopolitical tensions, with Draghi commenting earlier this month that “Europe risks becoming subordinated, divided, and deindustrialised”, if it does not turn itself into a “genuine federation” as the global order is “now defunct”.
The Act aims to help alleviate these concerns by enabling the creation of genuine EU champions, capable of competing against China and the US by ensuring that foreign investment doesn't just bring an influx of capital, but also know-how, the creation of quality jobs, and integration into EU value chains. The Act targets investors controlled by countries holding over 40% of global manufacturing capacity in certain strategic sectors.
The Act would impose additional FDI restrictions on Greenfield and Brownfield investments into emerging strategic sectors where investment thresholds are met.
Investment conditions would apply to a foreign investor “of a third country who does not hold the nationality of a Member State or an undertaking of a third country” where that country holds over 40% of global manufacturing capacity in the sector concerned.
While no country is singled out, China would be the most affected in practice, given its dominant position across several of these supply chains. This threshold narrows the scope of the Act considerably, focusing the regime on addressing dependencies arising from concentrated global production, rather than all foreign investment.
The Act imposes FDI requirements on four emerging strategic sectors: (i) battery technologies and its value chain for battery energy storage systems; (ii) pure electric vehicles, off-vehicle charging hybrid electric vehicles and fuel-cell electric vehicles, including components related to electrification and digitalisation; (iii) solar PV technologies; and (iv) extraction, processing and recycling of critical raw materials. Notably, the Commission would have the power to extend these requirements by delegated act to additional sectors critical to the EU’s economic security, including a range of other net-zero technologies listed in the Net Zero Industry Act (such as wind, heat pumps, hydrogen electrolysers, and nuclear fuel cycle technologies), as well as electric propulsion technologies—though digital technologies, AI, quantum, and semiconductors are explicitly excluded.
The Act captures investments in emerging strategic sectors exceeding EUR 100 million where the investor acquires or establishes control of an EU target or asset. “Control” is triggered at 30% or more of share capital, voting rights, or ownership. When assessing control, interests held directly or indirectly, including through affiliates, chains of ownership, or by foreign investors acting in concert, will be aggregated. The Act also introduces a tiered review mechanism based on investment size. For investments of EUR 1 billion or more, the Commission has the ability, on its own initiative, to directly conduct the review. For investments below EUR 1 billion but above the EUR 100 million threshold, the Commission will advise national Investment Authorities, which retain decision-making responsibility, but the Commission can claim responsibility in case of a material Union-impact or upon request by a Member State regulator. Importantly, the Act also empowers Investment Authorities to apply some or all of the conditions to investments made within the EU by a foreign investor’s subsidiary (i.e., an EU-established entity controlled by a foreign investor), where this is essential to prevent circumvention and no less restrictive alternative measures are available.
For the purposes of determining whether the EUR 100 million investment value threshold is reached, only previous investments by the same foreign investor in the same EU target or asset made from the date of entry into force will be aggregated.
The Act carves out three categories from its scope: (i) investors and investments covered by economic partnership and free trade agreements in force or provisionally applied by the Union, to the extent relevant commitments have been made (including investments made by EU subsidiaries of such investors); (ii) investments targeted at providing services (including by EU subsidiaries); and (iii) portfolio investments, defined as acquisitions of company securities intended purely for financial investment without any intention to influence management or control.
When the thresholds are triggered, the Act proposes that at least four of the six conditions must be met—but one of them (the EU workforce requirement, Condition 5 below) is mandatory in all cases. In practice, this means investors must satisfy Condition 5 plus any three of the remaining five conditions to allow investment in emerging strategic sectors in the EU:
Foreign investors cannot acquire, hold or exercise ownership interests representing more than 49% of the EU company or asset, precluding majority ownership or outright acquisitions in emerging strategic sectors.
Investments must be structured as a joint venture with EU partners, and foreign investors can only hold up to 49% of the joint venture. This condition represents a significant departure from traditional FDI models. While it aims to ensure genuine partnership rather than nominal EU involvement, it may deter investors seeking full operational control.
Investors must license their intellectual property and share their know-how with the EU company. Additionally, any IP developed by the EU company prior to the foreign investment or collaboration with the foreign investor is fully and exclusively owned by the EU company, while IP developed through collaboration or by the joint venture is jointly owned.
Investors must commit to spending at least 1% of their share in the gross annual revenue generated by the EU target or asset on research and development within the EU.
This seeks to anchor innovation within Europe rather than treating the EU as a manufacturing base.
At least 50% of the workforce across all levels (operational, technical, supervisory and managerial) must be EU workers, both when the investment is implemented and continuously throughout its operation. Where an existing EU target or asset performing manufacturing activities is acquired—including after bankruptcy—maintaining or re-employing the existing workforce must be prioritised. Notably, if the foreign investor, EU target or EU asset receives public funding, it must commit not to decrease the number of EU workers for five years, on pain of recovery of the funding by the relevant national authorities.
The 50% threshold applies to all workforce categories, including management—preventing scenarios where foreign investors establish EU operations staffed predominantly by expatriates. This aims to benefit local labour markets but may constrain investors’ abilities to deploy specialised personnel or transfer corporate culture.
A strategy for enhancing Union value chains must be published on the foreign investor’s website and the sourcing of inputs for manufacturing from within the Union must be prioritised. Products placed on the EU market by the investment must have endeavoured to source from within the EU at least 30% of inputs.
The endeavour to incorporate at least 30% of EU inputs has softened from previous draft iterations of the Act which made this a mandatory requirement. For sectors with concentrated non-EU supply chains—particularly batteries and solar PV—a requirement could have presented significant operational challenges, which is perhaps why this has been changed to an endeavour.
Penalties for non-compliance are significant: Investment Authorities must impose penalty payments of at least 5% of the foreign investor’s average daily aggregate turnover (or 5% of the investment value for individual investors) for failure to notify. The Commission can also impose penalties of up to 5% of average daily turnover where investors provide false or misleading information or fail to supply required information during a Commission-led review.
The proposal to introduce another layer of foreign investment screening, when it first leaked, was met with some surprise, given agreement was only reached on a revised EU FDI Screening Regulation in December last year and a final version of that Regulation is expected early this year.
The Act expressly states that it applies ‘notwithstanding’ the FDI Screening Regulation, as well as the Foreign Subsidies Regulation and the EU Merger Regulation. In practice, this means that qualifying investors in emerging strategic sectors will face two parallel regimes: security-focused FDI screening under the FDI Screening Regulation, and the Act’s value-added conditions focused on local economic contribution, technology transfer and supply chain integration. Crucially, investments cannot be implemented unless explicitly approved by the relevant Investment Authority or the Commission—a standstill obligation that operates independently of any FDI screening timeline.
As a proposal, the draft must go through the full EU legislative process, including stakeholder consultation, and European Parliament and Council scrutiny, before formal EC adoption. Given the broad scope of the proposal, we anticipate discussions within the European Parliament as to which Parliamentary Committee should take the lead on the file which can slow down the initial pace of discussions. At the Council, the Cypriot presidency currently intends to present a first draft of the Council position before the summer. Stakeholders should expect an extended consultation period and for some of the more contentious topics to be revisited by the European Parliament and Council during the legislative procedure, before the Act’s final adoption. Investment Authorities—which must be designated in each Member State a month after the Act comes into force, must begin applying the value-added conditions (approving only investments that fulfil at least four out of the six conditions) 12 months after entry into force. However, unless Member States designate the national FDI authority as the responsible investment authority, this would mean two sets of decision-makers with potentially divergent outcomes in terms of depth of review, timing and ultimate outcome.